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August 10, 2017

Panel Publishes First Opinion on Application of GAAR

The General Anti-Avoidance Rule (GAAR) Advisory Panel has published its opinion that companies cannot pay employees in gold bullion in order to avoid tax.

This is the first application of the GAAR Advisory Panel since it was introduced in 2013 in order to bring an end to abusive tax arrangements and the decision reinforces the power of the GAAR in tackling abusive tax avoidance.

The GAAR Advisory Panel is independent of HMRC and gives their opinion on whether certain arrangements come within the GAAR rules. The GAAR guidance rejects the proposition that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bills by any lawful means and the panel only challenges transactions where a course of action has been taken to achieve a favourable tax result that Parliament did not intend.

In this case, the company purchased gold valued at £300,000 which was then immediately sold by its employees. The company’s liability to pay the gold supplier was settled by the employees in return for a director’s loan account credit in favour of the employees. Furthermore, long-term contractual obligations were created to an offshore EBT, akin to those of a loan repayment.

The result of the arrangement was that the company’s assets were reduced by £300,000, whilst £300,000 was made available to the employees as a reward in connection with their employment, and the employees owed £300,000 to the EBT in which they are potential beneficiaries.

In reaching their opinion, the Panel considered whether the steps involved were “abnormal and contrived”. It was felt that there was no reason for the steps to involve gold other than the avoidance of tax and that the tax arrangement was not a reasonable course of action. It was inconceivable that Parliament would have anticipated and intended a reduction of the employees' tax liability to zero by using this arrangement and therefore it was caught by the GAAR provisions.

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