I had a bit of a read of the GAAR guidance yesterday and I was relatively unsurprised with what was in there. It seems straightforward to me, but there are a few areas of concern.
The first is the attempt to single out certain cases such as the Duke of Westminster case and say that the principle no longer applies. I’ve blogged about that case before and said that the passage most often quoted should be read in its wider context.
The reason for this is that Tomlin is talking about the rule of law. He is saying (to my mind) that discretion by the authorities in matters of taxation is wide open to abuse. A necessary conclusion of this is that individuals can arrange their affairs so as to minimise their tax liabilities, but it is not the purpose of what he is saying.
This rule of law principle still holds true under the GAAR it seems, or at least for the moment. But there is a limit applied to the lengths which someone can take it. Which is the point of the GAAR.
Therefore, the rule of law point from Westminster is still valid. Until the point an arrangement is deemed abusive. So, on reflection, I’m happy with that but still concerned about mission creep in future.
But the bit which I still find incredibly strange is the passage talking about what a reasonable view can be for the purposes of the legislation. This goes as follows:
C5.10.4 It is important to note, however, that some person’s view that the tax arrangements are a reasonable course of action (whether the view of a QC, an accountant, solicitor or anyone else) will not inevitably lead to the conclusion that the arrangement is not abusive. It will be necessary to test that view to see whether that view itself can be regarded as reasonable, having regard to the purposes of the GAAR legislation and the factors that it requires to be taken into consideration.
C5.10.5 The reason for this is the recognition that some individuals may hold extreme views. These views may, for example, be based on the proposition that all taxation is state-sponsored theft, or that the Government cannot be trusted to spend citizens’ money sensibly. Such views, even if held by individuals who would otherwise be regarded as reasonable, cannot be regarded as reasonable for the purposes of the GAAR. This is because the GAAR is based on the premise that taxation is the principal means by which the necessary functions of the state are funded.
C5.10.6 There are less obviously extreme views – which may be commonly held – that nonetheless cannot be regarded as reasonable for the purposes of the GAAR. Perhaps the clearest example is the view that it is the function of HMRC and the Parliamentary drafter to get the legislation right, and that if they fail to do so there is nothing wrong with individuals or companies exploiting defects in the drafting12. However, this is wholly inconsistent with one of the basic purposes of the GAAR, namely to deter or counteract the deliberate exploitation of shortcomings in the legislation. Accordingly, even if such views are held by someone who would ordinarily be regarded as reasonable, and indeed may be eminent in a field of work (such as accountancy or the legal professions), those views themselves would not fall to be regarded as reasonable for the purposes of the GAAR.
Now, I appreciate the guidance is attempting to describe the consequences of the legislation, not dictating a prescribed view of what is reasonable, but it sort of comes across as the latter. The problem is that it suggests that this view is reasonable in the context of interpreting tax legislation but just not for the GAAR.
There are a few reasons I think it comes across as prescriptive. For starters, it goes without saying that the purpose of a taxing provision is to levy tax in given situations. I’d go so far as to say that it is unreasonable to conclude otherwise.
Is it necessary to point it out? I know that I write some bleeding obvious stuff knowing that being explicit is more important than not patronising and offending the reader. But I’m not sure this is quite the same. I cannot imagine anybody arguing that tax is theft in court, at a tax tribunal or in front of a GAAR sub-panel.
And I bothered to check whether anybody ever has on Tolley Library. The expression “tax is theft” does not appear once. Nor does “state-sponsored theft” or various permutations and variants of the sentiment. As far as I can tell, nobody has ever tried to argue this point in a court of law or otherwise suggested that it is a valid argument appropriate for interpreting the impact or intention of legislation.
Also, an “objective view” is a fundamentally abstract notion. It is independent from the individual and any political beliefs that they might hold. Otherwise it would be subjective.
A rabid anarchist might hold a reasonable view that he’s allowed to incorporate his business to reduce tax because it is a legitimate choice permissible within the spirit of the law (pending the annihilation of the state). Should we discount his view on this point as being reasonable? A reading of the guidance might give this impression even though his specific view on incorporation is objective and reasonable (and somewhat pragmatic for a hardcore anarchist). But you would have to say his political views are irrelevant here.
This is a straightforward example, but let’s say that this man is arguing a point which is a bit more contentious. Should we ascertain whether he is ‘an acceptable reasonable person’ for the purposes of the legislation?
In actual fact, there is no need. Because his motive is still irrelevant and unless the only argument relative to the interpretation legislation he has is “tax is theft”, which is an incredibly unpopular approach apparently, this guidance might encourage people to consider who is a reasonable person for the purposes of the GAAR.
I personally think this passage is logically unnecessary. And as somebody who has felt concern over the stigma surrounding mental health issues, I find it disturbing to be alluding to singling “some individuals” out for not having the capacity to be reasonable.
I personally would have liked to see it made absolutely clear that it is that specific view that cannot be considered reasonable in this specific context and it does not impact on the reasonableness of other views that a person may hold. It does seem to be trying to say that. But I also find the expression “someone who would ordinarily be regarded as reasonable” suggestive of regarding the lack of reasonableness being assigned to the person not one specific view.
It’s a petty point in many ways, but it is things like this that make me uneasy. In terms of the logic of the guidance, it seems a wholly unnecessary thing to point out and a dangerous one to do so.
Consider all the views that they didn’t include as also being unreasonable. This inclusion presents the deduction that the GAAR panel felt that this was a necessary inclusion. And it is only necessary if the GAAR panel felt it was a reasonable position to hold but specifically not for the purposes of the GAAR.
So the conclusion I arrived at was that the GAAR panel is of the opinion that, outside of the GAAR, the view that “tax is theft” is reasonable.