HMRC have decided not to press ahead with the introduction of tax treaty anti-avoidance legislation because of what they describe as a “significant uncertainty”.
This seems a remarkable U-turn bearing in mind the Consultation period to the original Technical Note (issued on 1st August 2011) only ended on 22nd September 2011.
What was certaintly evidence from the initial document, and this is sadly a feature of previous Governments as well (you only need to look at how the FA08 changes to non doms were rushed in to see that) was that the proposals were simply not thought through properly and potentially were the classic “sledgehammer to crack a nut” approach that we have recently seen in the Disguised Remuneration legislation.
The proposals were extremely wide in their potential application, there were no grandfathering provisions and certain commercial arrangements (such as loan financing provided through treaty vehicles) could have been impacted – how all this would have impacted on the ability of the UK to remain competitive in the current climate was unclear.
Thankfully, the comments that were raised during the Consultation period were taken on board, although why it ever got to that stage is a little unclear.
Hopefully, if treaty “abuses” do exist that HMRC have in their sights then hopefully a more targetted approach will be adopted – possibly by way of agreed override provisions on the appropriate treaties.