Corporate Gains - Chapter 32 - 36 - Anti-Avoidance

Question 1

When does GAAR apply and what happens if it does?

Answer 1

When it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose or one of the main purposes of the arrangement.

If GAAR applies then the tax advantages are counteracted under just and reasonable provisions.

Question 2

What are the four ‘safeguards’ for the taxpayer in the GAAR rules?

Answer 2

1. Requiring HMRC to show that the arrangements are abusive;
2. Applying a ‘double reasonableness’ test in the definition of abusive;
3. Allowing the court to consider the purpose of the legislation or the sort of transactions which had become established practice;
4. Requiring HMRC to obtain the opinion of the advisory panel on whether the arrangement constituted a reasonable course of action.

Question 3

What is the penalty for failing to apply GAAR?

Answer 3

60% of the counteracted tax.