One of the many great things about the Chartered Institute of Taxation’s two residential conferences is that you get bang up to date with the latest developments in the tax world. So it was that on Sunday morning we had the great privilege and pleasure of listening to Professor John Tiley speak about the proposed GAAR: he was on Graham Aaronson’s committee which carried out the study leading to what should be the proposals put forward in the consultation document to be issued this summer, with a view to implementation in April 2013.
What he had to say was of great comfort to those of us who draw a clear distinction between tax mitigation, being the legitimate choice between planning options afforded by the tax legislation, and tax avoidance, defined by the committee as any of the following:
Avoiding the application of particular provisions (of the Taxes Acts)
Exploiting the application of particular provisions
Exploiting inconsistencies in the application of provisions
Exploiting perceived shortcomings in provisions
There would be a specific escape route for ‘reasonable tax planning’, defined as a reasonable exercise of choices of conduct afforded by the provisions of the Taxes Acts. There would also be an escape route, perhaps one suspects to be less used in practice, for arrangements neither designed nor carried out with the intention of achieving an advantageous tax result, nor including or omitting any step or feature with that intention.
There would not be a clearance procedure, but there would be an Advisory Panel, which would be available to give opinions on particular proposed transactions where HMRC indicated that it was minded to apply the GAAR.
Professor Tiley made reference to what he referred to as a ‘lack of coherence’ in the UK tax system to which I have also previously made reference; there is no clear underlying principle to the complex reams of tax legislation that we currently have to deal with. To quote the ancient tale of the local man giving complex directions to a visitor:
“If I were going there I would not start from here”.
The committee seeks to strike a balance between legitimate tax planning and artifical avoidance, without prejudicing the UK’s attractiveness as a commercial base. There would be no immediate abolition of large tracts of anti-avoidance legislation, although this might happen at some future point.
All of this was music to my ears, and I suspect the vast majority of the audience, as it reflects perfectly my own views on the issue. Let us just hope that the politicians and civil servants do not mangle this wholly admirable concept before it reaches the statute book, which is my main concern in this area. To my mind the proposals are exactly what we need, and would form the basis of a reasonable GAAR system. We in the mainstream tax profession owe the Aaronson committee a great debt of thanks for their work.