Would a narrowly targeted GAAR encourage tax avoidance?

Accountants might be interested to learn that the Association of Revenue & Customs believes a General Anti-Abuse rule could encourage tax avoidance if it is narrowly targeted.

The union that represents senior HMRC officials and tax inspectors said such a GAAR could give the impression that any activity outwith its scope is a legitimate form of tax planning.

The government proposes that the GAAR will just target the most artificial tax practices, but the union says this would be a counterproductive measure that could facilitate avoidance.

Furthermore, the union hopes that the GAAR will be written in such a language that it will be easy to understand and operate and fit into the government’s desire for a simpler UK tax code.

It was Graham Aaronson QC who recommended the targeted GAAR but as well as rejecting that idea, the Association dismissed his finding that tax avoidance is caused by high taxation rates. It believes that abuse tax planning arises from opportunity and a simple wish to pay less tax.

Everybody must be seen to be contributing their fair share of taxes and therefore we should have a more general GAAR which allows tax avoidance to be tackled and responsible tax planning to continue as before. Graham Black, the president of the ARC said that the current plan would make the GAAR into a Trojan Horse that suggests action but facilitates avoidance.

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