The Aaronson Report on GAAR

gaar-300x180I was at a conference hosted by Pump Court Tax Chambers at the end of last week.  Graham Aaronson QC was supposed to speak about his GAAR report, but as its publication had been delayed, his speech was somewhat truncated.  He did stress that his interest in this project had been prompted by two matters: first, the plethora of poorly drafted, but highly prescriptive, legislation, which offered aggressive tax planners the opportunity for what most impartial observers would regard as being wholly artificial and unacceptable tax avoidance schemes; and secondly, the manoeuvrings of the Tax Tribunal and the Higher Courts to produce Judge-devised ways to counter such schemes, which resulted in the law being applied in an inconsistent and even capricious manner.  With that as a starting point, any initiative that might be a catalyst to the production of better legislation and better Court judgements must be a good thing.

However, it pains me to say that my view is that this initiative is a waste of time, effort and money.  The report indicates that a “moderate” rule aimed at “abusive” arrangements would be a good thing.  Good for whom, I wonder.  I can certainly see that it will be good for lawyers on both sides of the tax-avoidance divide, but I fail to see how it will provide simplification or certainty.  It seems to me that nothing will be simplified and no uncertainty will be eliminated; indeed, it would seem to make the distinction between abusive and non-abusive tax planning arrangements even harder to recognise than is currently the case.

Rather than adding another layer of complexity and subjectivity to an area that is already highly complex and, in some regards, almost unintelligible, what the Government ought to be doing is radically simplifying the UK’s tax system and ensuring that the law that is drafted vis-à-vis fiscal matters is fit for purpose.  The truth of the matter is that whilst HMRC abhor the “loopholes” that poor drafting creates, at the same time they enjoy the benefit of pitfalls that seem to be woven into the taxing legislation deliberately to catch and tax the ill-informed.  Both these issues are opposite sides of the same coin.

The matter should, I believe, be viewed in the context of recent developments.  The Government/HMRC seem to believe that, in the tax avoidance battle, it is the tax avoiders who have the upper hand, and that the weapons already at HMRC’s disposal are somehow insufficient.  If that is their belief, then they must wish for almost dictatorial powers.  Not only does existing tax legislation have, apparently, some 300 existing “targeted” anti-avoidance rules, but it should be remembered that the whole tax planning landscape was altered dramatically by the 2004 Finance Act, which introduced the so-called DOTAS rules regarding the early disclosure to HMRC of tax avoidance schemes.  Add to that HMRC’s information gathering and inspection powers as introduced by the 2008 Finance Act and augmented and increased to by subsequent Finance Acts, and it leaves most practitioners as believing that HMRC have an armoury at their disposal of irresistible power.  As such, the need for a General Anti-avoidance (or Anti-abuse) Rule is difficult, for me, to discern.

So no, I do not welcome Mr Aaronson’s proposals regarding a GAAR, although I suppose I should be grateful for the small mercy that it does not propose to give yet further swingeing anti-avoidance powers to HMRC.  I would loudly applaud a genuine effort to reform the UK’s over-complex tax system, particularly if that were coupled with a commitment to produce clear and comprehensible legislation in this area.  I fear I might grow very old before that happens.

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