GAAR commencement date pushed back, and will not apply to arrangements entered into before Royal Assent

It was today announced that the UK’s new general anti abuse rule (GAAR) will come into force from royal assent to the Finance Bill 2013 (expected to be July 2013) and not from 1st April 2013 as originally proposed.

The Government has also proposed that the GAAR will not apply to tax arrangements that have already been entered into before royal assent to the Finance Bill, which will be a significant relief to people who may have set up arrangements many years ago, for example to minimise inheritance tax.

Draft legislation for the Finance Bill 2013 was published today, including detailed guidance notes from HMRC and it appears that the government has taken on board some comments made during consultation in a number of amendments the draft legislation.

The main change relates to something which has been dubbed the “double reasonableness test”, about which there has been widespread concern.   The key aim of the GAAR is to prevent “tax advantages” arising from “tax arrangements” which are “abusive”.  In determining both whether there has been a "tax advantage" and if so whether it was "abusive" the concept of reasonableness was used.  The Government has amended the draft legislation by including clarification of the circumstances to be taken into account in determining whether arrangements are abusive. In addition the draft legislation has been amended to remove a reference to transactions or agreements which include non-commercial terms as one of the indicators of abusiveness.

The legislation also sets out how the GAAR Advisory panel will operate. It will give opinions on specific cases and approve HMRC guidance on the operation of the GAAR, although concerns have been expressed about the length of time that opinions are likely to take. However, it is expected that the opinions of the Advisory Panel will be published in anonymised form which should be a significant help to tax advisers in the early days of the GAAR’s operation. 

However, some trust practitioners remain concerned that the new legislation still provides insufficient clarity for individuals seeking legitimately to minimise their tax affairs.  

The GAAR will not impact the manner in which profits of multinational corporations are allocated between the UK and other countries – something which has been receiving much press attention in recent months.  Tackling that issue would require an international review of the complex transfer pricing rules.