Attitudes change

Sunday, 01 April 2012
Why the new general anti-avoidance rule might be worrying for some.

When I started in the office all those years ago, it was almost standard issue to have a blotting pad. It had two uses: the first for drying ink after writing in fountain pen, and the second for scribbling notes on. I found it useful to stop staples scratching my desk, so I have always had a pad of blotting paper on my desk at home. The current one is now some years old. It was provided by a firm of old-style ‘tax consultants’, and I quote the motto that stares up at me from every sheet: ‘Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it would otherwise be.’1

With those words ringing in tax consultants’ ears, it is hardly surprising that years ago they felt anything goes in the battle of government against the taxpayer. Instead, some of the schemes became so artificial that, without ever disagreeing openly with Lord Tomlin, judges felt things had gone too far, and with cases such as Ramsay v IRC, they started to turn the tide.

But now it’s 2012, with the introduction of a general anti-avoidance rule (GAAR) proposed by Graham Aaronson QC and his review committee of judges and academics (and not an accountant in sight). By the time you read this, it may be known if the government is going to proceed with the idea.

Anyone arguing against a general anti-avoidance rule is at risk of being considered an abettor of tax avoidance

It must be said that political correctness is firmly in favour of pretty well any step against tax avoiders (paying no heed to distinctions between avoidance and evasion), so anyone arguing against a GAAR is at risk of being considered an abettor of tax avoidance. I face that possibility with equanimity.

I am very nervous about a GAAR for a number of reasons, the first and foremost being that a taxpayer should be entitled to know if they are, or are not, due to pay tax. Clarity of tax legislation is paramount. A GAAR assumes a clear purpose to a piece of tax legislation, but attitudes can change and what a government intends is often lost in the mists of time. When married couples became separately taxed, a government minister said, in the debates, that it was open to couples to organise their affairs to achieve the maximum advantages to their individual and joint tax position. When IR35 (intermediaries legislation) and the disputes about service companies erupted, that point was never mentioned or conceded.

Also, if HMRC loses a case, it can, and often does, change the law to ‘put the law back to what was intended’. If HMRC wins a case where it takes a point against the taxpayer that was either not intended or arises from surprising legislative analysis, what chance does the taxpayer have to get the law changed? So, is it right that the government should have yet another weapon to take us nearer to Alice in Wonderland – the law is whatever I say it is? Take more time and legislate properly. That is much better.

  • 1. RC v Duke of Westminster [1936] AC 1 at p19 per Lord Tomlin.
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Martyn Gowar

Martyn Gowar TEP is a Partner at McDermott Will & Emery UK LLP and an Editor of the STEP Journal.

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