Government criticised over GAAR

The government has been criticised by Lord MacGregor, chairman of the House of Lords economic affairs sub-committee on the Finance Bill, for allowing the public to believe that GAAR “will mean the likes of Starbucks and Amazon will be slapped with massive tax bills”, reports Chartered Accountants Northampton Harris & Co.

The committee, which has just published a report on Finance Bill, claims the GAAR “is so narrow it will not apply to current issues of public concern about the international tax planning techniques relating to tax paid by multinational companies which limit the amount paid in the UK”.

With a week to go before this year"s budget, it stressed that such issues can only be dealt with at EU, OECD, G8 and G20 level and called for an acceleration of the review of OECD taxation rules.

The former Conservative Cabinet member and Chief Secretary to the Treasury, said: ‘There is a misconception that GAAR will mean the likes of Starbucks and Amazon will be slapped with massive tax bills.

‘This is wrong and the government need to explain that to the public. GAAR is narrowly defined and will only impact on the most abusive of tax avoidance. While this is the right approach for now it is important that the policy is reviewed in five years to ensure it has met its objectives.

‘It is also important that government continues to work with other countries on corporate tax issues especially as regards multinationals. We recommend that the review of OECD rules be accelerated.’

MacGregor’s comments echo those of top UK’s tax lawyer, Graham Aaronson, leader of the GAAR study group 2011.

In January, Aaronson told the House of Lords sub-committee hearing on the 2013 Finance Bill that plans to introduce a GAAR would not be able to eradicate multinational tax planning and avoidance.

But it would help clamp down on “certain individuals who have taken tax planning to such levels that they are playing fast and loose with the rules to the point where it is unacceptable... and abusive”.

‘Until we have the same tax system throughout the world, it’s inevitable that multinationals will locate their companies where it suits them best.’

While GAAR “cannot do anything about this", he said it may be able to make “some extra checks and balances".

‘Multinationals will locate ownership of their assets in certain jurisdictions to get favourable advantages on a global basis. It makes taxing multinationals very challenging. Even if every tax system in the world was the same, the problem is that it’s so easy to move activities and profits to different jurisdictions.’

At the same hearing, Malcolm Gammie QC, tax barrister and member of the IFS Tax Law Review Committee, said GAAR was “just one of the weapons that the Revenue deploys to deal with avoidance of one sort or another”.

He said that it had been “successful in stopping most artificial schemes under the Ramsay rules, for example, people who buy and sell guilt strips in less than 24 hours”, stressing that under the GAAR, “such a scheme will just not get off the ground”.

Sophie Dworetzsk, a partner specialising in private client planning at Withers, said: ‘The GAAR will certainly discourage the really abusive tax planning, although the vast majority of this is already caught by DOTAS, TAARs and the Ramsey doctrine. With time, the decisions of the panel may come to be a helpful body of recent decisions, and a guide for understanding exactly where the parameters of “abusive” lie.’

The committee’s report also focused on the Annual Residency Property Tax Package (ARPT) and the government’s proposed limit on the use of certain income tax reliefs.

It said it had “concerns about the practical workability of ARPT” and is “not convinced that the issue justifies the length and complexity of the legislation proposed”. It recommends the government review it, three years after introduction.

On the cap on income tax relief, the committee believe that “the impact of genuine trading losses could have significant adverse effects on economic growth and recommend that the government reconsider this aspect”.

More details are available from Parliament.uk