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Mr. Christophe J Waerzeggers and Mr. Cory Hillier

I. Executive Summary Many jurisdictions have adopted a general anti-avoidance rule (GAAR) while others are considering the introduction of one or are otherwise seeking to fine-tune their existing rule . Countries with a GAAR include the UK, France, Germany, The Netherlands, Belgium, Canada, China, Singapore, Italy, South Africa, Kenya and Australia. The introduction of a GAAR also continues to be topical in many other jurisdictions such as India and Poland. Australia has also recently amended its GAAR to address specific base erosion and profit shifting

Mr. Christophe J Waerzeggers and Mr. Cory Hillier
Tax avoidance continues to attract attention globally with strong support for tax law reform at all levels. This Tax Law IMF Technical Note focuses on some of the key design and drafting considerations of one specific legal instrument (being, a statutory general anti-avoidance rule (GAAR)) which is often considered by authorities to combat unacceptable tax avoidance practices. A GAAR is typically designed to strike down those otherwise lawful practices that are found to be carried out in a manner which undermines the intention of the tax law such as where a taxpayer has misused or abused that law. However, the objective of combating unacceptable tax avoidance can itself make the legal design of a GAAR complex. This is simply because the phrase “tax avoidance” means different things to different people. Whatever the form of a GAAR, it should give effect to a policy that seeks to strike down blatant, artificial or contrived arrangements which are tax driven. However, the GAAR should be designed and applied so as not to inhibit or impede ordinary commercial transactions. This Tax Law IMF Technical Note discusses and explores how drawing a line between those arrangements which should be caught by the GAAR is a matter of degree and can be delicate.
Mr. Christophe J Waerzeggers and Mr. Cory Hillier

years in accordance with the announcement in the Budget for fiscal year 2015-16 which was presented to Parliament by the Finance Minister on 28 February 2015. Accordingly, the GAAR would be applicable from financial year 2017-18. Further, when implemented, the GAAR will apply prospectively to investments made on or after 1 April 2017. 3 On 27 April 2015, the amended version of the proposed Tax Code (Ordynacja Podatkowa) was published in Poland which no longer contains the provision of general anti-avoidance rules (GAARs) that were planned to be introduced into

Ms. Lucilla Mc Laughlin and John Buchanan

ATP Aggressive tax planning AUD Australian Dollar CRM Compliance risk management CIT Corporate income tax EU European Union EUR Euro FATCA Foreign Account Tax Compliance Act GAAR General anti-avoidance rule GBP Great Britain Pound HMRC Her Majesty’s Revenue and Customs HNWI High-net-worth individual HWI High-wealth individual HWICP High-wealth individual compliance

International Monetary Fund

Ownership Neutrality CSO Civil Society Organization EOI Exchange of Information FA Formula Apportionment FDI Foreign Direct Investment FTC Foreign Tax Credit GAAR General Anti-Avoidance Rule GMM Generalized Method of Moments GOS Gross Operating Surplus IP Intellectual Property LOB Limitation of Benefits MNEs Multi-National Enterprises MT Minimum Tax PE Permanent Establishment RPS Residual Profit Split

International Monetary Fund. Fiscal Affairs Dept. and International Monetary Fund. Legal Dept.

the TCJA) GAAR General Anti-Avoidance Rule GF Global Forum on Transparency and Exchange of Information for Tax Purposes GILTI Global Intangible Low Taxed Income (under the TCJA) LIC Low Income Country LOB Limitation of Benefit LSR Location Specific Rent (rent uniquely associated with a specific location) Market country Country in which the purchaser is located (same as destination country) MLI Multilateral Convention to Implement Tax Treaty Related Measures to Prevent

International Monetary Fund. European Dept.

help reduce poverty and inequality. New expenditures related to the implementation of the authorities’ priority social and economic goals require strengthening of the revenue side of the state budget. To this effect, a wide set of measures are being taken, including, inter alia, a new tax on the financial institutions’ assets (already implemented) and a comprehensive strategy to improve tax administration and fight tax evasion. The strategy includes (i) an introduction of a General Anti-Avoidance rule against tax avoidance; (ii) a reduction of the limit on cash

International Monetary Fund. European Dept.

’s strategic objective concentrates on supporting long-term, inclusive economic growth while maintaining sustainability of public finance and complying with domestic and EU fiscal rules. The government aims to mobilize more revenue through better tax compliance. Recently implemented or planned measures aimed at limiting tax fraud include i.a.: The General Anti-Avoidance Rule - in force since 2016; The Fuel Package - set of measures aimed at preventing tax fraud in intra-EU liquid fuel trade - in force since August 2016; Merging the tax and customs administration