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General Anti Avoidance Rule Notes

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General Anti Avoidance Rule Revision

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What is GAAR



o Public reaction to tax avoidance in times of austerity


GAAR is in Finance Bill 2013 o Policy issue

Based on the premise that all taxpayers should pay their fair contribution. This same premise underlies the

Parliament has decisively rejected this approach, and has imposed an overriding statutory limit on the
extent to which taxpayers can go in trying to reduce their tax bill.


Rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are
free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those
means might be and however far the tax consequences might diverge from the real economic
position Duke of Westminster v IRC (1936)

That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose
go beyond anything which could reasonably be regarded as a reasonable course of action

How does it work?

o A residual catch all when TAARs and other anti­avoidance rules fail o Applies to

"Tax arrangements" that are "abusive"

Double reasonableness test "cannot reasonably be regarded as a reasonable course of action"

Indicators of abusiveness


EFFECT o a tax adjustment which is just and reasonable in all the circumstances. The appropriate tax adjustment is not
necessarily the one that raises the most tax.



When taxpayer may have carried out any one of several alternative non­abusive transactions to achieve the
best result - select the one that the taxpayer would most likely have carried out

International rules o International treaties on double taxation and the attribution of profits o But there is work underway in the OECD to counteract the erosion of the tax base and profit shiftin

Assessment of GAAR



o Freedman (2012) Legitimise the discretion, after half a century of soul searching from the courts between Duke of


Westminster and BMBF
 Ramsay Principle was diluted by MacNiven v Westmoreland (2001) which reduced it to a principle of
judicial construction and in BMBF v Mawson (2005) the idea that the courts might take an anti­avoidance
approach to legislative construction was rejected.
 We are back to the dictum of Rowlatt J in Cape Brandy Syndicate (!921) "no room for intendment. There
is no equity about a tax. Nothing is to be read in, nothing is to be implied"
 A legislative GAAR would form the basis of the development of a judicial GAAR As a result we have a string of cases where the revenue lost where a GAAR would have helped

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