Report on the Finance Bill calls for GAAR to be reviewed in 5 years.
The House of Lords Sub-Committee on the draft Finance Bill have today published their report which focuses on the proposed General Anti-Abuse Rule(GAAR), the Annual Residency Property Tax Package (ARPT) and the government’s proposed limit on the use of certain income tax reliefs.
On the proposed GAAR, the Committee recognises that it has been narrowly defined, as a reasonable starting point, given resource constraints and the need to provide certainty for business. However the Committee thinks it important that the scope of the GAAR should be independently reviewed after five years to ensure that it is working properly and having the appropriate deterrent effect. The Committee say that this review should be built into the legislation or failing that should be guaranteed in a ministerial commitment.
The Committee stress that because the GAAR is so narrow it will not apply to current issues of public concern about the international tax planning techniques relating to tax paid by multinational companies which limit the amount paid in the UK. The Committee says this can only be dealt with at EU, OECD, G8 and G20 level and call for an acceleration of the review of OECD rules on taxation.
On the ARPT the report draws attention to concerns about the practical workability of ARPT and recommends that the government review how well it is working three years after introduction. The Committee is not convinced that the issue justifies the length and complexity of the legislation proposed.
On the cap on income tax relief, the Committee considers that the impact of genuine trading losses could have significant adverse effects on economic growth and recommend that the Government reconsider this aspect.
The report also considers the process of tax policy making and stress that Government should adhere to its own policy making processes. The Committee say that the policy worked well in developing GAAR but less well in the case of ARPT. The report says that ‘whatever steps are necessary to achieve uniformly good outcomes should be taken’.
Commenting Lord MacGregor, Chairman of the House of Lords Economic Affairs Sub-Committee on the Finance Bill, said:
“There is a misconception that GAAR will mean the likes of Starbucks and Amazon will be slapped with massive tax bills. This is wrong and the Government need to explain that to the public. GAAR is narrowly defined and will only impact on the most abusive of tax avoidance. While this is the right approach for now it is important that the policy is reviewed in 5 years to ensure it has met its objectives.
“It is also important that government continues to work with other countries on corporate tax issues especially as regards multinationals. We recommend that the review of OECD rules be accelerated.”