First ever GAAR Advisory Panel Opinion
September 28, 2017
A company, which operated an EBT, bought gold from a third party and gave it to two directors who were 49% and 51% shareholders. The directors immediately sold the gold and settled the company’s liability to pay for the gold in exchange for a director’s loan account credit. At the same time a long term obligation was created which required the directors to pay an amount at least equal to the price of the gold to the EBT at some point in the future.
The scheme attempted to avoid s.62 of ITEPA 2003 (which defines “earnings” for employment) and Part 7A of ITEPA 2003 (designed to catch “disguised remuneration”) but still entitle the company to a CT deduction.
The GAAR Panel decided that the scheme involved “contrived or abnormal steps” (FA 2013 s.207(2)(b)) as it is abnormal for an employer to reward employees with gold and for parties who choose to introduce an asset into arrangements to sell the asset immediately. In addition if cash and not gold had been used either the directors or company would have been in a substantially different economic or commercial position.
The Panel also considered that the transaction was not consistent with the principles of the relevant legislation. The most likely comparable transaction was the funding by the company of the EBT which would have given rise to a charge to income tax under Part 7A and NICs and would have resulted in a deferment of the CT deduction. The reason that the taxpayer was claiming different treatment was that a subsection relied upon (ITEPA 2003 s.554Z8(5)) did not contain an express “no connections with tax avoidance” provision, unlike other subsections (ss.(1)). The Panel did not see an obvious reason why these should be treated materially differently and that the legislation contained a shortcoming which the arrangements tried to exploit.
The Panel considered that the steps taken were not a reasonable course of action.
This article appears in the JHA September 2017 Tax Newsletter, which also features:
- The draft Finance Bill (No.2) – Partial Closure Notices
- Beneficial Ownership Limitations must target only artificial arrangements
- The Trustees of the BT Pension Scheme C-628/15: Tax Credits for Exempt Taxpayers
- Trustees of the P Panayi Accumulation & Maintenance Settlements: Exit Charge on Trust Migration
- Cussens & Others C-251/16: Abuse of Rights
You can download the whole newsletter as a PDF: September 2017 – Newsletter