CommitteeReports Revenue Law Committee
The Revenue Law Committee continues to focus on commenting on tax matters relevant to the work and clients of City firms, in particular, responding to HMRC and HM Treasury consultations.
In January, members of the Committee met with HMRC to discuss the draft GAAR (General Anti-Abuse Regime) legislation and Guidance. This was followed by the Committee submitting a detailed submission making a number of specific drafting points on the draft legislation and general comments on the
Guidance.The legislation and the Guidance need to describe more clearly the boundaries between what is reasonable and unreasonable tax planning. Some of the more significant points made include the following:
On the draft GAAR legislation:
1. As a general point, it would be helpful to include a clearer general policy statement for the GAAR in the legislation emphasising that it is aimed at “egregious” arrangements.
2. The ‘double reasonableness test’, which is a key component of the proposed rule, refers to ‘tax provisions’. It is felt that more clarity is needed here – will the GAAR only apply to enacted legislation and statutory instruments or will it extend to other published materials such as established statements of practice (on the basis that they have been in existence for so long that they may be viewed as tantamount to legislation in practical terms)? This could be addressed in the Guidance.
3. The proposed statutory indications of when arrangements may be
considered to be abusive do not sit naturally for all the taxes covered by the GAAR including, notably SDLT (Stamp Duty Land Tax) and inheritance tax because they refer to concepts such as income, profits or gains and deductions / losses etc.
4. It is stipulated that a Tribunal or Court must take into account the Advisory Panel ruling and that the Tribunal or Court may take into account, amongst other things, guidance in the public domain. It is suggested that the two paragraphs should have the same emphasis: that the Tribunal or Court should be allowed to consider (and if appropriate, ignore) the Advisory Panel opinion. The FTT (First Tier-Tribunal) and the Courts are (usually) capable of determining for itself what evidence is relevant or not in any given fact finding task.
5. We have concern over proposed “public domain” test. Finding all “public” HMRC materials can be a challenge particularly if to be assessed at the time of the transaction. HMRC are likely to have more detailed knowledge generally than taxpayers and some taxpayers may be aware of HMRC’s position on something because they have specifically previously cleared it with HMRC. There is also a general concern that HMRC release information to certain select groups in advance of the information becoming more generally public.
6. The 14 day time limit for taxpayers to respond is clearly too short and therefore unfair and a more realistic timetable should be stipulated. The Advisory Panel procedure should also be subject to time limits (even if indicative only).
7. There is real concern if HMRC and indeed the Advisory Panel are not time bound in any way. It is considered that the existing rules which allow taxpayers to effectively force HMRC’s hands are not adequate when applied to the GAAR because of the uncertainty created and the fact that some taxpayers may be looking for a ruling from the Advisory Panel before deciding how to file their own tax returns.
4 • City Solicitor • Issue 81
8. We suggest including a provision which expressly provides that a taxpayer may choose to sidestep the Advisory Panel and instead put its case, including on the application of the GAAR, to a Tribunal or Court in the ordinary way.
9. We strongly consider that the legislation should provide generally for all opinions (majority and any minority) of the Advisory Panel to be published (anonymised as appropriate) and only the Advisory Panel should be able to rule against publication on confidentiality grounds. If this was expressly legislated for, it could supersede HMRC’s existing duties of confidentiality and so concerns that those might otherwise be breached would fall away.
In relation to the draft GAAR Guidance
1. It is considered important for the Guidance to state more clearly that it is aimed at “egregious” schemes only and that the whole tone of the Guidance should more clearly reflect this.
2. In terms of the examples given in the Guidance, it is felt that they:
• lacked sufficient analysis to be truly helpful when applied to other scenarios, especially where apparently similar situations lead to different conclusions;
• in consequence, do not allow taxpayers and their advisers to extrapolate how the GAAR may apply to their own facts and therefore the examples combined with the rest of the Guidance are not sufficient enough to ease concerns about lack of certainty;
• are too far in the ‘9s and 10s’ on the scale of abusiveness, or obviously low on the scale and that more examples were needed closer to the “middle ground” (ie structures that we would acknowledge involve an element of planning but which are every day/common transactions and structures). Some of the examples at the bottom end of the scale would be better excluded as they provide no assistance in drawing the line where the GAAR does or does not apply;
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