UK Tax: General Anti-Abuse Rule: Government Publishes Draft GAAR Legislation For Consultation

Sullivan & Cromwell LLP - 16 July 2012

HM Revenue & Customs have published a consultation paper and accompanying draft legislation on a general anti-abuse rule.

HMRC have adopted many of the recommendations made by Graham Aaronson QC in his report into a draft UK GAAR. In particular:

  • the draft GAAR would not be intended to target what Mr Aaronson called the “centre ground of reasonable tax planning”;
  • there would be no clearance procedure; and
  • HMRC would have to consult an advisory panel before making an assessment under the GAAR.

On the other hand, HMRC’s draft GAAR:

  • would apply to more taxes than he envisaged; and
  • does not offer the same safeguards to taxpayers.

Moreover, taxpayers would be required to apply the GAAR when filing their tax returns under self-assessment and would be liable to penalties if they failed to do so.

The GAAR would catch arrangements entered into on or after 1 April 2013, but not arrangements which were “fully completed” by 1 April 2013. The position of arrangements entered into before that date but not yet fully completed is up for discussion. Taxpayers should have an eye to its effects on transactions they are considering now.