First, let’s get the obvious observation out of the way: despite all that I will say that is positive about the GAAR it remains the case that this is not the legislation I wanted to tackle tax avoidance in this country. I’ll deal with that in a separate post, because this GAAR does have major structural problems within it.
And then let me say that within this constraint I welcome the GAAR and most especially parts A to C of the new Guidelines that are published to day.
The reason for my enthusiasm is that the GAAR Guidelines are without precedent as far as I know in UK tax law, because they are in effect legal precedent in their own right that any court has to take into account once Royal Assent is given. And that opportunity has been seized by those drafting them to fundamentally change the environment of UK tax avoidance law forever.
For over seventy years UK tax avoidance has been considered legal on the basis of four UK court decisions. As Part B of the new Guidance notes:
Amongst these Court decisions the following are routinely cited as providing legitimacy to even the most abusive tax avoidance schemes:
The GAAR Study Group Report was based on the premise that the levying of tax is the principal mechanism by which the state pays for the services and facilities that it provides for its citizens, and that all taxpayers should pay their fair contribution. This same premise underlies the GAAR. It therefore rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position.
There are less obviously extreme views – which may be commonly held – that nonetheless cannot be regarded as reasonable for the purposes of the GAAR. Perhaps the clearest example is the view that it is the function of HMRC and the Parliamentary drafter to get the legislation right, and that if they fail to do so there is nothing wrong with individuals or companies exploiting defects in the drafting.
However, this is wholly inconsistent with one of the basic purposes of the GAAR, namely to deter or counteract the deliberate exploitation of shortcomings in the legislation. Accordingly, even if such views are held by someone who would ordinarily be regarded as reasonable, and indeed may be eminent in a field of work (such as accountancy or the legal professions), those views themselves would not fall to be regarded as reasonable for the purposes of the GAAR.
So let’s be clear: the argument that loopholes are there to be exploited is now dead. And the rule in Partington v The Attorney General of 1869 is no longer UK law. That rule was the consequence of this statement:
But let me add another note of satisfaction. In 2009 I discussed a general anti-avoidance principle with Dave Hartnett in a private conversation as a result of general anti-avoidance rules I had assisted MPs to table in parliament (see here and here). He said at the time that he would love to kill off the Duke of Westminster ruling but had no idea how to do it. Well now that Duke of Westminster has, for tax purposes, been put in his box for good, as have all the other wholly unhelpful precedents I have referred to.
If I played a part, I’m pleased.
If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute.