The comment period, that ends 20 January, will be followed by an introduction of a general anti-avoidance rule (GAAR) that is broad and subjective in nature.
The Proposal defines tax avoidance as an act (or series of acts) applied in order to receive a tax benefit, which in certain circumstances defeats the object and purpose of the tax act, provided the way of conduct in the particular case was artificial. The determination of an artificial arrangement is further elaborated on via examples, including unjustified split of an operation, involvement of intermediary entities without substance, and a measure of economic vs. tax risk, among others.
This measure should be followed closely, as it can be applied very broadly, inconsistently and subject to the tax administration’s view of what is considered “artificial.” It also is focused on the use of holding companies without substance. EY’s Global Tax Alert provides further details on this development.