Proposed General Anti-Avoidance Rules ‘GAAR’
The Aaronson Committee has been appointed to propose further legislation aimed at reducing the options for tax planning, and on 21st November 2011 the committee published its report, which includes draft GAAR legislation.
The first point of interest to note is the timescale indicated in the report, the committee specifically stating:
“The Government will discuss the implications of the proposed rule with business and tax groups and respond fully at Budget 2012, setting out its plans for further, formal public consultation, if appropriate.”
This means that nothing resulting from the work of the committee will appear on the statute books before April 2013, at the earliest.
In terms of what is likely to eventually make it to statute, the committee states:
‘1.5 I have concluded that introducing a broad spectrum general anti-avoidance rule would not be beneficial for the UK tax system. This would carry a real risk of undermining the ability of business and individuals to carry out sensible and responsible tax planning. Such tax planning is an entirely appropriate response to the complexities of a tax system such as the UK’s.’
In contrast therefore, the committee is working towards a ‘narrow spectrum’ type of GAAR, which is both oxymoronic, and an approach that confirms Aaronsons’ original published view towards GAAR. Much comfort can be gained from recognising the tooth-less nature of any legislation which has at its inception a recognition that ‘tax planning is an entirely appropriate response to the complexities of a tax system such as the UK’s’. (authors italics).
Within the draft legislation, in order to have cause for complaint HMRC has to prove that something is ‘abnormal tax planning’. This is further defined in the draft as:
‘4. (1) An arrangement does not achieve an abusive tax result if it can reasonably be regarded as a reasonable exercise of choices of conduct afforded by the provisions of the Acts.’
The Remuneration Trust structures which we typically arrange most certainly fall outside of draft section 4(1). They are statute based, have been known to HMRC for 20 years, and are choices of conduct afforded by the provisions of the acts. They have been ‘reasonably regarded as reasonable’ for over 20 years.
At no point in the report is any retrospective implementation of any new legislation recommended; which would in any case be practically impossible to implement as well as harmful to business.
So, does any of the proposed legislation lead to any concern around implementing an RT based trust structure for tax planning purposes? On the contrary, the report is encouraging, both in terms of endorsing the legality of this approach, and in suggesting that the best time to take advantage of this type of strategy is before any further legislation reaches the statute books.
Author Dickon Walker, based upon an original article by P. Baxendale Walker