Gary Richards, Accountancy Age, Tuesday 22 June 2010 at 16:28:00

The prospect of a general anti-avoidance rule is back from the dead, and notparticularly welcome, argues Gary Richards

Like Dracula, the idea of a GAAR will not lie down.

In a Budget press release the government indicated that it will examinewhether a general anti-avoidance rule should be implemented. The problems with aGAAR are well documented: uncertainty as to what constitutes avoidance -including whether taking advantage of a relief in unanticipated circumstancesconstitutes avoidance; uncertainty as to how the judiciary will interpret aGAAR; an increase in uncertainty (unless there is a quick clearance procedure);and increased fees if professionals have to advise on the arrangements and thenHMRC charge for providing a clearance.

Eleven years ago the previous administration decided not to proceed with aGAAR. Nowadays HMRC have even less need for a GAAR given the 2004 disclosureregime and the number of legislative provisions already hedged around with socalled ?targeted? anti-avoidance rules: and of course the Emergency Budgetintroduced yet further specific anti-avoidance rules.

Also, a GAAR would seem to be at odds with the policy of introducing?predictability, stability and simplicity? in the tax system. The most immediateimplication of the announcement is for businesses and the tax profession toremind the Treasury and the Government of the drawbacks of a GAAR. If a GAAR isintroduced, advisers will need to be prepared to express a view on thelikelihood of a transaction being successful with the possibility of judicialactivism beyond that faced by taxpayers already.

It may be little comfort to advisers and users of the tax legislation thatone effect of a GAAR might be less prescriptive legislation as HMRC might beprepared to rely on the GAAR as a ?backstop?. Arguably, HMRC do not need a GAARif the legislation is less prescriptive as there is more scope for a ?ScottishProvident? approach to interpretation by the tax judiciary. In the meantime,well-prepared advisers may wish to review the different judicial approaches injurisdictions that have introduced a GAAR.

Gary Richards is tax partner at Berwin Leighton Paisner