BKM506600 - Governance protocol: revisiting the Code decision following GAAR counteraction

As authorised by FA14/S287(4) and (5), the Governance Protocol provides that there is a breach of the Code if certain action is taken under the GAAR. This is where there is a unanimous or majority agreement amongst the GAAR Advisory Panel that arrangements entered into or promoted by a bank are not a reasonable course of action and that it would be appropriate to apply the GAAR and a notice has been given under FA13/SCH43/PARA12.

In such a case the role of the Code Independent Reviewer and the HMRC Commissioners is limited to considering whether the bank should be named in the HMRC annual report. The HMRC director will notify the bank that it is in breach of the Code and ask for representations about remedial or mitigating action or exceptional circumstances to be taken into account by TDRB, the Independent Reviewer and the HMRC Commissioners in considering whether the bank should be named.

The Governance Protocol envisages that there could be a breach of the Code in cases referred to the GAAR Advisory Panel which do not lead to the issue of a counteraction notice. In such cases the Responsible Officers will consider whether any further action should be taken bearing in mind the reasons for the GAAR Advisory Panel’s decision. The next step is likely to be escalation to a meeting between the HMRC director and the customer.

A notice of proposed counteraction or other GAAR notice may be issued after the Responsible Officers have decided not to escalate a transaction under the Code. Although this will mean that it is a potential GAAR transaction under the interpretation suggested above, HMRC will usually wait for the GAAR Advisory Panel decision before escalating under the Code. This is because the Code action necessarily will depend on the Panel decision and reopening Code discussions may be a distraction from the GAAR and other action being taken.