GAAR

Section 207 of the Finance Act 2013 sets out the GAAR's central tests. Arrangements are 'tax arrangements' if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements. Tax arrangements are 'abusive' if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions — a formulation often called the 'double reasonableness test' because it asks not simply whether the arrangement was reasonable, but whether it is reasonable to regard it as reasonable. Section 207 lists factors relevant to that assessment, including whether the arrangements' results are consistent with the principles and policy objectives underlying the tax provisions in question, and whether achieving those results involved contrived or abnormal steps.

The GAAR is not applied unilaterally by HMRC caseworkers. Before HMRC can rely on the GAAR to counteract a tax advantage, the matter generally goes to the GAAR Advisory Panel, an independent panel established under Schedule 43 of the Act. If the taxpayer does not accept a designated HMRC officer's initial notice, or the officer is not satisfied by any representations made, the officer must refer the matter to the Panel; the taxpayer then has 21 days from the referral notice to send the GAAR Advisory Panel written representations, and the Panel's role is to give an opinion on whether the arrangements were a reasonable course of action before HMRC proceeds to make any counteraction.