What are the HMRC General Anti-abuse Rules (GAAR)
Introduced in the Finance Act 2013, the General Anti-abuse rules substantially augment HMRC’s powers to counteract tax advantages arising from tax arrangements that are abusive.’ GAAR designed to specifically target loopholes in the law which had been allowing tax avoidance. The burden of proof to substantiate any claims of ‘abusive arrangements’ lies with HMRC.
The legislation offers a crucial difference to what’s preceded it in that HMRC does not have to make recourse to the Courts to impose penalties for certain tax avoidance schemes, but can rather cite the GAAR rules.
What Does ‘Abusive’ Mean in These Circumstances?
Abusive tax arrangements are those which: ‘the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances…’
What do the General Anti-abuse Rules classify as ‘tax arrangements’?
HMRC decree arrangements to be where ‘it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.’
What taxes do the General Anti-abuse Rules apply to?
- Income Tax
- Corporation Tax (including amounts chargeable or treated as Corporation Tax)
- Capital Gains Tax
- Inheritance Tax
- Petroleum Revenue Tax
- Stamp Duty Land Tax
- Annual Tax on Enveloped Dwellings
The GAAR Advisory Panel
Established by the Commissioners for HMRC, the GAAR Advisory Panel is a committee designed to ensure that HMRC may not issue any notice to counteract tax advantages unless the Advisory Panel has agreed it. The panel has no remit over any tax arrangements beyond GAAR, with their overall responsibility being to monitor and review the guidance on GAAR, and deliver opinions on specific cases referred by HMRC. It’s essentially a safeguard to ensure HMRC don’t try to use GAAR for cases beyond its remit.
The ‘double reasonableness test’ in the General Anti-abuse Rules
The draft GAAR legislation proposed by the government made it clear that GAAR would apply to avoidance schemes unless the judge himself regarded the arrangements as not only a ‘reasonable course of action’ but also where, though he did not himself take that view, he nonetheless considered that such a view might reasonably be held. This safeguard has come to be known as the ‘double reasonableness test’.
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