The government has announced its latest proposals for a general anti-abuse rule (Gaar) to combat tax avoidance.
Following a consultation by HM Revenue & Customs (HMRC) a number of measures to protect taxpayers have been added.
Gaar will take effect only from the day the Finance Act 2013 is passed. Only arrangements entered into on or after that date will be affected by the Gaar.
HMRC will be handed power to decide whether a scheme or tax arrangement is abusive. However an advisory panel will be set-up to moderate between HMRC and taxpayers. In order to protect the taxpayer, the government said HMRC will not be represented on the panel.
The government has proposed a 45 day time limit for taxpayers to appeal to HMRC beginning from the day notice is given. It also proposes an additional right for the taxpayer to make representations to the Gaar advisory panel after the matter has already been referred to the panel.
Non-commercial terms in transactions and agreements a will also not be considered indicators of abuse.
However, the so-called double reasonableness test, which defines the meaning of ‘abusive’ tax arrangements will be refined to ensure Gaar does not miss some arrangements.
Changes include adding to the definition of abusive circumstances to include whether the result of arrangements are consistent with tax rules, whether means of achieving a result included ‘contrived or abnormal’ steps, and whether arrangements intended to exploit shortcomings of tax rules.
In order to provide Gaar guidance straight away, an interim group has been appointed to develop and approve initial guidance in time for the introduction of the legislation into parliament.