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Back in May I wrote an article entitled "Evading the avoidance issue". In that article I mentioned that the Treasury had set up a committee to explore whether the UK needed a general anti-avoidance rule (or GAAR) to give HM Revenue and Customs more scope to challenge tax avoidance schemes and to assist in reducing the volume of specific anti-avoidance legislation that currently exists.
On 21 November the GAAR study group published its recommendation that the UK should implement a narrowly-focused GAAR initially covering only income, corporation and capital gains taxes, and petroleum tax and national insurance contributions.
The report is to be praised for clearly recognising that a GAAR aimed at countering any form of tax advantage would be unreasonable and unworkable in the UK. The report instead has stated that a UK GAAR should be subject to the overriding principle that it is aimed at targeting only highly abusive, contrived and artificial tax schemes. Who determines whether a scheme is highly abusive, the report does not say.
The report also recommends that in circumstances where there could be any degree of reasonable doubt as to a taxpayer's motivation in adopting a particular approach, then the benefit of that doubt should be given to the taxpayer. This is particularly so where the decision to pursue one course of action or another is the outcome of a "reasonable exercise of choices of conduct".
Although a somewhat lengthy 77 pages, the report is pragmatic and clearly well thought out with particular attention paid to the workability of a GAAR and the need not to hinder UK business growth. The Treasury has said that it will consider the report in detail and that we should expect to see something further in the 2012 Budget. It is to be hoped that the Treasury will take the same pragmatic approach as the committee did and keep any GAAR very narrowly defined.