UK and International Tax news

GAAR – HMRC Issues Updated Guidance

Sunday 21st April 2013

HMRC has recently issued updated guidance on the GAAR in five parts including specific examples of transactions.  The Guidance has two main objectives: the first is to give a broad summary of what the GAAR is designed to achieve, and how the GAAR operates so as to achieve it, and the second is to assist in the interpretation and application of the GAAR by discussing its purpose, considering particular features of the GAAR and, where appropriate, illustrating that discussion by means of examples.   

Part A covers the purpose and status of the Guidance.

Part B is a summary of what the GAAR is designed to achieve and how it operates to achieve it.

Part C covers specific points including key concepts, tax advantages and arrangements, counteracting the advantages, and proceedings at a tribunal or court. 

Part D includes examples is to illustrate when an arrangement might or might not, applying the double reasonableness test, be treated as abusive in the context of the GAAR.

Part E covers procedural aspects of the new GAAR.

The Guidance’s function as an aid to interpretation and application is explicitly recognised by the GAAR legislation. S.208(2) FB 2013 requires any court or tribunal which is considering the application of the GAAR to take into account those parts of the Guidance which have been approved by the GAAR Advisory Panel.  Parts A, B, C and D of the current Guidance have been approved by the Advisory Panel.   

There are broadly two ways in which tax advantages can be counteracted under the GAAR, either through a self-assessment adjustment, or filing of accounts and payment of tax in the case of IHT, by the taxpayer or through counteraction by HMRC.  In making a self-assessment (or filing of accounts and payment of tax in the case of IHT), a taxpayer must adjust, on a just and reasonable basis, the tax advantages arising from any abusive tax arrangement that is relevant to that self-assessment (or filing of accounts and payment of tax).  The taxpayer must do this despite the fact that the taxpayer has not received a notice from HMRC that they must apply the GAAR, and despite the fact that no opinion has been given by the Advisory Panel on the abusive tax arrangements the taxpayer has entered into. There is a potential exposure to penalties otherwise.

To ensure uniformity of approach, HMRC’s Anti-Avoidance Group will consider all arrangements where it appears that the GAAR may potentially apply before the issue is raised with taxpayers or agents.  In addition, cases will also be reviewed at a senior level, including by senior officers in the relevant business area and Anti-Avoidance Group, before a recommendation is made that HMRC should pursue any formal GAAR challenge.  

If HMRC wishes to go ahead and apply the GAAR, then HMRC must follow the requirements of the Procedural Schedule before it can give notice that tax advantages are to be counteracted under the GAAR.

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