What would a general anti-avoidance provision look like?

Posted on May 6 2009

I was discussing this question with a friend today. He wanted to know what such a provision would look like. I said I’d been told by HMRC that they could not develop the wording for such a provision, but he found that hard to believe. So do I. So, I offer the wording for such a provision here:

General Anti Avoidance Provision

  1. If when determining the liability of a person to taxation, duty or similar charge due under statute in the United Kingdom it shall be established that a step or steps have been included in a transaction giving rise to that liability or to any claim for an allowance, deduction or relief, with such steps having been included for the sole or main purpose of securing a reduction in that liability to taxation, duty or similar charge with no other material economic purpose for the inclusion of such a step being capable of demonstration by the taxpayer then subject to the sole exception that the step or steps in question are specifically permitted under the term of any legislation promoted for the specific purpose of permitting such use, such step or steps shall be ignored when calculating the resulting liability to taxation, duty or similar charge.
  2. In the interpretation of this provision a construction that would promote the purpose or object underlying the provision shall be preferred to a construction that would not promote that purpose or object.

It probably is not perfect. I’m open to offers for amendment.

But I think that would work. Anyone want to disagree?

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5 Responses

  1. Paul says:
    May 7 2009 at 10:19 am

    Richard,

    You may be amused to learn that Jersey already has such a provision. I won’t quote it in full, but the key provision of Article 134A of the Income Tax Law reads:

    134A Power of Comptroller to make assessment to prevent avoidance of income tax[405]

    (1) If the Comptroller is of the opinion that the main purpose, or one of the main purposes, of a transaction, or a combination or series of transactions, is the avoidance, or reduction, of the liability of any person to income tax, the Comptroller may, subject as hereinafter provided, make such assessment or additional assessment on that person as the Comptroller considers appropriate to counteract such avoidance or reduction of liability:

    Provided that no assessment or additional assessment shall be made under this Article if the person shows to the satisfaction of the Comptroller either —

    (a) that the purpose of avoiding or reducing liability to income tax was not the main purpose or one of the main purposes for which the transaction, or the combination or series of transactions was effected; or

    (b) that the transaction was a bona fide commercial transaction, or that the combination or series of transactions was a bona fide combination or series of transactions and was not designed for the purpose of avoiding or reducing liability to income tax

  2. Mark Lee says:
    May 7 2009 at 12:59 pm

    ‘probably’? The length of that first sentence doesn’t exactly facilitate clarity (which is unusual for you Richard).

    I was musing yesterday at how a number of the anti-avoidance provisions (clauses 61-70) in FB09 contain the same wording:

    In effect no relief, deduction or whatever “if the payment is made in pursuance of arrangements the main purpose, or one of the main purposes, of which is the avoidance of tax”

    But it’s not consistent across even all of the TEN ‘miscellaneous anti-avoidance provisions in the current Finance Bill.

    The Schedules that contain detailed provisions tend to use completely different wording – in each case specific to the issue in question.

    If it really were as simple as you suggest Richard, to adopt and apply a General Anti Avoidance Provision, why do you think we don’t yet even have the beginnings of one?

    Why hasn’t anyone instructed parliamentary draughtsman to adopt a consistent approach and wording when introducing targetted anti avoidance provisions?

    My conclusion (whilst I have some sympathy with the aspiration) is that in real life it isn’t as easy as you suggest.

  3. Richard Murphy says:
    May 7 2009 at 2:12 pm

    Mark

    This is intended to be legislation – not prose

    And what does not work about it?

    Why can’t this be the beginning of one?

    I accept TAARs are inconsistent

    That’s why we need a GANTIP

    Probably was cautious – unlike me. What is this was tabled as an amendment to the Finance Bill. What then?

    Richard

  4. Jimmy says:
    May 8 2009 at 7:18 am

    Hi Richard,

    In my limited experience, “sole or main purpose” language does not work as the taxpayer always find another main purpose (e.g. funding, lending, etc.) that makes the GAAR rule worthless. “Sole or one of the main purposes” works and effectively kills the tax industry.

  5. Peter says:
    May 8 2009 at 9:47 am

    Sounds like a lawyers’ charter to me.