The CIOT has written to HMRC regarding clause 60 of the draft Finance Bill 2016 published in December 2015, which proposes a new penalty arising in circumstances where the general anti-abuse rule (GAAR) applies.
We are concerned by these proposals as they go against the general direction of travel regarding penalties, which are generally becoming more mitigatable. We observed that when the CIOT had discussions with Graham Aaronson about the GAAR he made it clear to us that his committee considered that penalties of the type being suggested were inappropriate. We told HMRC that we are disappointed, and consider that it is inappropriate, that the Government is now seeking to impose such penalties before there has been a single case brought under the GAAR.
We also consider that the proposed penalty is difficult to reconcile with article 7 of the European Convention of Human Rights, which require criminal penalties to comply with principles of legal certainty and that penalties have also been held to be contrary to the European Convention when they are disproportionate.
Finally we observed that the imposition of such automatic draconian penalties may have the consequence of making the Courts less receptive to arguments that the GAAR applies, because in marginal cases they may consider the imposition of such penalties to be inappropriate. So the penalties could prove to be counterproductive for that reason.
The full CIOT response can be found here.