GAAR's arrival signals 'long period of uncertainty' for firms
Businesses and their advisers face a “long period of uncertainty” while the General Anti-Abuse Rule matures, tax specialists are warning.
Introduced into law by Finance Bill 2013, which received Royal Assent yesterday, the GAAR catches “abusive” tax planning or arrangements that fail to pass the ‘double reasonableness’ test – those that “cannot reasonably be regarded as a reasonable course of action.”
The test dictates a regard for all the circumstances, including the principles (implied or stated) on which the legislation was based and whether the taxpayer’s planning or arrangements were intended to exploit any shortcomings in the GAAR’s provisions.
As a result, the message to individual taxpayers tempted, for example, by schemes that promise more in tax refunds than the original investment is clearly to refrain, says the Chartered Institute of Taxation.
But the GAAR’s message to businesses is “more nuanced”, warns CIOT’s president Stephen Coleclough, because while “abusive” tax planning won’t work, the complexity of business transactions and existing law will combine to produce “an element of uncertainty.”
“Businesses and their advisers will need to assess whether planning is reasonable in the context of the legislation and their commercial position,” he said. “Tax agents will need to start considering whether the GAAR applies when they complete a client’s self-assessment return.
“[And while] the GAAR guidance makes it clear that much commonplace planning will be unaffected, which is helpful for many taxpayers and advisers alike...there is likely to be a long period of uncertainty whilst the GAAR matures.”
The institute says the GAAR guidance should help define what is (and what is not) acceptable and, similarly, the GAAR Advisory Panel is expected to keep helping firms and their accountants understand where the rule applies (and where it does not).
But the CIOT will be issuing its own guidance to ensure tax practitioners have “appropriate processes” in place. Mr Coleclough pointed to one such situation to explain why the rule’s guidance and panel will not suffice.
“Where a client has entered into a particular transaction, often on the advice of another party, it will be necessary to consider whether the GAAR applies. Sometimes specialist help will be required to help determine this.”
He believes that, ultimately, the success of the rule will be judged on two elements - whether the marketing of abusive schemes is reduced and, secondly, whether far fewer taxpayers choose to enter into them. The tax expert added: “A sustained review of the GAAR’s effectiveness will be crucial.”
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