Whether this is ultimately a ‘new’ Part IVA or a mere re-expression of the original remains to be seen. There are key differences in the respective introductions of the original and new, some 30 years apart. In the oft quoted Second Reading speech of the ‘original’ Part IVA, the word ‘commercial’ was scarcely mentioned, but ‘blatant, artificial or contrived arrangements’ were.
The Courts have since concluded Part IVA can apply to a wholly commercial scheme. Nonetheless, those words from that speech did seem to be an influence on how Part IVA was approached and were often ritually recited, as if they could ward it off.
The 2013 Explanatory Memorandum fixes on the word ‘commercial’. The new Part IVA seeks to prevent taxpayers from asserting the commerciality of their arrangements as a defence, by limiting the meaning of tax benefit and reasserting the dominant purpose test as the heart of Part IVA.
In this new year of 2014 we may see signs of how Part IVA will start to play out. It may be that the idea of a normal business or family dealing will endure but taxpayers would be very brave to use it as the nub of a defence. The best approach to Part IVA is to apply the steps of the dominant purpose test, to the parts and the whole of your commercial transaction, to make sure it is objectively defensible, from all angles.
If you’d like to discuss how these changes could affect you, please contact me or your KPMG tax specialist.