London head of Tax Sandy Bhogal comments on George Osborne’s plans to implement a General Anti-Avoidance Rule as announced in the Budget today:

“The Government is trying to design a tax system which is attractive for business but the pressure to collect tax revenue is intense, so every step forward seems to coincide with a step back. A further drop in the corporation tax rate may fuel the argument that the UK is becoming a corporate tax haven, but one hopes that people will recognise the merits for doing so. However, a low tax rate does not of itself encourage businesses to invest in the UK. Certainty and predictability in the tax system is more important. The Government has obscured the line between avoidance and evasion and brought questions of morality into the debate and risks alienating business as well as undermining the fundamental concept of the rule of law by allowing this to continue.

A good example of this is the GAAR. It could be seen as either a reasonable compromise that will not affect the centre ground of tax planning, or as another example of using a sledgehammer to the crack the nut of a minority of aggressive tax avoidance schemes which are generally being knocked down by the courts and, if legislation was appropriately drafted, such schemes would not even be contemplated. However, what cannot be argued is the uncertainty that it creates, and maybe more consideration should have been given as to whether it was really necessary.”