Does the General Anti-Abuse Rule (GAAR) improve upon pre-existing methods of tackling Tax Avoidance?

AuthorEmma Webster
Does the General AntiAbuse Rule GAAR improve upon preexisting
methods of tackling Tax Avoidance
Every man is entitled if he can to arrange his affairs so that the tax attaching under
the appropriate Acts is less than it otherwise would be. If he succeeds in ordering
them so as to secure that result, then, however unappreciative the Commissioners
of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be
compelled to pay an increased tax.
Spoken by Lord Tomlin in the Duke of Westminsters case, 1936; it is likely that some
reference to this quote will have found its way into almost every tax avoidance defence
case since. However, once seen to represent the attitude of the taxpaying public,2 the
principle that it sets forth has lost favour of late. Tax avoidance has become a highly
emotive topic. It is difficult to pick up a newspaper these days without encountering a
headline vilifying the next tax dodging celebrity or much adored multinational.
Yet tax avoidance is not a new phenomenon )ts emergence as high-grade media fodder
seems to have been spurred on by widespread disillusionment at Government cut backs
and the effects of the recession. Why should the wealthy avoid paying tax when the rest
of society is paying a greater share than ever before? It therefore came as no surprise that
the Government felt it had to do something, to introduce a new method of tackling tax
avoidance; the General Anti-Abuse Rule (GAAR).
Although the timing of the GAAR raises its own questions, it is clear that the pre-existing
methods of tackling avoidance were plagued with difficulties. In order to assess the ability
of the GAAR to improve upon these methods, this paper will consider early judicial
attempts at tackling avoidance via a judicially created doctrine, along with the reasons for
its demise.
1 IRC v Duke of Westminster [1936] AC 1 (HL) at 19.
2 Judith Freedman, ‘Defining Taxpayers Responsibility: In Support of a General Anti -Avoidance Principle’ [2004] BTR 332,
In terms of the GAAR itself, early attempts at a general anti-avoidance rule will be
considered, before moving on to look at the aims and perceived deficiencies of the GAAR,
as enacted These include claims of administrative creep an increase in (er Majestys
Revenue  Customs (MRC discretionary powers its inability to tackle the very cases
that appear to have led to its creation; and, not least, the uncertainty that it is seen to
Of all its perceived flaws, perhaps the most disappointing feature of the GAAR is its
inability to address the complexity and uncertainty plaguing the pre-existing regime.
Possible solutions to this are therefore suggested, including a move towards principle-
based legislation and the rethinking of the decision not to support the GAAR with a
general clearance system.
The pre-existing regime
In order to understand the rationale behind the introduction of the GAAR, it is first
necessary to understand the problems inherent in the tax system itself. Only then can the
problems associated with the pre-existing anti-avoidance regime, both in terms of
legislative controls and attempts at judicial intervention, be fully appreciated.
Rules Based Drafting of Tax Law
After the revelations that Starbucks had paid no corporation tax in the UK during the years
20102012 (despite sales of over £400 million in 2011 alone), the company made the
unprecedented declaration that it would pay £10 million over the following two years,
regardless of whether it made any profits during those years.
3 The company had not
reduced its tax bill illegally: it had been operating well within the law. And yet, the
company had felt it necessary to volunteer to pay extra tax in order that it may be seen, in
the eyes of the paying public at least to be paying its fair share.
Heightened public unrest over the issue of tax a voidance has led to increased discussion
on the moral duty of taxpayers to pay their fair share. Despite frequent references to such
a duty, no such moral obligation exists within our law. Although recent press coverage
3 ‘UK Uncut Protests Over Starbucks 'Tax Avoidance'’ BBC News (8 December 2012) >
accessed 24 February 2014.
may have caused some to believe that morality should play a wider role in our tax system,
its subjective nature and inability to create clear and definite rules makes it a poor guide
in this respect.
4 As Freedman has stated, Tax:
calls on morality where the law proves inadequate to achieve what government
intends, are unreasonable, unfair and incomprehensible since taxpayers are entitled
to be able to rely on the law as it is written. If this does not accord with the intention
of Parliament, it is for Parliament to make its intention clearer.5
The Bill of Rights 1689 states that only Parliament has the power to impose taxation,
meaning there is no common law of taxation in the UK.6 As Parliament tends to legislate
in the tax arena following a prescriptive, rules-based approach, it is generally the case that
taxpayers can rely upon the law as it is written. However, the consequences of this
approach must be acknowledged. Goldberg talks of an experiment he carried out in March
2013, comparing the UK rules-based system to the more principles based approach
adopted in Hong Kong:
I read out loud, first, a number of pages from the Inland Revenue Ordinance of Hong
Kong which contains the whole of what is the most widely admired, efficient and
accepted tax system in the world and then the same number of pages from our tax
legislation there are  pages in the (ong Kong Ordinance each with fewer
words than are to be found on each page of UK legislation; and I took there to be
 pages in the UKs direct tax legislationThe experiment indicates that it
would take 9 hours and 19 minutes to read the whole of the Hong Kong Tax Code.
The equivalent exercise with the UK legislation would take 768 hours, just over 19
working weeks or about four and a half months.7
It is against this backdrop of an already complicated legislative regime that we must
consider the techniques adopted to tackle avoidance.
Legislative Approaches to Tax Avoidance
A 2009 discussion paper commissioned by the Tax Law Review Committee (TLRC) found
that legislation created to tackle tax avoidance typically falls into one of two categories:
4 Freedman, ‘Defining Taxpayer Responsibility’ (n. 2), 337.
5 Ibid.
6 Eden (n. 8), 308.
7 David Goldberg, ‘How Clear, Transparent, Accessible and Foreseeable is Tax Law and Practice? ’ (2013) 4 PCB 238, 238.

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