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The World According to... GAAR?

TW Ed admires the ambition of domestic and international tax lawmakers to combat perceived abuse.

Welcome to a brave new world. The Finance Act having received Royal Assent, we are all now subject to the General Anti-Abuse Rule, or GAAR. What that actually means for taxpayers, only time will tell, when the principles have been tested in the tribunals and courts. But it does seem that the vast majority of transactions or arrangements which have a commercial basis should not be caught. (Although HMRC is of course alive to the possibility that a commercially-based transaction may nevertheless be exploited by entering into tax-abusive arrangements). As the GAAR will operate under Self Assessment, taxpayers and their advisers will in some cases have to think long and hard about the disclosures they make on their tax returns.

While on the domestic front we now have GAAR to add to various TAARs (Targeted Anti-Avoidance Rules), there have also been developments internationally, to counter the tax avoidance perceived to be undertaken by multi-national corporations. Last week the OECD (The Organisation for Economic Co-Operation and Development) announced a 15-point "Action Plan on [Tax] Base Erosion and Profit Shifting" (BEPS). For some reason the close proximity of "GAAR" and "BEPS" makes me reach for the Alka-Seltzer.

The OECD is the main body responsible for co-ordinating the international tax system - primarily through its work on tax treaties between countries. For many years it has focused on ensuring that multi-nationals are not taxed twice over on international transactions but more recently it has voiced concerns that multi-nationals have exploited the rules effectively to ensure that those corporations, etc., don't pay tax anywhere.

Some of the issues which the Plan seeks to address - such as the mobility of Intellectual Property, the complexity of modern finance and the distance over which digital services can be provided - have troubled the OECD and member territories for several years already, with no easy answers. Germany may be particularly pleased to note that the OECD appears unhappy with the "race to the bottom" in the taxation of Intellectual Property, as the former complains to the EC over the UK's new Patent Box regime.

This Action Plan is therefore ambitious, as the OECD has effectively given itself, and the governments which subscribe to it, a little over two years to effect a suitable remedy - parts of which will require amendment to each member's domestic tax code. Countries within the EC will also have to ensure that they comply with EC law - such as the principles of free movement of services and capital.

I wonder if it might be said that the first casualty of anti-avoidance is simplicity?

Regards all,

TW Ed