Following up on its intent to introduce a “Super GAAR” (refer to 03 Jan 2015 post), a draft bill has been issued by the Danish tax authorities to achieve this objective. The new anti abuse provisions would take effect 01 May 2015 with no grandfathering exception.
The draft bill would contain two GAAR provisions:
- EU tax directive following the EU Parent-Subsidiary Directive (PSD) adopted by the European Council on 27 January.
- Domestic provision, mirroring language in the PSD, that would apply to all EU Directives, including the Interest and Royalty Directive.
The provisions would apply to existing and new Danish tax treaties based on the premise that treaty benefits are not available in arrangements that include abuse of treaty provisons.
The inherently subjective nature of the GAAR proposals, including the override of EU Directives, will likely be challenged by taxpayers and possibly the courts. In the interim, Danish transactions should be exercised with an element of care re: the potential application of GAAR that would reverse the tax advantage obtained.
The final OECD BEPS guidelines are yet to be issued, thus inconsistencies may arise between the unilateral legislation speeding into Danish tax law and OECD’s final guidance that aims at worldwide consistency.
The inconsistent use of (tax) terminology in drafting / enacting legislation and communicating issues re: perceived tax abuse, developing specific/targeted/general anti-avoidance rules (SAAR, TAAR, GAAR), anti-abuse rules, etc. promotes subjectivity, uncertainty, and misguided perceptions in trying to understand complex legal and technical international tax laws and regulations.
The recently drafted anti-abuse rule in the EU Parent-Subsidiary Directive (attached link for reference) is designed as a minimum standard to be adopted by EU Member States. Article 1, paragraph 4 of the Directive states “This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.” This language should be compared to other tax legislation that introduce additional subjectivity and confusion with undefined and misunderstood terminology.
Subjective terminology that accompanies undefined verbiage as a basis for tax laws and regulations, such as anti-avoidance / abuse rules, further complicates comprehension, application, interpretation, and assessment of complex international tax rules.
The phrases “tax evasion” and “tax fraud” clearly set forth bright legal lines for definition and enforcement, whereas inherently subjective phrases of “tax avoidance,” “aggressive tax planning,” “intent of Parliament”, “tax abuse,” and similar terminology result in additional uncertainty for deciphering the true intent of significant tax legislation.
It would be beneficial to recognize the inherent inconsistencies of terminology applied in tax laws and regulations, and commence inclusion of verbiage and definitions that provide clarity promoting consistent application, implementation and enforcement of international tax guidelines.