Strategizing Multinational Tax Risks

The General Anti-Avoidance Rule (GAAR) has received a status of prominence during 2014, and continues its subjective and complex override provisions in domestic law that are interwoven with treaty provisions.

Denmark has proposed a (Super) GAAR, trumping the EU Parent-Subsidiary Directive, EU Interest-Royalty Directive, EU Merger Directive and Danish double tax treaties.  Notwithstanding its current status as a “proposal,” Denmark’s intent is clearly shown to provide an umbrella rule, evidently overriding the respective treaties, providing that a “main purpose” rule which achieves tax advantages would be used to disallow respective tax benefits of the transaction(s).  The proposed rule would be effective by 01 May, 2015.

PwC’s Insight has provided a brief summary of the proposal:

Click to access pwc-denmark-introduce-gaar-double-tax-treaties-directives.pdf

GAAR continues to be “the elephant in the room,” highly visible although the rules and appeal avenues are distinct and arbitrary for every country.  Some countries have GAAR rules, along with specific / targeted anti-avoidance rules (SAAR / TAAR).  Thereby, tax uncertainty and the risk of double taxation increases, dispute resolution (if available) avenues are further stressed, and arbitration measures may not be available.

With respect to arbitration, it should be adopted by every country to achieve mutuality with taxpayers, however some countries have expressly stated that they do not want to give up their control / sovereignty.  Unfortunately, OECD has not aggressively pursued this remedy for multilateral agreement.