First opinion of GAAR Advisory Panel published - KPMG United Kingdom
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First opinion of GAAR Advisory Panel published

First opinion of GAAR Advisory Panel published

The GAAR Advisory Panel has recently published its first opinion in a case of employee reward involving gold bullion.


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The General Anti-Abuse Rule (GAAR) was enacted in 2013 and was designed to “deter (and, where deterrence fails, counteract) contrived and artificial schemes”. It works by allowing HMRC to counteract a tax advantage arising from ‘abusive’ arrangements, where an abusive arrangement is one which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax law. This is a wide-ranging power and, to balance it, taxpayer safeguards were also introduced. One of these safeguards was the formation of the independent GAAR Advisory Panel, whose role is to consider, review and approve HMRC’s guidance on the GAAR, and deliver opinions on individual cases referred to it by HMRC. The first such GAAR Advisory Panel opinion has now been issued. The timing is broadly in line with what was expected given that the GAAR only applies to arrangements undertaken since 17 July 2013 and time is needed for tax returns to be filed, enquiries to be opened and facts established.

The opinion which the Panel must deliver is whether they consider the tax arrangements to be a reasonable course of action or not in relation to the relevant tax provisions. Importantly, HMRC cannot invoke the GAAR without first obtaining an opinion from the Panel.


The facts are set out in the opinion as follows (focusing on Mrs Y):

  • Mr X and Mrs Y owned 51 percent and 49 percent of a company of which they were also directors;
  • The company funded the purchase of gold for Mrs Y;
  • In return for the receipt of the gold, Mrs Y agreed to fund an EBT at a later date with an amount equal to the value of the gold (plus indexation);
  • Mrs Y immediately sold the gold and settled the company’s obligation to pay for the gold; and
  • In return for settling the obligation, the company credited Mrs Y’s director loan account.

The result was that Mrs Y was left with £150,000 and an obligation to fund the EBT in the future of the same amount (plus indexation). The purported tax result was that:

  • The £150,000 did not fall to be treated as employment income as general earnings;
  • Nor did it fall to be treated as employment income under the disguised remuneration rules; and
  • The company was entitled to an immediate deduction for corporation tax purposes.

The Panel’s opinion

No doubt the content of the opinion is everything HMRC will have been hoping for. HMRC’s arguments are comprehensively supported in a detailed discussion of how to apply the GAAR legislation. In the Panel’s opinion, the arrangements contained abnormal steps, were not consistent with the underlying legislative policy objective, were designed to exploit a shortcoming in the legislation and was intended to result in a taxable amount significantly less than the economic amount (here zero).

As such, the Panel concluded that the arrangements were not a reasonable course of action.

The Panel issued three opinions. The other two relate to the same arrangement but deal with the company and Mr X for whom the same planning was implemented.

With this opinion now secured, it is likely HMRC will move to invoke the GAAR and counteract the purported tax effect.

Of course, whether the purported effect would ever have materialised in the first place is a separate question. As a general rule, the standard approach should be for HMRC to challenge arrangements under the non-GAAR tax rules and to invoke the GAAR only in cases where that challenge failed. However, as the GAAR guidance does make clear, and as is presumably the case here:

“…there may be some arrangements which appear to be so clearly abusive that it would be appropriate for HMRC to invoke the GAAR without first determining whether the arrangements would achieve their intended tax result under the rest of the tax rules.”

In terms of counteraction, the question is what tax liability should replace the purported tax liability claimed by the taxpayer? In the course of setting out their opinion, the Panel concluded that the closest similar transaction was the company funding an EBT directly and the EBT making a loan to Mrs Y. Presumably therefore, HMRC will counteract so as to produce this result.

Should the taxpayer appeal to the Tribunal, the GAAR legislation includes a number of procedural innovations:

  • It will be incumbent on HMRC to demonstrate that the GAAR applies (not the other way round).
  • The Tribunal or Court must take into account the GAAR Guidance that was published at the time when the arrangements were entered into.
  • The Tribunal must also take into account the opinion of the GAAR Advisory Panel (i.e. this opinion).

We await further developments. The opinions can be found on the HMRC website here.

For further information please contact:

Richard Rolls

Seamus Murphy

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