Commentary

V2.210 Business activities—transactions entered into for tax avoidance/evasion and abuse of rights

Part V2 Registration – deregistration

V2.210 Business activities—transactions entered into for tax avoidance/evasion and abuse of rights

V2.210 Business activities—transactions entered into for tax avoidance/evasion and abuse of rights

This paragraph examines whether transactions which have been entered into for tax avoidance or for tax evasion are business activities for VAT purposes. It also looks at the related concept of 'abuse of rights'.

For an overview of VAT and business more broadly, see V2.201B.

By way of background, HMRC defines tax avoidance as 'the use of contrived arrangements or structures to achieve a tax advantage – an increase in tax recovery, a reduction in the tax due or a tax deferral – contrary to the purpose and spirit of the legislation. Tax avoidance puts at risk Government revenues. It can also give a business an unfair advantage over others and threaten tax simplification measures'1.

On the other hand, HMRC has previously referred to tax evasion 'where there is a deliberate attempt not to pay the tax which is due'2.

Business activities—transactions entered into for tax avoidance

The Halifax tribunal decision and related cases

The principles set out in the Ramsay v IRC3 and Furniss v Dawson4 cases have generally been held not to apply to VAT. These principles suggest that a series of transactions which, viewed as a whole, do not significantly affect the taxpayer's beneficial interest, or which have no commercial purpose other than the avoidance of tax, may be viewed as a nullity.

In Thorn5, Lord Hoffman warned against taking a 'global' view of genuine transactions, since such a view was contrary to the principle derived from BLP6 that it is

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