UK and International Tax news
GAAR Advisory Panel Issues First Opinion Notices
Thursday 10th August 2017
The GAAR Advisory Panel has recently issued its first opinion notices in respect of certain tax arrangements which purported to provide employee rewards involving gold bullion with income tax, national insurance contribution and corporation tax savings.
A taxpayer company wished to reward and incentivise its key employees Mr X and Mrs Y who were also the company’s shareholders. Advice was sought on how to structure this reward so it would not constitute remuneration for tax purposes.
The reward involved the purchase of gold for the employees which was funded by the company. The gold was immediately sold by the employees and the company’s liability to pay the third party gold supplier was settled by the employees in return for a director’s loan account credit in favour of the employees. With regard to the purchase of the gold, a long term obligation was created under which the employees were required in the future to pay to the trustees of an employee benefit trust [EBT] an amount at least equal to the purchase price of the gold (plus indexation).
The two employees in effect received a reward of about £300,000 from their employer, which was subject to contractual obligations to the EBT, for repayment of the original purchase cost.
The company sought to avoid an immediate charge on the employees of tax and national insurance contributions on the reward received by the employees plus an upfront corporation tax deduction for the cost of the gold.
The GAAR Advisory Panel issued three opinion notices relating to the employing company and two shareholders.
The overall opinion of the GAAR Advisory Panel was that “the entering into, and the carrying out of, the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions”.
The Panel’s view was “that the most likely comparable commercial transaction, without the overlay of contrived or abnormal steps, is a funding by the Company of the EBT followed by a loan from the trustees of the EBT to the Employees (the terms of repayment mirroring those in the existing agreement)”.
In the Panel’s view “neither the entering into nor the carrying out of the complex steps in this case amount to a reasonable course of action in relation to the provisions charging tax on and giving deductions for employee rewards”.
The Panel added “this is a clear case of associated taxpayers seeking to frustrate the intent of Parliament by identifying potential loopholes in complex interlinking anti-avoidance legislation, and arranging a series of intricate and precise steps to exploit those loopholes so as to gain an unexpected and unintended tax “win. It should not come as a surprise that we conclude the steps taken are not a reasonable course of action.”
For further information in relation to the opinion notices, please contact Keith Rushen on 0207 486 2378.
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