The General Anti Abuse Rule was introduced in the Finance Act of 2013. Originally posted as a General Anti Avoidance Rule it was watered down to only cover matters considered to be abusive.
Since then it has remained a reasonable silent threat in the world of tax planning, occasionally referred to by HMRC or politicians as part of general rhetoric. However, we now have the first advisory panel opinion notice issued:
The referral to the panel related to a transaction (which I’ve seen in practice) where a company decides to reward employees by buying them some gold. The purchase of gold for Mr X was funded by the Company; that gold was immediately sold by Mr X; the Company’s liability to pay the third party gold supplier was settled by Mr X in return for a director’s loan account credit in favour of Mr X; in connection with the purchase of the gold a long term obligation was created under which Mr X was required in the future to pay to the trustees of the EBT an amount at least equal to the purchase price of the gold (plus indexation).
The panel’s task was to determine whether the above was a reasonable course of action or whether no reasonable person would consider the transaction to be reasonable (the double reasonableness test). They also considered whether the economic outcome could be replicated without the additional steps and whether the tax circumstances would be the same if they did.
They considered that the substance of the transaction was effectively the same as if the company had contributed the money into the EBT and the EBT had then loaned it out to Mr X, which would be caught by the disguised remuneration rules.
As such their decision was that the company’s actions were not reasonable and consequently the planning will be deemed ineffective for tax purposes. Penalties of 60% of the tax avoided will also be chargeable under the GAAR rules.
This is likely to be the first of many cases referred to the GAAR and with HMRC’s success in this they are likely to be more bullish than ever when wielding their newest weapon.