Ernst & Young (EY) has published a very informative study, based on a survey of 830 executives in 25 markets. The second section of the publication includes analyses of tax outlooks for 38 countries, including BEPS actions. The 38 countries highlighted in the publication include:
Australia / Austria / Belgium / Canada / Chile / China / Czech Republic / Denmark / Finland / France / Germany / Greece / Hong Kong / Hungary / India / Ireland / Italy / Jordan / Korea / Lithuania / Luxembourg / Malaysia / Mexico / Netherlands / New Zealand / Norway / Panama / Poland / Russia / Singapore / Slovakia / South Africa / Spain / Sweden / Switzerland / United Kingdom / United States / Venezuela
A link to the publication is included for reference:
The publication includes an introductory section highlighting tax rates and a 2014 tax policy outlook. The outlook includes the following sections:
How countries are adjusting their corporate tax base in 2014
Transfer pricing changes
Interest / Business expense deductibility
Changes to tax treatment of losses
Changes to CFC rules / thin capitalization
The second section analyzes 38 separate countries, addressing the following topics:
2014 tax policy outlook:
Key drivers of tax policy changes
Fiscal consolidation / stimulus
Tax policy outlook for 2014, including political landscape, current tax policy and administrative leaders, key tax policy changes in 2013, country position on OECD BEPS Action Plan, pending tax proposals and consultations opened / closed.
This publication is especially valuable in country outlooks, including the OECD BEPS Action Plan proposals, and should be consulted to develop continued awareness of current and future trends in international taxation.
The EY report is invaluable in explaining the origins of a general anti-avoidance rule (GAAR), recent developments and future trends. It provides a comprehensive background on GAAR, including results from a survey of 24 countries. The February 2013 report looks at various countries developing GAAR, European Commission recommendations, how and when GAAR measures may be invoked, and what companies can do to mitigate risk in their tax risk management. One of the many highlights in the report is the comparison of tax treaties and domestic application of GAAR.
Examples of EY insights include the following:
GAAR is defined as a set of broad principles-based rules within a country’s tax code designed to counteract the perceived avoidance of tax.
Tax law designed to deal with particular transactions of concern are termed as either specific anti-avoidance rules (SAARs) or targeted anti-avoidance rules (TAARs).
China had started 248 GAAR cases in 2011, concluding 207 cases with taxes collected of $3.8 billion.
Each country will have its own definition of an “abusive” or “avoidance” transaction that could be the target of its GAAR.
A tax benefit, transaction or arrangement within GAAR regimes are not unified, thus requiring a close review of each country’s definitions.
GAAR independent review panels are developing to oversee its application
Virtually all countries have multiple SAAR and/or TAAR provisions, although only a few have been abolished with introduction of a GAAR.
Inconsistency of GAAR application to arrangements that have already been subject to one or more SAAR measures in that jurisdiction, including India, China and Chile.
China SAT seems to be expanding its beneficial ownership test into an anti-treaty shopping/anti-abuse test, creating more uncertainty.
The use of GAAR also extends to benefits provided by tax treaties. Tax treaties include bilateral anti-avoidance provisions, although several countries are applying unilateral anti-avoidance measures via interpretations of existing treaties or applying domestic law GAAR provisions to treaty benefits.
Countries are including in their tax treaties explicit authorization of the application of domestic law anti-avoidance provisions.
Approx. 12 of 24 countries surveyed allow their GAAR provisions to override existing tax treaties, unilaterally or applying domestic GAAR.
30% of participants from a 2012 GAAR webcast responded that they do not address GAAR within their tax risk management approach.
Best Practice: Use a tax governance framework with documented processes for significant transaction sign-off.
Best Practice: New GAAR, SAAR and TAAR proposals should be monitored and factored into the tax life cycle of a multinational business
Best Practice: Transaction documents should state the intended purpose of the overall transaction, as well as each step therein.
Best Practice: Document alternative positions considered, demonstrating that the final position was the only reasonable position to obtain the commercial objectives, and that there were no transactional steps taken that were explicable only in a tax benefit context.
Best Practice: Obtain external advice on significant transactions, including opinions on GAAR.
Several tables include insightful observations, including:
Table 1, GAAR introduction timeline in various countries
Table 2, Burden of proof for each country; taxpayer, tax authority, or shared
Table 3, Examples of 2011-12 tax treaties with reference to application of domestic anti-avoidance rules in the treaty context.
Table 4, Countries providing GAAR rulings/clearances
Additionally, eight questions are posed for a Board to ask in relation to GAAR:
Does the transaction have a valid commercial purpose?
Is the transaction unique and complex?
Is the tax benefit material to the financial statement?
Could the transaction be undertaken in a different manner, without attracting the potential application of GAAR?
Has an opinion been obtained that the transaction will more likely than not withstand a GAAR challenge?
Is the transaction defendable in the public eye?
What is the corporation’s tax risk profile both globally and locally?
How comfortable is the corporation with litigation if it is required to defend the transaction?
The Appendix of the report provides answers, for each of the 24 countries, to the following queries:
Does a GAAR exist? If so, year of introduction and effective date
Can the GAAR be applied retrospectively?
Do specific anti-abuse measures exist?
Does your country have specific legislation in place related to the indirect transfer of assets?
What are the circumstances in which the GAAR can be invoked?
Is the burden of proof on the taxpayer or taxing authority?
Does your country have a GAAR panel?
What is the attitude of the tax authority toward invoking a GAAR?
Is a clearance/rulings mechanism available?
Can the GAAR override treaties when invoked?
What penalties may result from the GAAR being invoked?
Provide a summary of key judicial decisions involving GAAR or other anti-abuse legislation.
Are there any legislative proposals or open consultations that may affect the future composition of a GAAR?
Prior posts for additional reference:
6 August; U.N. Committee of Experts to address the Manual for Negotiation of Bilateral Tax Treaties in October 2013
21 July; UK Finance Act 2013: GAAR has arrived
19 July; OECD BEPS Report & Action Plan
4 July; Italy: New Co-operative Compliance Program
29 June; Board Oversight and Responsibilities for Tax Risk Management
13 June; OECD: A Framework for Co-operative Compliance
5 June; GAAR: India & International Perspective
This report is a comprehensive review of GAAR and should form a foundation for planning significant transactions and adopting Best Practices within the global Tax Risk Framework. For example, the eight questions to be posed by the Board could form Best Practices for planning significant transactions. The report is a valuable tool for regional and global tax teams as the trend of GAAR, and understanding its subjective principles, is becoming more complex in today’s ever-changing tax environment.