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Lords Express Concerns Over UK GAAR

by Robert Lee, Tax-News.com, London

18 March 2013


A group of UK lawmakers have called for the scope of the Government's flagship General Anti-Abuse Rule (GAAR) to be reviewed after five years, warning that that public perception of its likely impact needs to be corrected.

The Government has made clear that it intends for the UK's GAAR to have a comparatively narrow application, targeting artificial and abusive tax avoidance. It is thought that a "broad spectrum" GAAR would not be beneficial for the UK. The scheme was included in the Finance Bill 2013, and has been reviewed by a specially convened House of Lords Sub-Committee.

A majority of the witnesses called before the Committee supported the concept of a narrow focus. However, none thought that the arrangements entered into by multinational groups would be affected by the GAAR. According to the Committee report: "There was widespread agreement that the rules for taxing multinational groups and allocating tax bases to different jurisdictions needed revision." It was nonetheless acknowledged that the UK could not "go it alone," and that a multinational approach would be preferable.

The consequences of a unilateral approach could be "retaliation, double taxation and harm to the UK's competitive position." The Committee wants to see a review of Organization of Economic Co-operation and Development (OECD) rules, in order to "bring them up to date with the working of the global economy and to align them more closely with the underlying economic substance of commercial and financial transactions."

Those who gave evidence to the Committee noted that it was commonly assumed that the GAAR ought to be the mechanism for dealing with the tax planning activities of multinationals. The Committee was nevertheless "fully persuaded that the GAAR will not apply to issues involving the taxation of multinational groups," and has warned that "every effort should be made to communicate, particularly to the press and the public, why the GAAR is not an appropriate mechanism to address all problems with the tax system." The GAAR does not provide the answer to the taxation of multinational groups, and this needs to be made clear, the report stresses.

In turn, the Committee recommends that GAAR should be independently reviewed after five years, to ensure that it is working properly and having the appropriate deterrent effect. This review should be built into the legislation or should at the least be guaranteed in a ministerial commitment.

Lord MacGregor, Chairman of the House of Lords Economic Affairs Sub-Committee on the Finance Bill, said: "There is a misconception that GAAR will mean the likes of Starbucks and Amazon will be slapped with massive tax bills. This is wrong and the Government need to explain that to the public. GAAR is narrowly defined and will only impact on the most abusive of tax avoidance. While this is the right approach for now it is important that the policy is reviewed in five years to ensure it has met its objectives. It is also important that government continues to work with other countries on corporate tax issues especially as regards multinationals. We recommend that the review of OECD rules be accelerated."

TAGS: Finance | tax | investment | tax avoidance | law | United Kingdom | multinationals | legislation | tax planning

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