Govt gets support for catch-all tax avoidance rule

The government has moved a step closer to implementing a general anti-avoidance rule (GAAR) to the tax system after a report recommended the move today.

Graham Aaronson QC, who prepared a report on the feasibility of a GAAR for the Treasury, said today the rule would deter abusive tax avoidance schemes without affecting genuine tax planning.

A GAAR would enshrine in legislation the principle that though some tax efficiency schemes may be technically legal, they are not within the spirit of the legislation and so can be treated as avoidance.

Aaronson also said a general rule would create a more level playing field for businesses, reduce legal uncertainties around tax avoidance schemes, and simplify the tax system.

A GAAR should apply to income tax, capital gains tax (CGT), corporation tax and petroleum revenue tax, and national insurance contributions (NICs).

Aaronson emphasised in his report that a GAAR would not impact on genuine tax planning.

He said: "Responsible tax planning is an essential feature in a complex tax regime, such as the UK's, but artificial and abusive tax avoidance schemes are widely regarded as an intolerable assault on the integrity of the tax regime.

"A general anti-abuse rule narrowly targeted to deter such schemes, while not affecting responsible tax planning, should lead to a fairer, more principled and ultimately simpler tax system."

The Treasury will consider the report and announce its intention to create a GAAR at Budget 2012.