Progress Towards a Legislative General Anti-Avoidance
Having mooted the introduction of a legislative general
anti-avoidance rule (or "GAAR") earlier this year, HM Treasury
has announced a "study programme," briefed to report by 31
October 2011, to consider that possibility. The study will be
led by a leading independent tax barrister, Graham Aaronson
The terms of reference for the study programme (available
here) request consideration of the possible scope and
design of a GAAR capable of providing the government with an
effective means of deterring and countering "tax avoidance,"
whilst ensuring that the rule works "fairly."
It is expressly acknowledged that, after the study group
has reported, further consultation would then be needed before
a GAAR could be legislated. Clearly, we are still some time
away from the introduction of a GAAR, if that is to ever
happen, although the inclusion of a GAAR in Finance Bill 2012
still appears to be possible, if unlikely from a timing
perspective at least.
The announcement is an interesting
development, echoing, to an extent perhaps, the recent
codification of the economic substance doctrine in the US,
and the outcome is unpredictable.
Firstly, the terms of reference of the working group are
surprisingly brief, with no guidance as to the kinds of "tax
avoidance" activity which are to be "deterred and countered."
Given the fierce debate amongst the tax community as to what
is and isn't "acceptable" tax avoidance in recent years, this
is surprising. The interpretation of the term "tax avoidance"
clearly has political overtones, so to leave it to the study
group to determine the kinds of activity which are to be
"deterred and countered" appears a questionable decision. Will
the group be given further private guidance by the government
on this point?
Secondly, Graham Aaronson was at one time Chairman of the
Tax Law Review Committee which published papers
concerning tax avoidance and the possibility of a GAAR back in
the 1990s. The conclusion of the Committee at that time was in
general terms that a legislative GAAR was preferable to the
uncertainties created by the development of judicial
anti-avoidance principles of the Ramsay and
Furniss kind. However, the group nevertheless opposed
the particular terms of a legislative GAAR which were proposed
back in 1998.
Given the significant refinement of the UK's judicial
anti-avoidance principles since that time, with in particular
the new purposive approach expounded in the BMBF
decision of the House of Lords, perhaps Mr. Aaronson could now
be expected to consider rejecting the need for a legislative
GAAR. It is also notable that the reports of the Committee
back in the 90s stressed the necessity of a properly
funded clearance procedure should a GAAR be introduced. In
these straitened times such funding seems unlikely – the terms
of reference refer to resource costs for HMRC being kept to an
"acceptable level" - and so therefore, perhaps, does the
introduction of a GAAR.
On the other hand, having been appointed to consider a
GAAR, it would be bold of the study group to fail to provide a
recommend form of GAAR in some form. If none is suggested then
the legislature would appear likely, in the short term at
least, to be denied the opportunity of considering one. If the
group did suggest a form of GAAR, the legislature would then
at least be able to consider it, and the group could not then
be accused of having obstructed the democratic process in some
For this latter reason, it does seem likely that a proposal
for a form of GAAR will result from the current process. If a
form of GAAR is proposed, then that in itself could be
expected to create further political momentum for its
implementation in due course.