Vol 11 (2014) - Issue 4

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The Good, the Bad and the GAAR: Tax Avoidance in the 21st Century – Part One

In response to the rising levels of media and public scrutiny of the tax affairs of high profile companies and individuals, the Government has introduced a General Anti-Abuse Rule to counteract aggressive tax avoidance. Despite the fact that tax avoidance arrangements are, by definition, perfectly lawful, and in certain cases part of established business practice, the users of such schemes have been portrayed as either 'good or bad' by journalists and politicians, with the concept of morality featuring heavily in the debate. Since the 2008 financial crises, society's opinion on tax avoidance appears to have changed, with many supporting a subsequent change in the law.
Contained in Part 5, sections 206-215 of the Finance Act 2013, the legislation marks a new chapter in anti-avoidance strategy, and has the potential to dramatically alter the attractiveness of the UK as a place for legal and natural persons to conduct business.
This article is part of a two-part series, examining in detail, the first GAAR in the country's history and the reasons behind why it has been enacted. Part one begins by explaining why the previous legislative antiavoidance machinery has been largely unsuccessful at tackling the most contrived schemes. It then goes on to consider how the judiciary has also failed at developing their own anti-avoidance doctrine, by analysing the most important cases since the 1930s. Having illustrated at this point that a statutory GAAR might have some merit, part two attempts to measure the success of the Australian and Canadian GAARs, before investigating the theoretical and substantive arguments surrounding Part 5, sections 206-215.

Introduction
Lord Tomlin:
'Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.' (IRC v Duke of Westminster [1936] AC1 HL[2]).

Lord Templeman:
'There is no morality in a tax and no illegality or immorality in a tax avoidance scheme.' (Ensign Tankers v Stokes [1992] 64 TC 617[668])

The current Chancellor of the Exchequer, Mr Osbourne:
'I regard tax evasion and – indeed – aggressive tax avoidance – as morally repugnant.' (Coalition Government Budget, 2012)

The contrasting quotes above by Lord Tomlin, Lord Templeman and the Chancellor of the Exchequer, dramatically encapsulate how much the judicial and political perspectives on tax avoidance have changed throughout the 21st century. Rarely does a week now pass without a major corporation being exposed by the media for paying a low percentage of corporation tax relative to turnover, or being implicated in the latest artificial tax planning arrangements.
On 13 June 2013 the Public Accounts Commission called for a 'full HMRC investigation' into Google Inc.'s tax position, after it emerged that the company generated GBP 11.5bn in revenue from the UK between 2006 and 2011, but paid just GBP 10m in UK corporation tax. Other global firms, including Starbucks and Amazon, have received strong criticism for avoiding tax on their UK sales.