Clifford Chance

The draft GAAR: the ‘double reasonableness test’

4 September 2012

The ‘double reasonableness’ test in the draft GAAR was designed to set a high hurdle. It would do so by ensuring that arrangements would fall outside the GAAR not only if the judge himself regarded the entry into the arrangements as being a reasonable course of action, but also where, though he did not himself take that view, he nonetheless considered that such a view might reasonably be held. However, when the current wording of the test is examined against the backdrop of existing legislation and case law concerning the concept of reasonableness, it seems doubtful whether the test achieves its stated objective. The implication of this is that, unless the wording is strengthened, we may find ourselves drifting towards a more intrusive GAAR than what was originally proposed.

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