The government's general anti-abuse rule (GAAR) targeting abuse of the tax system could hand HM Revenue & Customs discretionary power "at odds with the rule of law", a lawyer has warned.
Neal Todd, corporate tax partner at City law firm Berwin Leighton Paisner said: "Whatever the merits of the government's policy to target ‘highly abusive' and ‘contrived' tax planning, it is vital that any GAAR not act as a deterrent to the middle ground of sensible tax planning.
"The draft clauses announced by the government yesterday illustrate just how difficult this is going to be to achieve in practice."
He added the double reasonableness test that lies at the core of the new rules - arrangements are deemed abusive if they cannot reasonable be thought of as a reasonable course of action - gives no real clue as to how this is to be measured or who will decide what is reasonable.
"And the sanction for falling foul of the rules - that abusive arrangements can be counteracted on a just and reasonable basis - with no guidance as to how this is to be determined undermines the fundamental principle of certainty which has been at the heart of the UK's tax system from time immemorial and threatens to hand HMRC a discretionary power which is at odds with the rule of law," warned Todd.
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