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Tax lawyers are expressing deep scepticism about Gordon Brown's announcement in the Budget that he has instructed the Inland Revenue to “consider a general anti-avoidance rule”.
The idea is that under such a rule transactions entered into for the primary purpose of avoiding tax would, by their very nature, be invalid.
Schemes designed to exploit loopholes in the law would no longer be allowed, and neither would it be necessary for tax laws to be drafted in exhaustive and pre-emptive detail.
In countries where the concept has been adopted, including Australia, New Zea- land, Canada and, more recently, Hong Kong, it is said to act as a deterrent. However Inland Revenue decisions are also more likely to be contested in the courts.
“I think such general rules tend to promote an excessive clearance culture,” said Andrew Park QC, a tax specialist at Gray's Inn Chambers. “Professional advisers won't do anything until it has been cleared by the Revenue.”
Alasdair Douglas, a tax partner at Travis Smith Braithwaite, points out that case law is already leading in this direction. The Ramsay principle is increasingly accepted, under which the purpose of a transaction is taken into account, while the recent McGuckian decision took account of the purpose of the relevant legislation.
“The law is already there with the courts beginning to adopt a purposive approach,” said Douglas. “But the advantage of court-made law is that it can develop to meet the needs of a developing market.
According to Steve Edge, a tax partner at Slaughter and May, the fundamental disadvantage of a generalised anti-avoidance law is the uncer- tainty that it produces.
“In such circumstances Revenue decisions can only be subjective,” he said. “There is also the problem of unintended consequences. Leasing probably wouldn't be allowed, but without leasing the Japanese motor manufacturers would probably never have come to Britain.”