Examples of how the GAAR applies to tax arrangements

The arguments given in support of the arrangements are based on the
“mechanistic nature of the legislation” and “plain words on the page”. No
regard is had to the purpose of the relevant sections in the scheme of the long
funding lease, and the wider capital allowances, legislation.
The arguments are based solely on the wording of section 70E and, in
particular, on perceived shortcomings in the definition of ‘QA’ in that it does
not exclude a payment made for one purpose – the put option payment said
to constitute a residual value guarantee – which also has another purpose,
namely to reacquire the plant or machinery. HMRC does not accept this
analysis but for the avoidance of doubt section 70E was amended by section
33, FA 2011 with effect from 9 March 2011 so that any amount “otherwise
relievable” is excluded from ‘QA’.
2.2.5.4 Does the arrangement include any of the indicators of abusiveness
within clause 2(4) of the draft GAAR?
One of the indicators is that the arrangements result in deductions or losses of
an amount for tax purposes that is significantly greater than the amount for
economic purposes, (provided that it is reasonable to assume that such a
result was not the intended result when the relevant tax provisions were
enacted).
In this case Company A seeks over the period of its ownership (first legal,
then economic, then legal again) to obtain entitlement to capital allowances
significantly in excess of the net cost to it of having the use of that asset. In
the example above, the claim would result in a tax loss of 98 that did not
correspond to an economic loss.
2.2.5.5 Do the tax arrangements accord with established practice and has
HMRC indicated that it accepts that practice?
HMRC has never accepted that the arrangements give rise to the claimed tax
result.
2.2.6 Conclusion
On the facts given the arrangement is an abusive one to which HMRC would
seek to apply the GAAR.
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