Abstract
This chapter synthesizes reports of more than 19 countries indicating that all employ some form of a substance over form doctrine in order to defeat taxpayer attempts to obtain a tax advantage in situations not anticipated by the legislature. Some countries regulate corporate tax avoidance under general rules, such as abuse of law principles, that deny tax benefits when an arrangement that meets the literal terms of a statute falls outside the category of transactions intended to be covered. A little more than half of the countries have enacted a statutory general anti-avoidance rule (GAAR) that enunciates principles to be applied by the tax administrator and the courts in a uniform manner. A GAAR provides notice to corporations seeking to aggressively plan transactions that skirt the margins of acceptability and guidance for the adjudicators. It also sends a signal to other taxpayers not willing or unable to manipulate the tax rules to obtain a reduction in tax that standards will be employed to insure that all taxpayers pay a fair share of the revenues the government needs to provide essential public goods and services. When the GAAR has focused too narrowly on a limited number of transactions, some countries have contemplated expansion of coverage. Countries have also buttressed a GAAR by including targeted anti-avoidance rules (TAARs) in specific tax provisions. Countries that have enacted a GAAR have frequently added substantial penalties for participation in tax avoidance schemes and disclosure requirements that alert the tax administration to the construction of new tax-avoidance arrangements. There is some evidence that penalty and reporting provisions have, in some instances, deterred proliferation of aggressive tax avoidance schemes.
IV.E., L’évasion fiscale.
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Notes
- 1.
The distinction between tax mitigation, avoidance, and evasion is detailed in Zoë Prebble and John Prebble, “Comparing the General Anti-Avoidance Rule of Income Tax Law with the Civil Law Doctrine of Abuse of Law,” Bulletin for International Taxation (April, 2008):151–170. Electronic copy available at: http://ssrn.com/abstract=1605483.
- 2.
This General Report synthesizes national reports prepared for the following countries: Austria (Sabine Kirchmayr); Australia (Maurice Cashmere); Canada (Carl MacArthur); China (Kevin Holmes); Croatia (Natasa Zunic Kovacevic); France (Daniel Gutmann); Germany (Ulrich Palm); Greece (Theodore Fortsakis); Hungary (Eva Erdos, Zoltan Nagy, Zoltan Varga); Italy (Carlo Garbarino); Japan (Keigo Fuchi); Netherlands (Raymond Luja); New Zealand (Zoë Prebble, John Prebble); Poland (Bogumil Brzezinski, Krzysztof Lasinksi-Sulecki); Russia (Zhuravleva Oxana); Slovenia (Nana Sumrada); Sweden (Mattias Dahlberg);Taiwan (Keh-Chang Gee, Yuan Chun (Martin) Lan); United Kingdom (Sandra Eden); United States (Tracy A. Kaye).
- 3.
Gregory v. Helvering, 293 U.S. 465 (1935).
- 4.
Internal Revenue Code (IRC) §269.
- 5.
IRC §269A.
- 6.
IRC §267(a)(1).
- 7.
While courts accord substantial authority to regulations issued under general or specific authority delegated by Congress, regulations may be challenged as beyond the IRS’s interpretive power. See, e.g., Mayo Foundation for Medical Education & Research v. U.S., 131 S. Ct. 704 (Jan. 11, 2011); Mannella v. Comm’r, 132 T.C. 196 (2010), rev’d, 631 F.3d 115 (3rd Cir. 2011); Swallows Holding Ltd. v. Comm’r, 126 T.C. 96 (2006), vacated and remanded, 515 F.3d 162 (2008).
- 8.
Coltec Industries, Inc. v. U.S., 62 Fed. Cl. 716 (2004), vacated and remanded, 454 F.3d 1340 (Fed. Cir. 2006).
- 9.
Commentators often describe the inquiry into the existence of economic substance as an objective one, while the business purpose test is described as subjective.
- 10.
Leandra Lederman, W(h)ither Economic Substance? 95 Iowa Law Review (2010): 389, 396–97.
- 11.
But see Coltec Industries, Inc. v. U.S., 62 Fed. Cl. 716 (2004), vacated and remanded, 454 F. 3d 1340 (Fed. Cir. 2006).
- 12.
ACM Partnership v. Comm’r., 157 F. 3d 231 (3rd Cir. 1998).
- 13.
See the report on the United Kingdom.
- 14.
All of the common law countries, except the UK, adopted a GAAR well before 2010, the year in which the U.S. codified the economic substance rule. The UK has not yet adopted a GAAR.
- 15.
See the report on Japan.
- 16.
See report on Germany.
- 17.
The GAAR does not apply to transactions covered by a TAAR. Such transactions are safe if they are not caught by the anti-avoidance rule contained in the TAAR.
- 18.
See report on Germany.
- 19.
See report on New Zealand. The first New Zealand GAAR was enacted in 1891 as part of the Land Tax.
- 20.
See report on New Zealand.
- 21.
See report on Canada. Although the courts ultimately determine applicability, the Minister of National Finance alone determines whether to assess a taxpayer under the GAAR. Taxpayers are not permitted to self-assess under the GAAR. A GAAR Committee, whose members represent the Department of Finance, the Department of Justice, and the Canada Revenue Agency, make a recommendation to the Minister on advisability of assessment.
- 22.
See the report on Canada.
- 23.
Of the 867 cases referred to the GAAR Committee as of November, 2009, the GAAR was found applicable in 614. The Finance Minister has been successful in 9 of the 18 cases heard by the courts.
- 24.
See Section 103 of the South African Income Tax Law.
- 25.
See report on France.
- 26.
IRC § 7701(o) provides:
(o)CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE:
-
(1)
Application of Doctrine. – In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if:–
-
(A)
the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and
-
(B)
the taxpayer has a substantial business purpose (apart from Federal income tax effects) for entering into such transaction.
-
(A)
-
(1)
- 27.
IRC §7701(o)(2)(A).
- 28.
Compaq Computer Corp. v. Comm’r, 113 T.C. 214 (1999).
- 29.
IRC §7701(o)(2)(B). Expenses and other transaction costs must also be treated as expenses in determining pre-tax profit.
- 30.
IRC §7701(o)(4).
- 31.
Staff of the Joint Committee on Taxation, “Technical Provisions of the Revenue Provisions of the Reconciliation Act of 2010,” JCX-18-10 at 152 (2010) (hereinafter Jt. Comm. Report).
- 32.
Richard M. Lipton, “‘Codification’ of the Economic Substance Doctrine – Much Ado About Nothing?,” 112 Journal of Taxation (June, 2010): 325, 328 (hereafter Lipton, ‘Codification’ of the Economic Substance Doctrine).
- 33.
Internal Revenue Service (“IRS”) Associate Chief Counsel, William Alexander, suggested that codification of the economic substance doctrine will not vary the way in which the agency will deal with tax avoidance schemes, presumably because Congress enacted the standard advocated by the Service. See, Stephen Joyce, “Official Says Codifying Doctrine Will Not Materially Affect IRS’s Enforcement Views,” 132 BNA Daily Tax Report G-1 (July 13, 2010).
- 34.
Lipton, ‘Codification’ of the Economic Substance Doctrine, supra note 33, at 328. The IRS issued Notice 2010–62, 2010–2 C.B. 411, clarifying the prominent role of the common law economic substance doctrine, but failing to publish a so-called “angel list” that would have removed noncontroversial transactions from the purview of the new statute.
- 35.
Lipton, ‘Codification’ of the Economic Substance Doctrine, supra note 33, at 328. Lipton notes that “it is possible that this new legislation will have little effect (other than for scoring revenue for purposes of passing the health care bill) and, in hindsight, will simply be viewed as a continuation of the status quo.” But see Brett Wells, “Economic Substance Doctrine: How Codification Changes Decided Cases,” 10 Florida Tax Review (2010): 411, 452 (“[S]ection 7701(o)…does significantly alter the landscape with respect to the taxpayer’s ability to benefit from many of the types of mistakes that were available in the past.”)
- 36.
Jt. Comm. Report, supra note 32, at 153.
- 37.
Compaq Computer Corp. v. Comm’r, supra note 29.
- 38.
Compaq Computer Corp. v. Comm’r, supra note 29.
- 39.
South African Revenue Service, Draft Comprehensive Guide to the General Anti-Avoidance Rule (2010) at 4 (hereinafter “South African Revenue Service, Draft Comprehensive Guide”).
- 40.
IRC §6662(a),(d),(i).
- 41.
IRC §6664(c).
- 42.
IRC §6662(d)(2)(C). A tax shelter is any partnership or other entity, plan, or arrangement where a significant purpose is the avoidance or evasion of federal income tax.
- 43.
IRC §6662(b)(6).
- 44.
IRC §6700.
- 45.
IRC §6701.
- 46.
Richard M. Lipton, “Reporting Uncertain Tax Positions Under Ann. 2010–9: Transparency or Overkill?,” Journal of Taxation (May, 2010): 260.
- 47.
IRC §§6707, 6707A.
- 48.
See report on the UK.
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Brown, K.B. (2012). Regulation of Corporate Tax Avoidance. In: Brown, K., Snyder, D. (eds) General Reports of the XVIIIth Congress of the International Academy of Comparative Law/Rapports Généraux du XVIIIème Congrès de l’Académie Internationale de Droit Comparé. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-2354-2_27
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