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Practical points - Tax avoidance

Guidance from ICAEW's Tax Faculty for practitioners on the latest developments in practice, policy and legislation related to UK Tax avoidance.

   Practical points
 163 First GAAR Advisory Panel opinion 

In the first case put to the GAAR Panel since the general anti-abuse rule (GAAR) came into effect for arrangements entered into after July 2013, it has provided its unanimous opinion that the tax arrangements in question were not a reasonable course of action.

The tax arrangements considered relate to a company that wished to incentivise two key employees, X and Y. The reward structuring involved a purchase of gold on behalf of X and Y, use of directors’ loan accounts and creating long term obligations for X and Y to pay the trustees of an employee benefit trust an amount at least equal to the purchase price of the gold.

In supporting its conclusion, the panel considered the perceived tax advantage, the presence of any contrived or abnormal steps, if the arrangement was consistent with the principles of the legislation and finally whether there were shortcomings in the legislation being exploited.

The opinion summary notes that the scenario considered is similar to example G20 of the GAAR guidance. That example considers steps to buy and sell platinum sponge as part of an arrangement to reward employees and concludes, “there is little doubt that the arrangement involves contrived or abnormal steps”.

The panel noted that “it should not come as a surprise that we conclude the steps taken are not a reasonable course of action”, highlighting that the first scheme presented was highly contrived. The panel is right and it has therefore, unfortunately, not had the opportunity to provide much insight into its views in a more nuanced scenario.

From the weekly Tax update published by Smith & Williamson LLP

127 Another spotlight on tax avoidance

In June 2017 HMRC added a new scheme, number 38, to its list of tax avoidance schemes currently in the spotlight.

Spotlights include schemes that HMRC has identified as having the features of tax avoidance and has started investigating. The full list is at tinyurl.com/GOV-AvoidSpotlight The latest scheme seeks to split what would otherwise be a single VAT supply into separate elements, a multiple VAT supply, to produce a more favourable VAT outcome. HMRC states that such arrangements should be taxed as a single supply where:

  • multiple suppliers are used where the same elements could be provided by one supplier; and
  • the customer has no opportunity to decline to take one of the individual elements.

HMRC’s general approach to single and multiple VAT supplies is set out in the VAT Supply and Consideration Manual at VATSC80400. HMRC may seek to use the Halifax principle to attack schemes of which it does not approve and which it believes are artificial.

The principle established in the Halifax case (Halifax and others C-255/02) is that (to quote the manual at VATSC80500): “An abuse occurs if the arrangements, whilst fulfilling the formal requirements of the legislation, produce a tax advantage that is contrary to the purpose of the Directive and the national provisions implementing it, and the essential aim of those arrangements apparent from a number of objective factors was to acquire that tax advantage. A finding of abuse requires the arrangements to be redefined so as to deny the tax advantage sought.”

 Contributed by Ian Young