More countries adopt and update GAARs to fight base erosion and profit shifting

Tax Controversy & Dispute Resolution ()

Many countries around the globe have undergone significant change and development within the last year surrounding the use of General Anti-Avoidance Rules (GAARs). This term generally refers to a statutory rule or regime that empowers a revenue authority to deny taxpayers the benefit of an arrangement entered into for an impermissible tax-related purpose. Great variations may occur between jurisdictions as to their operation but the current impetus for these fast-moving changes is similar – revenue authorities wish to broaden their enforcement capabilities at this time of rising deficits and falling tax revenues throughout the world.

There is an increased desire for sovereign governments to now broaden their ability to curtail ‘avoidance’ behaviour. This desire is coupled with the calls from the Organization for Economic Co-operation and Development (OECD), the G20 countries, and the European Commission for greater collaboration in tackling the challenges of Base Erosion and Profit Shifting (the so-called BEPS). In December 2012, the European Commissioner made a specific recommendation that a GAAR be adopted by each of its member States to target artificial arrangements for the purpose of avoiding tax. As a result, those multinational companies seeking to operate an effective global tax governance regime into the future should appreciate and understand the elevated importance of GAARs.

This Alert provides a broad update on the significant legislative, judicial, and administrative developments for certain GAAR regimes across the globe for those companies wishing to better understand the current state of play surrounding GAARs. It is intended to update a previous PwC Tax Controversy and Dispute Resolution (TCDR) Alert published in June 2012 which profiled the main features of 17 GAARs either in practice, or proposed for introduction.