For the General Anti Abuse Rule to apply, there must be a tax advantage that arises from tax arrangements that are abusive.
‘Arrangements’ can include an agreement, understanding, scheme or transaction. The term ‘tax advantage’ includes a relief, avoidance or deferral of tax. ‘Tax arrangements’ simply means that a main purpose of the arrangements is to achieve a tax advantage.
The GAAR will only apply if those tax arrangements are ‘abusive’. Basically, the tax arrangements are termed abusive if they cannot reasonably be regarded as a reasonable course of action. This is called the ‘double reasonableness’ test, and it is for HMRC to show that the arrangements are abusive. In other words, the tax tribunal will need to be persuaded that no reasonable person could regard the arrangements as reasonable to carry out.
If the GAAR applies, then the arrangements can be counteracted by way of adjustments to the taxpayer’s tax position to remove the tax advantage claimed and penalties are likely to apply.
The intention behind the GAAR is to deter aggressive tax planning in the first place.
Over time, the publication of opinions issued by a panel of tax experts known as the GAAR Advisory Panel will create a body of practical guidance on what type of arrangements are likely to fail the double-reasonableness test.
Frequently Asked Questions
Yes, although it doesn’t apply to stamp duty.
60% if you allow the dispute to go to the GAAR Advisory Panel without conceding and then ultimately lose on appeal. You can also be liable to penalties for inaccuracies, a failure to notify or to make tax returns or under the serial tax avoidance rules.
The 60% penalty applies for tax arrangements entered into on or after 15 September 2016.
Yes, a court or tribunal must take this guidance into account, along with any opinion from the GAAR Advisory Panel. However, the judges are not bound to follow the guidance or the opinions of the GAAR Advisory Panel.
It should be kept in mind that the guidance is simply the views of one party to the litigation and is on no sense determinative of the issue. The tribunal will hear both sides and make up its own mind on the issue.
There is no threshold as such, but the following scenarios are now threatened with GAAR tax investigations:
- mass-marketed tax avoidance schemes that make use of loopholes
- mismatches in the way that taxing and relieving provisions operate
- an unexpected tax savings opportunity
Should you require advice about whether the GAAR applies, representation in a tax investigation where HMRC are threatening to use the GAAR or advice about the scope and application of GAAR penalties click here to instruct Patrick Cannon today.