The GAAR and the taxing of democracy: expert comment

The current ‘informal engagement’ to explore whether there is a case for the GAAR may very well result in no action and this would be a relief for many in the tax community. But before dismissing the idea, it is worth considering what the alternatives might be and whether a carefully crafted GAAR resulting from thorough consultation and with appropriate safeguards might not be preferable. The tax world has changed since 1997. The tax community should engage fully in the GAAR debate which might give it an opportunity for considerable input – an improvement on sitting back and waiting for case law and piecemeal legislation.

Research Highlight 2012

GAAR as a process and the process of discussing a GAAR

As a member of the Aaronson Study Group which was asked by the Exchequer Secretary, David Gauke, to conduct a study that would consider a General Anti-Avoidance Rule (GAAR), Judith Freedman, who has been working on these issues for almost 10 years, continued her work on the GAAR during 2011-12, advising on Graham Aaronson’s report which was delivered in November 2011. Following this, In February 2012 the Centre organised a major conference on the topic, “A GAAR for the UK? Building on overseas experience”, with participation from all the members of the Aaronson Committee, key officials from HMRC and HMT, many distinguished overseas speakers and a large number of participants from academia, business and tax practice.

In his 2012 Budget speech the Chancellor announced that the Government intended to proceed with a GAAR based on the Aaronson report. A consultation document was published containing the government’s own proposals on 12th June 2012. Judith Freedman has continued to discuss these issues, both in the UK and abroad, giving a number of public lectures and seminars as well as holding smaller meetings with government officials and with other groups, with a view to a better understanding of the problems and issues and learning from best practice in other jurisdictions.

In a comment in the Tax Journal in June 2012 Judith Freedman argued that a GAAR is not simply a response to recent journalistic activity. The judiciary has made it clear that it is unwilling to develop a coherent anti-avoidance principle through case law, preferring to rely on statutory interpretation. As a result, not only is the law now uncertain, but an environment has been created where, despite all the provisions about disclosure and the many complex and specific anti-avoidance provisions, some still see highly artificial tax avoidance schemes as worth trying. This does not benefit legitimate business, which needs to know where it stands and to have a level playing field. The proposals on the table for a GAAR seek to create a coherent overriding principle, together with adequate safeguards for the taxpayer. Revised draft clauses are now anticipated in preparation for the Finance Bill 2013. The Centre will continue to engage with these developments.

Judith Freedman