RESPONSE TO HMRC CONSULTATION DOCUMENT: A General Anti-Abuse
Rule
1.
INTRODUCTION
1.1
The AAT is pleased to comment on the issues raised in the HMRC
consultation document “A General Anti-Abuse Rule” (the condoc)”.
1.2
We have over 50,000 full and fellow members and 68,200 student and
affiliate members worldwide. Of the full and fellow members, there are
approximately 3,650 Members in Practice (MiP) who provide accountancy
and taxation services to individuals, not-for-profit organisations and the full
range of business types.
1.3
The AAT is a registered charity whose objectives are to advance public
education and promote the study of the practice, theory and techniques of
accountancy and the prevention of crime and promotion of the sound
administration of the law.
1.4
In pursuance of those objectives the AAT provides a membership body. We
are participating in this consultation as part of our contribution towards the
public benefit of achieving sound and effective administration of taxes.
2.
GENERAL
2.1
We always endeavour to consult our membership as appropriate when
gathering feedback in order to respond to public consultations that we
consider relevant for us to comment upon. Recognising the significance of the
proposals contained within the condoc we have, therefore, engaged with key
elements of our membership to ensure that our response reflects the wider
view of our internal stakeholders.
2.2
A typical MiP is engaged by their clients to provide practical, cost effective,
day-to-day tax compliance services. These members play a valuable role in
relieving their clients’ businesses of the burden of an ever more complex tax
system and in ensuring that their clients pay the right amount of tax at the
right time.
2.3
It should be noted that, whilst the activity of abusive and aggressive tax
planning is something which our membership would not generally engage in,
the whole area of aggressive and abusive tax avoidance is one of such
significance to the wellbeing of the United Kingdom as a whole, and to those
engaged in making the UK tax system work that we feel it is incumbent upon
us as an organisation to respond to the condoc.
3.
OBJECTIVES OF THE LEGISLATION
3.1
We note that the consultation outlines HMRC’s proposal to introduce a
general anti-abuse rule (GAAR) targeted at artificial and abuse tax avoidance.
4.
AAT Position
4.1
Whilst AAT remains to be convinced that there is a need for a GAAR we are
keen to support the Government in its wish to tackle abusive arrangements in
a targeted approach as outlined in 2.1-2.4 of the condoc.
4.2
Given our comment above that our membership is unlikely to engage in the
design or provision of abusive tax avoidance schemes. As a consequence
there will not be many, if any, instances where the introduction of a GAAR will
directly impact on AAT members.
4.3
We support the comment made at 2.5 of the condoc “The GAAR will be one
strand…to tackling avoidance.” It is vital that that this fact is communicated
to, and understood by, the wider taxpaying community.
4.4
Furthermore, whilst one of the stated aims of the introduction of a GAAR is
simplification, it needs to be understood and communicated accordingly that
there will certainly be times when Government will still need to legislate
against “schemes” that are not within the scope of the GAAR, but which are
not considered desirable.
4.5
AAT strongly agrees with the entirety of 2.9 of the condoc. In particular we
cannot see that the introduction of a GAAR would lead to any reduction in the
number of TAARs (Targeted Anti-Avoidance Rules) in the short to mediumterm. If anything we foresee another layer of statutory complexity being
introduced into the administration of UK taxation through the proposed
referral of schemes considered to be aggressive or abusive to the Advisory
Panel (the Panel), especially in the early period post a GAAR introduction.
5.
CONSULTATION QUESTIONS
“Do you agree that the GAAR should be limited to these taxes and duties
initially? Are there any particular issues relating to how the GAAR would
function in relation to the taxes (including NICs) that are proposed to be
included?”
5.1
Generally, those that we consulted agreed that the taxes suggested within the
consultation document were those that were suitable to be covered. It was
also acknowledged that National Insurance (NICs) will require separate
legislation. Furthermore, accepting this fact, AAT would want to be involved
in any subsequent consultation covering NICs.
“Do you agree that the GAAR should be capable of countering UK tax
advantages obtained under double taxation agreements?”
5.2a
We recognise that the Government might like to exert primacy of the GAAR
over double taxation agreements, however, the issue of double taxation
agreements could impact on foreign inward investment and this is a subject
that we don’t consider we have sufficient information on in order to be able to
comment.
5.2b
However, taking this into account, instinctively it was felt that a GAAR should
apply to UK tax advantages obtained under such agreements.
“Do you agree that: (1) the proposed “main purpose” rule serves as a useful
filter, when coupled with the concept that arrangements must also be
“abusive”;
5.3a
Provided that the test is undertaken in the way described in the consultation
document, and that each test is treated as a gateway to the next, the rules
should be a useful filter.
5.3b
It was felt when considering this particular question that a tax advantage
could almost always be construed even where there was a bona fide
commercial reason for entering into an arrangement. To avoid such an
occurrence we would recommend a stronger emphasis on “abusive”
arrangements with the primary motivation of aggressive tax avoidance.
“and (2) a specific exclusion for arrangements without tax intent is not
required? If you think a specific exclusion is required, please explain why”
5.3c
From an “avoidance of doubt” perspective and in the interest of clear
legislation we can only see significant merit in including a specific reference to
the exclusion for arrangements without tax intent.
“Do you agree that the proposed “double reasonableness” test operates as
intended to counteract only artificial and abusive schemes (such as those
described in Annex B)?”
5.4a
Whilst the inclusion of this test as a safeguard is commendable, AAT has a
concern that this aspect represents a weak point of the legislation, our view is
that it leaves great uncertainty as to how it assists in addressing the most
egregious of tax avoidance schemes.
5.4b
AAT has concerns over the usage of the term “significantly” in clause 2(4) (a),
(b) & (d) on page 14. Our concern is based around the challenge of being
able to define whether something is significant in a non-subjective way?
5.4c.
In an attempt at answering this particular question we are responding to its
spirit i.e. by reference to an arrangement being “abusive” and not by
considering the additional word “artificial”. We respectfully point out that most
elements of taxation legislation give rise to artificiality.
“Do you agree that the counteraction provision in the draft GAAR is
appropriate?”
We consider counteraction on a “just and reasonable basis” to be entirely
appropriate. It is presumed the employment of this basis will be by reference
to the underlying statute(s).
5.5
The Government is continuing to develop its analysis regarding the appeals
process in relation to counteraction and consequential adjustments under the
GAAR, and welcomes view which may inform detailed proposals to be
published later in the year.”
5.6
We foresee that a recurring theme in the future will be a debate over what is
just and reasonable. Especially in the early years of the GAAR when there
will be a complete lack of prior cases. To help minimise the subjectivity of
“just and reasonable” we recommend that HMRC works with the leading
accountancy and taxation bodies, who engage with HMRC on a regular basis
through their involvement in the Joint Steering Group, the Agent Engagement
Group and the Working Together Steering Group.
“The Government would welcome views on these commencement options,
how transitional arrangements should be dealt with, and whether there should
be different rules for different taxes where appropriate.”
We agree, only in part, with 3.38 of the condoc – our position is as below:
5.7
1. All arrangements that commenced prior to the 2011 Autumn Statement
should be allowed to stand, including those that are not capable of completion
until after the 31 March 2013.
2. Arrangements commenced post the 2011 Autumn Statement should fall
under the new GAAR regime.
“The Government welcomes views on clause 5(1) of the draft GAAR.”
5.8
We support clause 5(1); it is entirely appropriate for the onus to be on HMRC
to have to demonstrate that the key requirements for the GAAR to apply have
been met, and that counteraction is both just and reasonable.
“Do you agree that it is appropriate for particular weight to be given in the
legislation to the GAAR guidance and the opinion(s) of the Advisory Panel on
the arrangements?”
5.9a
AAT believes strongly that particular weight should be given to GAAR
guidance, particularly in the early years of the Advisory Panel when there will
be a complete absence, to start with, of opinions to give historical context.
5.9b
AAT recognises that, whilst guidance cannot be a substitute for well drafted
legislation, it could play an extremely helpful role at the outset when there will
be a complete absence of reference points that can only come into being in
the longer term, for example as a result of the outcome of a Tribunal Hearing.
5.9c
At this stage we would like to reiterate our earlier recommendation (5.6), that
HMRC should work with the leading professional accountancy and taxation
bodies to create and publish draft guidance.
“The Government welcomes comments on whether particular issues arise in
relation to Self Assessment (where the relevant taxes operate within a Self
Assessment regime) or within the existing administrative rules for those taxes
that do not operate within the Self Assessment regime.”
5.10a In our view there are two distinct and separate aspects to the above question.
i.
In the earlier years, as previously observed, other than guidance issued
with the GAAR there will be little contextual information and an absence of
Advisory Panel or Tribunal decisions to enable the taxpayers to form their
opinions.
ii. In the medium to longer-term the vacuum of information will be replaced
with a buildup of expert opinion, Advisory Panel and Tribunal decisions.
5.10b Our concern rests with 5.10a.i above, in that the absence of information
reduces the room for a taxpayer to have complete confidence (certainty) that
a reported transaction entered into for bona fide commercial reasons (in their
eyes) will not be open to challenge at a later date.
5.10c This absence of confidence further undermines one of the fundaments of the
Self Assessment tax regime, which is that a taxpayer should be entitled to
certainty after filing their return.
5.10d AAT recognises that in general the type of taxpayer who needs to consider
the implications of a GAAR is likely to have advisers and, as a consequence,
the issue set out in 5.10b & 5.10c is only likely to affect a very small number
of the UK taxpaying population. Furthermore, with the passage of time and
the build up of opinion, the affected population will diminish further.
The Government invites comments on the general proposal that the GAAR
should as far as possible operate within existing administrative rules for the
taxes involved; and on what adaptations may be necessary to existing
administrative rules to ensure that the GAAR operates with as little as possible
additional administration cost and burden for taxpayers, advisers and HMRC.
Is there a case for having a new type of assessment given the cross-regime
range of the GAAR?
5.11a AAT strongly believes that any GAAR arising as a consequence of the current
consultation should, where possible, operate within the existing legislative
framework. Such a course of action is the only way that the administrative
burden and, therefore, costs to UK plc can be kept to a minimum.
5.11b Without the benefit of hindsight it is hard for us to comment upon adaptations
that might prove necessary in the future. However, it is acknowledged to be
likely that adaptations in the future will be required to deal with the growth of
generic schemes (not currently dreamt up), poor drafting of future legislation,
or the uncovering of an existing hitherto unidentified loop-hole.
5.11c Given the Government’s stated aims to simplify taxation and to reduce the
administrative burden at all levels, we cannot see any justification for the
introduction of a cross-regime assessment. In our view abusive transactions
should be broken down to their component parts and taxed under existing
legislation as is the case for normal transactions.
“The Government invites comments on whether time limits should be set for
each of stages two, three and four and if so what those time limits should be.”
5.12a Stage one: We consider that there are at least two aspects to this first
question:
i. That written notification to a taxpayer should be issued by the designated
HMRC officer within 30 days of their forming the opinion that they should
apply the GAAR.
ii. There needs to be an overall time limit after which the ability to raise a
GAAR has passed into history. Say, no more than 3 years after a return’s
statutory filing deadline.
5.12b Stage two: As a minimum 60 days. However, the response deadline should
be capable of extension to 120 days on written application within 45 days of
receipt of the original notice from HMRC. In considering our response to this
question we have found it hard to be prescriptive due to the fact that we can
foresee in many of the cases subject to the GAAR, the process transactions
concerned are likely to be complex, and as a direct consequence the written
response time consuming to compile – this fact needs to be taken into
consideration when drafting GAAR rules.
5.12c Stage three: We consider 60 days to be sufficient.
5.12d Stage four: We consider the same time limits as on 15.12b above, i.e. 60
days with a possible extension to 120 days on issue of a notice by the
Advisory Panel to both of the interested parties to be appropriate.
“The Government welcomes comments on the proposals relating to the
Advisory Panel.”
5.13a. AAT welcomes and supports the condoc proposals for an Advisory Panel.
Whilst some might argue that such a device interferes with the formal
structures already in place, we see it as a commonsense suggestion aimed at
achieving cost savings through an attempt to avoid the need, at the first
instance, for HMRC and taxpayers to go through the normal appeal regime.
5.13b Of course, the use of an Advisory Panel should not take away the right of
both parties to revert to the normal appeal regime if they so wish. Extending
our observation further to encompass the decisions (outcomes) from the
Panel, whist we agree that the decisions should not be binding we would see
it as regrettable if, as a matter of course, either involved party were to resort
to the Tribunals and the Court system on any occasion. Such action would
significantly undermine the Panel and would ultimately lead to a question of
the relevance of its existence.
5.13c Whilst the stated need for an independent member (6.1) is an essential
element of any Advisory Panel we feel that there is a clear need, for the sake
of fairness and independence, to go beyond the condoc’s recommendation of
“having an independent member..” to a point where the Panel is seen to be
independent of HMRC.
5.13d Taking into account bullet points two and three of 6.1 of the condoc, it is
agreed that an essential by-product of the Panel should be the publication of
anonymised opinions and the constant updating of GAAR guidance.
5.13e We do not agree with 6.19. The Panel sits in private and, as a consequence,
the risk of compromising taxpayer confidentiality arising out the publication of
anonymised opinions should be minimal.
5.13f
One practical approach that could be introduced to further reduce the risk of
breaching taxpayer confidentially would be the advanced supply of the
intended guidance to the parties subject to the Panel’s decision for their
review and clearance.
5.13g With respect to the production of GAAR guidance we would refer the reader
back to our recommendation made at 5.6 and again at 5.9c that HMRC
should work with the profession in respect of guidance.
5.13h The suggested need to delay the publication of guidance for a period of six
months, post the Panel forming its decision, is not, in our opinion, necessary.
This is due to the fact that other parties that could be affected by the same
issue should be entitled to be made aware of decisions as soon after they are
made as is possible.
“The Government would welcome views on the proposals for production and
updating the guidance.”
5.14a We broadly support Chapter 7’s proposals but would reiterate the need for
HMRC and the representative bodies to work together.
5.14b Taking into account our earlier observation at 5.13c, in respect of
independence, we see it as being vital that ownership of published guidance
rests with the Panel, not HMRC.
“HMRC would welcome comments or evidence that can improve the TIA
assessments of impacts, costs and yield of the GAAR proposals.”
5.15a. At first sight the impact assessment does not appear to delve below the
surface to expose hidden costs such as paying advisors to consider whether
embarking upon a legitimate course of action might result in taxpayer facing
an exposure to GAAR. Especially in the early period, post implementation,
when there is an absence of guidance.
6.
SUMMARY
6.1
AAT is keen to support the Government in its wish to tackle artificial and
abusive arrangements in a targeted and systematic way but remain to be convinced
of the need for a GAAR. If such a rule were to be introduced the Government will still
need to legislate against “schemes”. The inclusion of a “Double Reasonableness”
test to act as a safeguard is commendable but we are concerned that it is too
subjective. The suggested formation of an Advisory Panel is a vital component of the
proposal which in order to function properly it must be seen, in fact, to independent of
HMRC.