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  1. Wealth
September 1, 2010

Withers on a new GAAR

By Spear's

On Thursday 2nd September, HMRC will hold a workshop on the possible introduction of a General Anti-Avoidance Rule (GAAR). Such a rule has been highlighted in the notes accompanying the Emergency Budget as one way to ‘develop sustainable responses to avoidance risk’.

On Thursday 2nd September, HMRC will hold a workshop on the possible introduction of a General Anti-Avoidance Rule (GAAR). Such a rule has been highlighted in the notes accompanying the Emergency Budget as one way to ‘develop sustainable responses to avoidance risk’.

A GAAR could help create greater stability by removing the need for a stream of regular technical updates to legislation, but careful consideration will be key if the government is to achieve its goals of bringing greater ‘predictability, stability and simplicity’ to the tax system.

Sophie Dworetzsky, partner at international law firm Withers, comments:

“The idea of a general anti avoidance rule (‘GAAR’) was suggested in 1998 in a consultation paper, but was not introduced in the March 1999 Budget, and has not been introduced thereafter.

“The idea was to move away from a piecemeal approach whereby technical rules prohibit certain planning but there is no statutory principled basis setting out what can and cannot be done, and what is tax avoidance.  Probably the greatest challenge for a GAAR is to define tax avoidance, and this could be best done by reference to recent case law.  Indeed, a GAAR may well be a statutory attempt at distilling the essence of leading anti-avoidance cases.

“In principle, a GAAR is to be welcomed in so far as it avoids further piecemeal changes and last minute announcement.  However, more than ever the devil will be in the detail, with it being critical that any rule is not so broadly drafted that it catches innocent transactions.  In this respect, careful consultation will be crucial.”

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