Last month the report of the above Study Group was published having first been presented to Government Ministers by the head of the group.

By way of reminder, last December the Government set up the study group whose remit was to consider the possibility of introducing an effective GAAR into the UK tax system. Specifically, in setting up the study HM Treasury aimed to ‘consider whether a GAAR could deter and counter tax avoidance, whilst providing certainty, retaining a tax regime that is attractive to businesses, and minimising costs for businesses and HMRC.’

The Advisory Committee met five times since then to review different aspects of the project and most recently the draft of the statutory GAAR and guidance which is contained within the report. In addition, two formal consultations took place the first of which reviewed the general desirability of a GAAR and the framework of principles if a GAAR were to be needed while the second looked at draft versions of the GAAR and guidance in the context of assessing if the framework principles were embodied in that draft.

Overall, the report recognises that the UK tax environment has changed since a GAAR was last considered in 1998. This is as a result of various factors including the ascendancy of purposive interpretation by the courts in the area of avoidance, the proliferation of specific anti-avoidance provisions in legislation and the introduction in 2004 of the Disclosure of Tax Avoidance Schemes regime.

The report concludes that ‘a moderate (GAAR) rule which does not apply to responsible tax planning, and is instead targeted at abusive arrangements, would be beneficial for the UK tax system.’ The report is equally clear that a ‘broad spectrum anti-avoidance rule would not be beneficial to the UK tax system.’

In addition to recommending a narrowly drawn GAAR, the report contains a draft of a potential statutory GAAR as well as guidance which it recommends should be enacted in legislation as part of the GAAR. The report makes it clear that central to the success of the GAAR will be a number of safeguards, some of which are designed to ensure scrutiny of the application of the GAAR which is independent of HMRC, with the burden of proof to justify the application of the GAAR to fall on HMRC. After five years it is then suggested that a formal review is undertaken to determine whether the GAAR is achieving its intended purpose.

The report suggests that if the GAAR is to be applied then counteraction will take place either by taking away the tax advantage in such a manner as is reasonable and just or, in certain circumstances, by re-characterising the arrangement and calculating the tax impact by reference to that re-characterisation. No clearance process will apply as it is intended that the GAAR will only apply to a limited number of ‘certain’ cases.

HMRC's announcement of the publication of the report notes that consultation will continue before the Government gives its full response at Budget 2012. This may be followed by further formal consultation.

Chartered Accountants Ireland contributed to the work of the Study Group, through our participation in a symposium earlier this year organised by the Institute of Chartered Accountants in England and Wales where we outlined the Irish experience of a GAAR.

More information is available at http://www.hmrc.gov.uk/NEWS/news-211111.htm and http://www.hm-treasury.gov.uk/tax_avoidance_gaar.htm