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.
Poland’s Minister of Finance plans to reintroduce a general anti-abuse rule (GAAR). GAAR was in brief existence from 2003-2004, however the vague principles led to its removal.
The GAAR reintroduction follows the European Commission’s recommendation in December 2012, with a link attached for reference. The European Commission Initiatives, Section 8, Recommendation on aggressive tax planning, states “The Commission also recommends a common GAAR. This would help to ensure coherence and effectiveness in an area where Member State practice varies considerably.”
The GAAR proposal would apply to all types of taxes, with a 30% penalty of avoided tax via a “tax avoidance” transaction. Appeal provisions are envisioned, in addition to advance rulings, although the time and expense for advance certainty may prove to be impractical. A GAAR Council would provide an “expert” GAAR opinion that is not binding on the tax authorities.
Poland’s GAAR proposal should be analyzed for Best Practices, coupled with insights from prior posts: EY GAAR survey (7 August) and UK Finance Act 2013: GAAR has arrived (21 July).
It is hopeful that Poland will focus on learnings from the original GAAR introduction, as well as gain insight for Best Practices from other countries that have adopted a fair, and effective, GAAR. It will be important to observe how the new GAAR legislation will correspond, or override, its double tax treaty provisions, and if the burden of proof will reside with the taxpayer and/or the tax authorities.
Most importantly, Best Practices should be continually reviewed, and revised, for inclusion of new GAAR proposals and principles that are an integral part of the global Tax Risk Framework. As stated in the European Commission report, each country’s practice is , and will continue to be, significantly different. Robust documentation, in proactive tax risk management and planning memorandums, will provide directly relevant evidence to defend the subjective principles and guidelines of GAAR.