General Anti-avoidance rule
Tax avoidance has become a massive topic of discussion over the past few years, given the current global economic conditions and the cuts to the public sector by the government as a result. This led to increased anger from the public who perceive avoidance by many of the country’s wealthiest people in a time of austerity as greed. Perhaps the most notable demonstration of this anger can be seen in the actions of the group UK Uncut, who for the past year have been organising protests at shops owned by retail tycoon Philip Green who, as the poster boy for tax avoidance, paid a £1.2 billion dividend to his Monaco-resident wife. It is estimated that avoidance schemes in the UK cost the treasury roughly £25 billion per year in lost revenue and resources deployed to combat these schemes cost several billion more each year. For this reason, the introduction of a General Anti-Avoidance Rule (hereafter referred to as GAAR) in the UK has once again become one of the hottest topics in politics after being side-lined by the Labour government for over a decade. The unexpected result of the general election, with the formation of a power sharing coalition between the Conservatives and Liberal Democrats, has given the Lib Dems an opportunity to implement its popular pre-election policy, to dramatically reform UK tax laws to tackle the issue of tax avoidance head on. A GAAR is a general principle whereby HMRC are given the discretion to tax transactions that it feels are primary motivated for tax avoidance purposes despite no legislation to prevent this transaction being in force, thereby removing the attraction of tax avoidance. Present UK tax law involves a sort of game between the tax planners and the HMRC whereby as soon as the government introduce legislation to outlaw an avoidance scheme, the tax planners have discovered another loophole to exploit and so on. This cycle intensified over the past five years after the introduction of...
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