What view would Tax Counsel take of a General Anti Avoidance Rule?

The Tax Journal has published the results of a readership survey that reveals two conflicting views. On the one hand a clear majority (55%) of the 175 respondents do not favour the introduction of a GAAR. And the published comments from respondents largely reflect this.

On the other hand almost two-thirds' (64%) would support a GAAR if there was a pre-transaction clearance procedure. This is surprising as a smaller majority (53%) would only support a GAAR if all existing targeted anti-avoidance rules were repealed.

It would be interesting to know whether there is any difference in view between those Tax Journal readers who are accountants in practice, lawyers in practice or in-house Tax Directors. I suspect their views could be quite different. Indeed, in July I wrote a piece: Would a GAAR mean less work for accountants? In it I referenced a recent conversation with a Tax Director that had prompted that idea.

I'd like to raise a different issue now. That is: the reaction of Tax Barristers (Counsel) who advise on tax schemes.

If a GAAR is introduced the reaction of Tax Counsel will be key. I would expect that the more bullish members of the Tax Bar will continue to give their robust opinions. These will include a note that the Courts may take a different view and that (even after it has come into force) the effect of the GAAR is, as yet untested.

Thus the introduction of a GAAR will not stop the creation or marketing of tax schemes. Only the application of the GAAR will do this. Just as now, promoters of schemes only move onto the next one when the law is changed or after HMRC has succeeded in challenging the old one in court. This often takes many years.

In this context Tony Beare, Head of Tax at Slaughter and May, writing in the Tax Journal recently suggested that HMRC might not litigate the GAAR:

"One can easily foresee the possibility that HMRC might use a GAAR in a similar way to its past practice in relation to the TAAR in CTA 2009 s 441, which is to raise the possible application of the provision in any ongoing dispute but not take the matter to litigation, with the result that the exact parameters of the provision are never circumscribed by a court."

Which takes us back to my earlier point. If the rationale for introducing a GAAR is to limit the promotion of structured avoidance schemes, much will depend on the views of Tax Barristers. Until then the promoters will continue to proudly announce that they have yet to lose their arguments in court.