SNR ON GAAR
21 Nov, 2011
Law firm SNR Denton comments on study into General Anti-Avoidance Rule (GAAR)
HM Treasury has published the outcome of its study into the feasibility of a General Anti-Avoidance Rule (GAAR) in the UK.
Commenting on outcome, Jeremy Cape, Tax Partner at SNR Denton (pictured) said: “Graham Aaronson QC’s report is a thoughtful, considered and commercial proposal. If his recommendations are accepted by the government, it will also mark a paradigm shift in the ability of taxpayers successfully to arrange their affairs to minimise tax.
“It appears that the GAAR principle will sit above existing targeted anti-avoidance rules, and there will be limited scope for repeal of existing targeted anti-avoidance rules. So, for example, the controlled foreign company, offshore funds and transfer pricing rules will probably remain alongside the new GAAR, despite some apparent overlap. Whilst this is because the GAAR and the targeted anti-avoidance rules are fulfilling different functions, it would be a shame if there were not some accompanying repeal of certain existing rules.
“The inclusion of the location of assets or transactions or the place of residence of person as possible indicators of an “abnormal” arrangement suggests that current arrangements involving so-called tax havens may come under attack. The “transaction at a value significantly different from market value” test may, in certain cases, require taxpayers to consider transfer pricing principles in non-connected party transactions.
“Although the illustrative draft GAAR legislation is well written, the absence of a clearance procedure under which HMRC would confirm that arrangements would not be attacked under the GAAR is likely to prove controversial.
“It is to be hoped that the GAAR will not dissuade non-UK enterprises from establishing themselves here. If, by eliminating “the need for a battery of specific anti-avoidance sub-rules”, it results in a less complex tax system (or even a tax system that will not become more complex) then it should not dissuade them.”