Peers of the UK’s House of Lords sub-committee on the British government’s draft Finance Bill have published their report focusing on the proposed General Anti-Abuse Rule (GAAR), the Annual Residency Property Tax (ARPT) package and the government’s proposed limit on the use of certain income tax reliefs. Controversial, but legitimate tax avoidance measures used by companies operating in the UK, such as
, Google and Amazon, have stirred up controversy in the UK over recent months.
The Parliamentary Committee concludes that the proposed UK GAAR has been narrowly defined, which is a reasonable starting point given resource constraints and the need to provide certainty for business. However, it calls for the scope of the GAAR to 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 either be built into the legislation or, failing that, should be guaranteed in a ministerial commitment.
The Committee adds that as the GAAR is so narrow it will not apply to issues of public concern over the international tax planning techniques relating to tax paid by multinational companies (MNCs) which limit the amount paid in the UK. The Committee says this can only be dealt with at European Union (EU), Organisation for Economic Co-operation and Development (OECD), G8 and G20 level and it wants an acceleration of the review of OECD rules on taxation.
On the ARPT, the report acknowledges 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 issue of the cap on income tax relief, it says that the impact of genuine trading losses could have significant adverse effects on UK economic growth and recommends that the government reconsiders this aspect
The report also considers the process of tax policy making and stressed that the government maintains 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’.
Lord MacGregor, chairman of the House of Lords Economic Affairs sub-committee on the Finance Bill, commented: “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 five 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 MNCs. We recommend that the review of OECD rules be accelerated.”
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