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 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.