The government’s General Anti-Abuse Rule (GAAR) is so poorly designed that it will allow 99 per cent of tax avoidance to continue, according to a tax briefing published yesterday by the TUC.
The TUC is concerned that as tax loopholes are so narrowly defined under the GAAR, it would have failed to deal with any of the big tax scandals uncovered in the last year – including those infamously exploited by Google, Amazon, Starbucks and Npower – had it been in place at the time.
According to the government’s own estimates, the GAAR should raise £40–£60m annually over the next few years, but that’s just 0.2 per cent of the estimated £25bn that is lost to the Treasury through tax avoidance every year, says the TUC.
As a result of its inherent weaknesses, the TUC believes the government should scrap the GAAR and wants the Chancellor to announce tougher new regulations in his autumn statement later this week.
The TUC tax briefing highlights several key weaknesses in the GAAR:
- All potential abuse is subject to an Orwellian ‘double reasonableness’ test. A tax loophole is allowed to be used unless it cannot reasonably be regarded as a reasonable course of action. This effectively allows all widespread tax abuse to pass the test.
- Any new anti-avoidance rules have to be agreed by a panel of experts. The qualification criteria is such these experts will inevitably be drawn from tax firms or the tax departments of businesses – the very people likely to take advantage of the loopholes the panel is supposed to be closing down.
- There are no penalties for using a loophole that is under investigation by the GAAR. This means there are no disincentives for companies to continue using these loopholes to avoid tax, until such point as the GAAR finally calls time on a particular tax avoidance plan.