The general consensus was that the "unallowable purpose" test is not, in itself, difficult to understand; the words are clear. Rather, the difficulty comes in its application. Delegates found it hard to know how the test applied to a given set of circumstances. This uncertainty meant that taxpayers and advisers expended a substantial amount of time and money in considering, and obtaining comfort on, the test (in its various guises). It was felt that much seemed to ride on the way in which HMRC applied the test at that time, which was subject to change. Uncertainty as to the application of the test could decrease the attractiveness of entering into transactions.

Concern was expressed that it was not clear whose purpose was to be considered when applying the test. HMRC indicated that it was the taxpayer company's purpose that was relevant. However, delegates noted that in a group situation, it may be that the individual company does not truly have a purpose in entering into a particular transaction in a series; the purpose may be that of the group as a whole. Likewise, in the case of a group company, the board of directors may not exercise much active control if the group acts more as a unified whole. Therefore, determining the purpose of a particular group company or its directors may be a difficult, artificial task. Added to this, the tax specialists in the company, who have any discussions on "purpose" with HMRC, may be far removed (operationally and geographically) from the commercial personnel who actually have the relevant purpose.

Also of concern was uncertainty as to the comparator against which the transaction undertaken should be measured. Delegates were uncertain whether any tax advantage arising from the transaction should be measured against alternative methods of achieving the same commercial result or against not carrying out a transaction at all. In addition, concern was voiced as to whether HMRC would view any transaction carried out in anything other than the least tax-efficient way as having a tax advantage as a main purpose. HMRC indicated that its approach was to consider whether any given method of carrying out a transaction was driven by tax or whether any tax advantage was the "icing on the cake".

Although delegates felt that it would be preferable to standardise the wording used in various contexts, on the whole, divergence in the wording of the existing tests was not seen as a major issue. One concern raised in relation to streamlining was that this might lead to expansion of some of the existing tests. In addition, it was suggested that even if the wording were identical throughout the UK tax code, the meaning of the test might differ according to the particular contexts in which it was used. Further, it was suggested that it was not possible to agree whether a single form of words would suit all circumstances without seeing that particular form.

If streamlining progressed, it was felt that it would be helpful if passing the test in one part of the legislation meant that the test was passed for all purposes. However, concern was expressed that the corollary could be that marginal failure of the test in one area could taint the application of the test in all its guises to the transaction in question.

There was some suggestion from delegates that safe harbours and/or general consents could be introduced to increase taxpayer certainty.

It was suggested that clarification of the application of the test would preferably be incorporated in the legislation (although opinion was divided on this). However, it was recognised that it may be prohibitively complicated to do this comprehensively. Therefore, there were strong calls for HMRC to provide detailed guidance on the application of the test. HMRC appeared to agree with this approach; it was seeking to retain simplicity while avoiding black-letter tests in the legislation, which HMRC recognised meant that detailed guidance would be needed. However, HMRC did not wish to publish anonymous rulings as, in several cases, the identity of the parties would be capable of deduction from the factual information provided and HMRC did not wish to breach taxpayer confidentiality.

It was suggested that business would benefit if HMRC provided its personnel with more training on, and exposure to, the commercial drivers behind the ways in which transactions that are particularly susceptible to the "unallowable purpose" test are structured. HMRC appeared to be open to this.

HMRC noted that some parts of the "transactions in securities" rules had already been repealed by the Finance Act 2008 (see Practice note, Tax clearances: transactions in securities: The transactions). Some delegates felt that much of the substance of the rules was obsolete, and questioned whether a greater portion of the rules could be repealed. HMRC commented that its rigorous review of the rules to determine whether the rules could be further trimmed was ongoing. HMRC hopes to make further progress on this in time for the 2009 Budget.

The general feeling was that the existing rules probably needed to be rewritten (rather than subject to modest amendment), but that everyone needed to be clear as to the purpose of the rules before such a rewrite was undertaken. HMRC commented that about 80% of clearance applications were currently granted quickly. This reflected the feeling that the current rules were too wide and complex, leading to time and money being expended on unnecessary applications. However, HMRC commented that the current form of the rules was intended to appear intimidating so as to discourage avoidance activity.

Delegates were uncertain as to the form that revised legislation should take. There was support for targeted anti-avoidance rules (TAARs) provided that they were not too numerous or complex. However, a proliferation of impenetrable TAARs scattered throughout the legislation would have the potential (at least, in the short term, while taxpayers and advisers compiled precedent banks on the application of the new rules) to increase administrative costs and burdens. Another fear was that TAARs could leave scope for avoidance, which could give rise to further TAARs, steadily increasing the complexity of the legislation.

Whatever the form the legislation took, the consensus was that detailed HMRC guidance would be highly desirable, but that this guidance should not seek to limit the scope of the legislation in an unenforceable way: any restrictions should be enshrined in the legislation itself.

The question was raised whether new rules could lead to increased numbers of applications for clearance. It was suggested that properly-targeted TAARs should lead to a decrease in applications. HMRC's experience with the extension of their non-statutory clearance process (see Practice note, Tax clearances: general: Extended clearance process) suggested that even widening the ability of taxpayers to seek clearance did not necessarily lead to a huge increase in the number of applications: taxpayers did not apply for clearance solely because they could do so.

There was some suggestion that clearance applications could be dealt with by the HMRC staff most closely linked with the business in question, rather than centrally, as those staff were likely to have the greatest understanding of the business' commercial position and drivers.

There appeared to be widespread support from delegates for the introduction of a system of general consents to increase taxpayer certainty. There was also suggestion of the introduction of safe harbours.

Feelings were mixed as to whether the rules should be brought within the self-assessment regime. One concern was that such a move would lead taxpayers to be susceptible to HMRC intervention for a longer period under the discovery process. Questions were also raised as to whether such a move would encourage taxpayers to assume in their dealings with HMRC that the rules did not apply rather than seeking clarity, which would make HMRC's job more difficult and had the potential to lead to a greater number of disputes. Whether incorporation of the rules in the self-assessment regime was desirable might depend on the extent to which any TAARs introduced to replace the current rules were properly targeted. However, certainty (in the form of clearance) would always be desirable or necessary in certain circumstances, such as where reference needed to be made in an offering circular to the risk factors attaching to a transaction.

It was suggested that an ability to appeal to a tribunal against decisions made by HMRC on the application of the rules would be welcome.