UK: the argument that tax avoidance is legal is dead and gone
The new Guidance on the new General Anti-Abuse Rule (GAAR) in UK taxation has been published today. I sat on the committee drafting this guidance, and so there are some restrictions on what I can say about it, especially with regard to process, but no restrictions at all on what I can say about what it means.And he's pretty positive about the changes:
"The GAAR Guidelines are without precedent as far as I know in UK tax law, because they are in effect legal precedent in their own right that any court has to take into account once Royal Assent is given. And that opportunity has been seized by those drafting them to fundamentally change the environment of UK tax avoidance law forever."The new GAAR guidance cites court cases which have been used as precedent whereby people were entitled to arrange their tax affairs within the law so as to pay as little tax as possible. Now new precedent has been set, and the GAAR guidance notes:
"B2.1. The GAAR Study Group Report was based on the premise that the levying of tax is the principal mechanism by which the state pays for the services and facilities that it provides for its citizens, and that all taxpayers should pay their fair contribution. This same premise underlies the GAAR.And how does this get addressed?
It therefore rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position.
. . .
B2.3 Taxation is not to be treated as a game where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce their tax liability."
"Accordingly, it is essential to appreciate that, so far as the operation of the GAAR is concerned, Parliament has decisively rejected this approach, and has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill. That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could reasonably be regarded as a reasonable course of action."That is quite significant. This looks like a useful new tool in the armoury against tax avoidance. Now read on. For there is plenty more in here.
Update: The GAAR is a step in the right direction, but there's a long way to go.