Garn!September 14, 2012
I’m having trouble finding the work of literature in which I first encountered the word “Garn!” but I’m reassured by Wiktionary listing it as a cockney word that “expresses disbelief or mockery” (and hinting it was probably Pygmalion). Having established its existence – garn, you didn’t believe I was making it up, did you? – I propose forthwith that we stop calling for a General Anti Avoidance Rule (GAAR) and instead talk about the General Anti-avoidance Rule Notion – GARN.
Because I don’t believe we’ll ever have one. Not a rule that actually works, anyway, where “works” is defined as “making a difference”. Look, for example, at page 33 of the consultation on A General Anti-Abuse Rule, the Tax Impact Assessment, where the Exchequer impact is given as follows:
The GAAR will support the Government’s aim of reducing tax avoidance and will both raise and protect revenue. The revenue impact will reflect the targeting on artificial and abusive avoidance schemes, but will depend on the final design of the proposal. Any final Exchequer impact will be assured by the Office for Budget Responsibility.
Uhuh. Now, you may recall that I obtained the internal instructions on how to prepare a tax impact assessment under the Freedom of Information Act (go here to see the full instructions) but let me just quote the bit about what to say in a formal consultation document about the Exchequer Impact:
If the measure is not yet scored so a 5-year scorecard costing has not been published, don’t enter one. Instead enter a statement giving an indication of the order of magnitude of the costing, and stating that the final costing will be subject to OBR scrutiny. (my emphasis)
Well, I see a reference to the Office for Budget Responsibility (“OBR scrutiny”) but what indication is there of the order of magnitude of the problem and the amount of any tax to be raised or saved as a result of introducing these proposals?
Anyway, this is what I sent to the policy team: the consultation closes today so you’ve still got time to send an email to firstname.lastname@example.org if you’d like to add your two-pennorth.
This is an individual’s response and is also being published, with commentary, on my blog at http://tiintax.com
First of all, Graham Aaronson’s report says that “tax planning is an entirely appropriate response to the complexities of a tax system such as the UK’s” and section 2 of the condoc says “The GAAR should not affect what the Report describes as “the centre ground of tax planning”.” I wonder therefore why you are tinkering at the edges rather than trying to simplify the tax system so that avoidance and the “centre ground of tax planning” is engineered out of the system altogether?
However I appreciate that isn’t within the scope of this consultation so I will address the specific questions you have asked.
1. Do you agree that the GAAR should be limited to the taxes and duties set out in clause 1(3) of the Draft GAAR initially?
No: but then I feel the best options, in order of preference, are a radical simplification of the tax system to engineer out avoidance, or if that cannot be effected, a broad-spectrum GAAR. In this case the GAAR itself is so narrowly drawn it will make little or no difference that its scope is also limited. It’s a fly-whisk, when you need an elephant gun.
2. Do you agree that the GAAR should be capable of counteracting UK tax advantages obtained under double tax agreements?
3. Do you agree that (1) the proposed “main purpose” rule serves as a useful filter, when coupled with the concept that arrangements must also be “abusive” and (2) a specific exclusion for arrangements without tax intent is not required? If you think a specific exclusion is required, please explain why.
I disagree: “purpose” is irrelevant. If an arrangement produces an abusive tax consequence I personally don’t care if the abuse was accidental! (And, in case it’s not obvious I’m being sarcastic here, let me be plain and say I think you’re tying yourselves in knots unnecessarily. The concept of “abuse” should be decisive enough a test.)
4. Do you agree that the proposed “double reasonableness” test operates as intended to counteract only artificial and abusive schemes (such as those described in Annex B)?
Yes. (And, incidentally, wouldn’t it be a good idea to have a similar test introduced into – say – matters like removing disability benefits from people. So the government would only stop paying mobility allowances to someone with a missing limb if they could show it was reasonable to believe that it was reasonable for the person to do without it!)
5. Do you agree that the counteraction provision in the draft GAAR is appropriate?
Yes. I assume if HMRC had sufficient grounds to penalise avoiders they would take action under that appropriate provision and the GAAR would not come into effect at all – that it’s “belt and braces” – the GAAR will be the braces, but the belt will be tried first.
6. The Government is continuing to develop its analysis regarding the appeals processes in relation to counteraction and consequential adjustments under the GAAR, and welcomes views which may inform detailed proposals to be published later in the year.
7. The Government would welcome views on the options set out regarding commencement, how transitional arrangements should be dealt with, and whether there should be different rules for different taxes where appropriate.
Good grief, we’re talking about ABUSIVE arrangements here! It should apply from the date it’s announced – preferably 1 October 2012 – and to any transaction completed after that date, just as it would if you were introducing retrospective legislation to close an obvious tax loophole. No, there’s no need for transitional arrangements – send the message, tax abuse stops today.
8. The Government welcomes views on clause 5(1) of the Draft GAAR.
9. Do you agree that it is appropriate for particular weight to be given in the legislation to the GAAR guidance and the opinion(s) of the Advisory Panel on the arrangements?
Not unless the makeup of the Advisory Panel is radically changed! At the moment it reminds me of that line in 1066 and all that, about the barons wanting to be tried by “a jury of their peers, who would understand”! At present the panel seems to consist purely of legal tax professionals. It needs to have some members who are there to represent the law-abiding taxpayer such as union or other civil society group representatives; there to represent the interests of the non-avoiding taxpayer base.
10.The Government welcomes comments on whether particular issues arise in relation to Self Assessment (where the relevant taxes operate within a Self Assessment regime) or within the existing administrative rules for those taxes that do not operate within a Self Assessment regime.
11.The Government invites comments on the general proposal that the GAAR should as far as possible operate within existing administration rules for the taxes involved; and on what adaptations may be necessary to existing administrative rules to ensure that the GAAR operates with as little as possible additional administration cost and burden for taxpayers, advisers and HMRC. Is there a case for having a new type of assessment given the cross-regime range of the GAAR?
12.The Government invites comments on whether time limits should be set for each of stages two, three and four and if so what those time limits should be.
Yes: probably one to three months. The work needs to be resourced to risk, so HMRC will need to allocate appropriate resource to push these cases forward. And the tax avoider will have little or no incentive to cooperate if there isn’t also a time limit for them to respond or lose the case by default.
13.The Government welcomes comments on the proposals relating to the Advisory Panel.
See answer 9. The Advisory Panel needs to have lay members.
14.The Government would welcome views on the proposals for producing and updating the guidance.
The government already has rules in place around guidance – that it should be ready when legislation is published, that it should be compiled in collaboration with the affected taxpayers, that it should be in plain English – if it follows its own rules it won’t need to make more!
15.HMRC would welcome comments or evidence that can improve the TIA assessment of impacts, costs and yield of the GAAR proposals.
The Exchequer Impact does not follow the internal guidance to give the order of magnitude of the problem. What amounts are expected to be raised and/or saved as a result of the introduction of the GAAR? Without that information, it’s hard to see whether the GAAR will amount to a hill of beans.