The Treasury published this morning a report from Graham Aaronson QC on the subject of a General Anti-Avoidance Rule. Aaronson was asked by the Government in November 2010 to look into this.
His report, which the Government took 10 days to make public, sets out the views of Aaronson and his team on this question. It is a long report, 77 pages, but my initial thoughts are that it reaches a sensible conclusion. I may well Blog further as I read and digest the report in detail but here are some further initial thoughts.
Aaronson is most clear in his conclusion that:
a broad spectrum general anti- avoidance rule would not be beneficial for the UK tax system
as it risked undermining the ability of taxpayers to carry out
sensible and responsible tax planning
which he sees as entirely appropriate.
Instead, he goes on to recommend a much narrower, focused GAAR which is targeted at abusive arrangements. He lists a number of benefits of such a rule and it is interesting to note that these benefits are not simply an increase in tax revenues. he believes that there will be increased certainty around responsible tax planning and a more level playing field.
This is a very thorough report and not only does it recommend the introduction of such a GAAR but it also includes suggested drafting and Guidance Note. Essentially, the rule, as drafted by Aaronson, is targeted at arrangements which seek to achieve an “abusive tax result”. He proposes several factors which indicate the presence of an abusive tax result. One factor which is most reassuring is that Aaronson recognises the need to ensure any such rule is not itself abused. He recommends, for example, that the onus of proof be on HMRC to show that a transaction or arrangement is within the GAAR.
Aaronson’s proposals include a series of “safeguards” (such as the onus of proof being on HMRC) designed to ensure confidence in the fairness of the rule. If the Government takes this forward and does introduce a GAAR, it is very much to be hoped that these safeguards are not watered down.
Finally, for the moment, in commenting on the benefits of his proposed GAAR, Aaronson makes the following comment on the existing UK tax legislation:
The UK’s tax legislation is notoriously long and complex. In many places it is virtually impenetrable.
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