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

Which of the following is an example of legitimate tax mitigation rather than avoidance involving artificial arrangements?

Making a pension contribution to obtain tax relief is legitimate tax mitigation because it uses a relief in the way Parliament intended. Artificial, circular or purely tax-driven arrangements may be abusive avoidance, and backdating documents is evasion.

  1. ARouting a sale of shares through an offshore company set up solely so that no gain arises, with no commercial purpose
  2. BCreating a circular series of loans between connected companies to generate an artificial deductible loss
  3. CMaking a pension contribution to obtain tax relief, using the relief as Parliament intendedCorrect
  4. DBackdating a document to show a gift was made before the start of the tax year

Explanation

Using a relief as Parliament intended, such as pension contributions, is mitigation. Contrived offshore routing and circular loans with no commercial purpose are artificial arrangements that the GAAR may counteract. Backdating a document is fraudulent and amounts to evasion.

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