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ACCA Strategic Professional · Advanced Taxation (UK) · Ethical and professional issues arising from the giving of tax planning advice

A client asks Priya, a tax adviser, to explain the purpose of the UK General Anti-Abuse Rule (GAAR). Which statement is correct?

The GAAR counteracts tax advantages from abusive arrangements, tested by whether entering into them could reasonably be regarded as a reasonable course of action. A tax-saving motive alone is not enough, and the rule is not limited to offshore structures or subject to compulsory pre-clearance.

  1. AIt counteracts tax advantages arising from arrangements that are abusive, judged by whether they are a reasonable course of actionCorrect
  2. BIt counteracts any arrangement entered into with the main purpose of obtaining a tax advantage, however reasonable
  3. CIt requires every tax planning arrangement to be pre-cleared with HMRC before implementation
  4. DIt applies only to arrangements involving offshore entities or non-UK residents

Explanation

The GAAR targets only abusive arrangements, using the double reasonableness test: could entering into the arrangements reasonably be regarded as a reasonable course of action? Ordinary tax planning that is not abusive falls outside it. The second option is wrong because a tax-saving purpose alone is not enough, and the GAAR has no clearance requirement or offshore-only limit.

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