Having mooted the introduction of a legislative general anti-avoidance rule (or "GAAR") earlier this year, HM Treasury has announced a "study programme," briefed to report by 31 October 2011, to consider that possibility. The study will be led by a leading independent tax barrister, Graham Aaronson QC.

The terms of reference for the study programme (available here) request consideration of the possible scope and design of a GAAR capable of providing the government with an effective means of deterring and countering "tax avoidance," whilst ensuring that the rule works "fairly."

It is expressly acknowledged that, after the study group has reported, further consultation would then be needed before a GAAR could be legislated. Clearly, we are still some time away from the introduction of a GAAR, if that is to ever happen, although the inclusion of a GAAR in Finance Bill 2012 still appears to be possible, if unlikely from a timing perspective at least.

The announcement is an interesting development, echoing, to an extent perhaps, the recent codification of the economic substance doctrine in the US, and the outcome is unpredictable.

Firstly, the terms of reference of the working group are surprisingly brief, with no guidance as to the kinds of "tax avoidance" activity which are to be "deterred and countered." Given the fierce debate amongst the tax community as to what is and isn't "acceptable" tax avoidance in recent years, this is surprising. The interpretation of the term "tax avoidance" clearly has political overtones, so to leave it to the study group to determine the kinds of activity which are to be "deterred and countered" appears a questionable decision. Will the group be given further private guidance by the government on this point?

Secondly, Graham Aaronson was at one time Chairman of the Tax Law Review Committee which published papers concerning tax avoidance and the possibility of a GAAR back in the 1990s. The conclusion of the Committee at that time was in general terms that a legislative GAAR was preferable to the uncertainties created by the development of judicial anti-avoidance principles of the Ramsay and Furniss kind. However, the group nevertheless opposed the particular terms of a legislative GAAR which were proposed back in 1998.

Given the significant refinement of the UK's judicial anti-avoidance principles since that time, with in particular the new purposive approach expounded in the BMBF decision of the House of Lords, perhaps Mr. Aaronson could now be expected to consider rejecting the need for a legislative GAAR. It is also notable that the reports of the Committee back in the 90s stressed the necessity of a properly funded clearance procedure should a GAAR be introduced. In these straitened times such funding seems unlikely – the terms of reference refer to resource costs for HMRC being kept to an "acceptable level" - and so therefore, perhaps, does the introduction of a GAAR.

On the other hand, having been appointed to consider a GAAR, it would be bold of the study group to fail to provide a recommend form of GAAR in some form. If none is suggested then the legislature would appear likely, in the short term at least, to be denied the opportunity of considering one. If the group did suggest a form of GAAR, the legislature would then at least be able to consider it, and the group could not then be accused of having obstructed the democratic process in some way.

For this latter reason, it does seem likely that a proposal for a form of GAAR will result from the current process. If a form of GAAR is proposed, then that in itself could be expected to create further political momentum for its implementation in due course.