The General Anti-Abuse Rule (GAAR) Advisory Panel has determined that a disguised remuneration scheme involving employee rewards linked to a secondhand bond is abusive tax avoidance, effectively siding with HM Revenue & Customs.
The GAAR Advisory Panel issued the opinion on disguised remuneration schemes due to the growing controversy and the release of loan charge act in finance. Employers used those schemes to pay individuals their income through loans, usually paid out via offshore trusts, and to sidestep income tax and National Insurance contributions. The loans were structured in such a way that they would never have to be repaid.
The panel has examined a packaged tax scheme that used a series of transactions to pass on a reward to a company and an employee — an individual who served as the company’s sole director and shareholder — through their joint acquisition of a secondhand insurance bond.
The scheme involved a loan, liability for which is assumed by the company and satisfied by the individual. The scheme also involved the use of a gilts option, further contributions to the bond, and “cooling off rights” which were, in this case, a 30-day period in which the investor could cancel his position in the gilts option and contributions to the bond.
These arrangements resulted in the individual receiving of £1.5 million from the company that the individual argued was not earnings under U.K. income tax and National Insurance contributions rules, even though the company claimed a tax deduction for that amount as the director’s remuneration.
The panel found that the arrangements were similar to a situation in which the company would have paid a cash bonus to the individual as remuneration. Therefore, the purpose of this planning is to enable an employer to reward an employee in a tax-efficient way and look to secure a corporation tax deduction for the payment.
GAAR advisory panel opinions aren’t binding on HMRC or taxpayers, but a tribunal can take them into account before a case goes to court. If the panel gives a clear opinion on a case, then either HMRC or the taxpayer can decline to pursue the matter further if the opinion is not in their favor.
Source: UK Government
TPA Global provides solutions in the area of BEPS, Value Chain Analysis for multinationals along with variety of tax, business and educational technologies. Let us show you how to improve your operations and move from “staying out of trouble” to “being in control”.