Anti-avoidance provisions

The recent decision of the First-tier Tribunal in Water Property v HMRC [2016] UKFTT 721 has served as a reminder that the domestic legislation of Member States must comply with European Union laws and principles. Although the appeal was ultimately determined on other grounds, the Tribunal has provided interesting commentary regarding the vires of Member States in applying anti-avoidance provisions.

The Tribunal reiterated the principle that any powers exercised by HMRC have to be proportionate. In the present case, where the overall transaction was entered into for a commercial purpose, there could be no abuse. Consequently, through the application of an anti-avoidance provision where there was no abuse, HMRC was acting disproportionately to the objective of the provision.  

This decision appears to indicate that innocent transactions, which happen to ‘tick the boxes’ of an anti-avoidance provision, should not be affected. It remains to be seen how this decision will be treated by the Tribunals, as the FTT is only persuasive, but it may provide some comfort for innocent taxpayers who find themselves caught by other anti-avoidance provisions.

Holly Grantham
[email protected]
David Anderson