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The Impact of a General Anti-Avoidance Rule on UK Business
At first glance, the measures being introduced by the UK government to tackle tax avoidance - including a General Anti-Avoidance Rule (GAAR) - appear to be simple, wide-ranging solutions, but, in practice, they may be difficult to implement effectively. Although GAARs or similar rules are common in other countries, they may not work well for the UK. The problem is that a rule designed for simplicity can, if not implemented correctly, become complicated. Taxand UK discusses in detail the possible implications of a General Anti-Avoidance Rule on multinational businesses in the UK.
A comprehensive study by Graham Aaronson QC, a commercial taxation advisor familiar with the results of poorly prepared tax legislation, is welcome news for the UK business community. His report issued to the UK Treasury on 31 October 2011 offers recommendations concerning a potential GAAR in the UK. Although the findings have not been made public at this time, we would like to highlight the key issues preventing such legislation from being implemented at a critical time for UK business.
Many of the biggest multinationals build tax planning around commercial change and, therefore, should not be affected by a UK GAAR. The European Court of Justice's concept of a "wholly artificial arrangement" has been recognised as a benchmark for discerning between acceptable and non-acceptable tax planning, but the real fear is that those companies whose tax planning may be assessed more subjectively will be put off by the uncertainty and simply move their profits out of the UK to achieve the same savings. This could cost the country billions in lost investment and will affect UK jobs at a time when unemployment is at its highest level in 17 years.
Taxand UK Managing Director Shiv Mahalingham and Senior Director Jonathan Hornby discuss the impact of a GAAR in the UK
The adoption of a GAAR would be inadvisable in the current climate and would do considerable damage to the UK economy, as the subjective application of this test to tax planning may damage legitimate business structuring. We hope that the academic study provided to HM Treasury at the end of October recognised the importance of stimulating UK business, as opposed to supporting the full implementation of complex legislation that will tie up resources at HMRC and UK publicly-listed companies.
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