Monday, July 19, 2010

Would a GAAR mean less work for accountants?

A General Anti-Avoidance Rule (GAAR) is identified as a possible way forward in the June Budget document: 'Tax Policy Making - A New Approach' - which I have referenced previously on the TaxBuzz blog. I also suggested here last October that "we are likely to see a draft General Anti-Avoidance Rule (GAAR) emerging in the not too distant future".

The Government say that they will be consulting with 'interested parties' over the summer to consider the case for developing a GAAR. The last time this was proposed (in 1999) HMRC and the profession concluded that it would be unworkable. Much has changed in the interim, In particular we now have a number of Targetted Anti-Avoidance Rules (TAARs). Adapting the wording used in TAARs could lead to a GAAR and would potentially lead to the removal of TAARs.

I was intrigued by the views of a Tax Director with whom I was discussing this issue recently. He is responsible for the tax affairs of a large property company that now operates as a Real Estate Investment Trust (REIT). This means the business is 'transparent' for tax purposes. It pays no corporation tax or capital gains tax. Instead the investors pay tax on their share of profits and gains.

The Tax Director pointed out that REITs are, effectively, subject to a GAAR which applies if HMRC considers that the REIT has taken any action in an effort to obtain a tax advantage as a REIT, either for itself, or another person. In such cases HMRC may, by notice to the company, counteract the advantage and assess the company to an additional amount of corporation tax, and impose a tax penalty.

The Tax Director with whom I was speaking suggested that the existence of this GAAR for REITs provides them with GREATER certainty as it leads to them having closer dialogue with HMRC. Such dialogue occurs directly between the Tax Director and the REIT's CRM in HMRC. The auditors rarely get a look in. The Tax Director was quite clear that a GAAR is not to be feared. In his view it simplifies things AS LONG AS HMRC IS ADEQUATELY RESOURCED to discuss those issues that require 'debates around the edges'.

The Tax Director suggested that maybe one reason the profession is anti-GAARs is that they fear it will lead to less advisory work. Personally I doubt this outcome - other than perhaps as regards the largest of companies. What do you think?

1 comment:

  1. I think the reason the tax profession may be anti-GAAR is that they believe there will not be adequately resources within HMRC to cope with queries and provide certainty to all sizes of businesses and individuals.