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Contact: michael.firth@taxbar.com
Procedure.Tax
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H6. GAAR procedure
The general anti-abuse rule
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Abusive tax arrangements to be counteracted by adjustments
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"(1) If there are tax arrangements that are abusive, the tax advantages that would (ignoring this Part) arise from the arrangements are to be counteracted by the making of adjustments." (FA 2013, s.209(1))
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Tax arrangements
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"(1) Arrangements are “tax arrangements” if, having regard to all the circumstances, 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 arrangements." (FA 2013, s.207(1))
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Tax advantage
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"A “tax advantage” includes—
(a) relief or increased relief from tax,
(b) repayment or increased repayment of tax,
(c) avoidance or reduction of a charge to tax or an assessment to tax,
(d) avoidance of a possible assessment to tax,
(e) deferral of a payment of tax or advancement of a repayment of tax, and
(f) avoidance of an obligation to deduct or account for tax." (FA 2013, s.208)
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Have regard to wider arrangements
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"(3) Where the tax arrangements form part of any other arrangements regard must also be had to those other arrangements." (FA 2013, s.207(3))
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Taxes covered
"(3) The general anti-abuse rule applies to the following taxes—
(a) income tax,
(b) corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax,
(c) capital gains tax,
(d) petroleum revenue tax,
(da) diverted profits tax,
(db) apprenticeship levy,
(e) inheritance tax,
(f) stamp duty land tax, and
(g) annual tax on enveloped dwellings." (FA 2013, s.206(3))
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Abusive
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"(2) Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances including—
(a) whether the substantive results of the arrangements are consistent with any principles on which those provisions are based (whether express or implied) and the policy objectives of those provisions,
(b) whether the means of achieving those results involves one or more contrived or abnormal steps, and
(c) whether the arrangements are intended to exploit any shortcomings in those provisions." (FA 2013, s.207(2))
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- Indicators of abuse
"(4) Each of the following is an example of something which might indicate that tax arrangements are abusive—
(a) the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes,
(b) the arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes, and
(c) the arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid,
but in each case only if it is reasonable to assume that such a result was not the anticipated result when the relevant tax provisions were enacted." (FA 2013, s.207(4))
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Not exhaustive
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"(6) The examples given in subsections (4) and (5) are not exhaustive." (FA 2013, s.207(6))
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- Indicators of no abuse
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"(5) The fact that tax arrangements accord with established practice, and HMRC had, at the time the arrangements were entered into, indicated its acceptance of that practice, is an example of something which might indicate that the arrangements are not abusive." (FA 2013, s.207(5))
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Adjustments
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- Adjustments to be just and reasonable​
"(2) The adjustments required to be made to counteract the tax advantages are such as are just and reasonable." (FA 2013, s.209(2))
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"(4) The adjustments that may be made include those that impose or increase a liability to tax in any case where (ignoring this Part) there would be no liability or a smaller liability, and tax is to be charged in accordance with any such adjustment." (FA 2013, s.209(4))
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Adjustments to any tax within the GAAR
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"(3) The adjustments may be made in respect of the tax in question or any other tax to which the general anti-abuse rule applies." (FA 2013, s.209(3))
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- Method of making adjustments
"(5) Any adjustments required to be made under this section (whether by an officer of Revenue and Customs or anyone else) may be made by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise." (FA 2013, s.209(5))
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- Adjustments have effect for all purposes
"(5) Any adjustments required to be made under this section (whether by an officer of Revenue and Customs or anyone else) may be made by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise." (FA 2013, s.209(7))
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- Effect of adjustments suspended during GAAR procedure
"(6) But—
(a) the effect of adjustments made by an officer of Revenue and Customs by virtue of this section is suspended until the procedural requirements of Schedule 43, 43A or 43B have been complied with, and
(b) the power to make adjustments by virtue of this section is subject to any time limit imposed by or under any enactment other than this Part.
The provision made by this subsection needs to be read with sections 209AA to 209AC and has no effect on adjustments so far as made otherwise than by virtue of this section.
(6A) The procedural requirements mentioned in subsection (6)(a) include any procedural requirements which apply under or by virtue of Schedule 43D (which makes provision in relation to partnerships)." (FA 2013, s.209(6) - (6A))
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- No adjustments during GAAR Advisory Panel referral
"(8) Where a matter is referred to the GAAR Advisory Panel under paragraph 5 or 6 of Schedule 43 in relation to any tax arrangements, no GAAR-related adjustments may be made in the period (“the closed period”) that—
(a) begins with the 31st day after the end of the 45 day period mentioned in paragraph 4(1) of Schedule 43, and
(b) ends immediately before the day on which the notice under paragraph 12 of Schedule 43 is given in relation to the tax arrangements." (FA 2013, s.209(8))
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GAAR-related adjustments
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"(10) In this section “GAAR-related adjustments” means—
(a) for the purposes of subsection (8), adjustments which give effect (wholly or in part) to the proposed counteraction set out in the notice under paragraph 3 of Schedule 43 or paragraph 5 of Schedule 43D;..."(FA 2013, s.209(10))
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- No adjustments during pooling notice or notice of binding procedure
(9) Where a pooling notice or notice of binding has been given in relation to any tax arrangements, no GAAR-related adjustments may be made in the period (“the closed period”) that—
(a) begins with the 31st day after the day on which the notice is given, and
(b) ends immediately before the day on which a notice under paragraph 8(2) or 9(2) of Schedule 43A, or a notice under paragraph 8(2) of Schedule 43B, is given in relation to the tax arrangements (as the case may be)." (FA 2013, s.209(9))
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GAAR-related adjustments
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"(10) In this section “GAAR-related adjustments” means—
[...]
(b) for the purposes of subsection (9), adjustments which give effect (wholly or partly) to the proposed counteraction set out in the notice of pooling or binding (as the case may be)." (FA 2013, s.209(10))
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Time limit for making adjustments (ordinary time limits)
"(6) But—
[...]
(b) the power to make adjustments by virtue of this section is subject to any time limit imposed by or under any enactment other than this Part.
The provision made by this subsection needs to be read with sections 209AA to 209AC and has no effect on adjustments so far as made otherwise than by virtue of this section." (FA 2013, s.209(6) - (6A))
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Protective GAAR notice (within ordinary time limit)
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"(1) An officer of Revenue and Customs may give a written notice (a “protective GAAR notice”) to a person stating that the officer considers—
(a) that a tax advantage might have arisen to the person from tax arrangements that are abusive, and
(b) that, on the assumption that the advantage does arise from tax arrangements that are abusive, it ought to be counteracted under section 209.
(2) The protective GAAR notice must be given within the ordinary assessing time limit applicable to the proposed adjustments.
(3) But if—
(a) a tax enquiry is in progress into a return made by the person, and
(b) the return relates to the tax in respect of which the specified adjustments under the protective GAAR notice are made,
the protective GAAR notice must instead be given no later than the time when the enquiry is completed." (FA 2013, s.209AA(1) - (3))
Must specify the arrangements, tax advantage and proposed adjustments
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"(4) The protective GAAR notice must—
(a) specify the arrangements and the tax advantage, and
(b) specify the adjustments that, on the assumption that the advantage does arise from tax arrangements that are abusive, the officer proposes ought to be made." (FA 2013, s.209AA(4))
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Proposed adjustments have effect as if made under s.209
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"(5) The adjustments specified in the protective GAAR notice have effect as if they are made by virtue of section 209." (FA 2013, s.209AA(5))
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Appeal against protective GAAR notice
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"(6) Notice of appeal may be given against the adjustments specified in the protective GAAR notice (whether or not the adjustments are also made otherwise than by virtue of section 209)." (FA 2013, s.209AA(6))
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Appeal automatically stayed
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"(7) Any appeal against the specified adjustments (whether made by virtue of section 209 or otherwise) is, as a result of this subsection, stayed—
(a) for a period of 12 months beginning with the day on which the protective GAAR notice is given, or
(b) if a final GAAR counteraction notice is given before the end of that period, for a period ending with the day on which the final GAAR counteraction notice is given." (FA 2013, s.209AA(7))
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Protective GAAR treated as final if no appeal or appeal withdrawn unless superseded by final GAAR counteraction notice
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"(8) If, in the case of the specified adjustments (whether made by virtue of section 209 or otherwise)—
(a) notice of appeal is not given or notice of appeal is given but the appeal is subsequently withdrawn or determined by agreement, and
(b) no final GAAR counteraction notice is given,
the protective GAAR notice has effect for all purposes (other than the purposes of section 212A) as if it had been given as a final GAAR counteraction notice (and, accordingly, as if the GAAR procedural requirements had been complied with)." (FA 2013, s.209AA(8))
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Protective notice stops time limits for adjustments
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"(9) In any case not falling within subsection (8)—
(a) the specified adjustments have no effect (so far as they are made by virtue of section 209) unless they (or lesser adjustments) are subsequently specified in a final GAAR counteraction notice, but
(b) the giving of the protective GAAR notice is treated as meeting the requirements of section 209(6)(b) in the case of that final GAAR counteraction notice." (FA 2013, s.209AA(9))
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