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Category: General Anti-Avoidance Rules (GAAR)

General Anti-Avoidance Rules (GAAR) are statutory rules that empowers tax authorities to deny taxpayers the benefit of a scheme, arrangement or transaction that has been entered into for tax-avoidance purposes. Well known examples are Thin Cap or Interest Limitation rules denying deduction for excessive interest payments, CFC rules denying deductions for certain payments to Controlled Foreign Companies in low tax jurisdictions, and Hybrid Mismatch rules denying deductions for payments not taxed in the recieving country – and vice versa – due to different qualification of the payment. Recently the United Kingdom and Australia has implemented rules on taxation of Diverted Profits (DPT) – also known as the “Google tax”. Also rules on abuse of Tax Treaties has recently been implemented by many countries in the EU.

Canada vs ALTA Energy Luxemburg, September 2018, Case no 2014-4359(IT)G

ALTA Energy, a resident of Luxembourg, claimed an exemption from Canadian income tax under Article 13(5) of the Canada-Luxembourg Income Tax Treaty in respect of a large capital gain arising from the sale of shares of ALTA Canada, its wholly-owned Canadian subsidiary. At that time, Alta Canada carried on an unconventional shale oil business in the Duvernay shale oil formation situated in Northern Alberta. Alta Canada was granted the right to explore, drill and extract […]

OECD Model Tax Convention 2017

A new 2017 edition of the OECD Model Tax Convention has been released today, incorporating significant changes developed under the OECD/G20 project to address base erosion and profit (BEPS). The OECD Model Tax Convention, a model for countries concluding bilateral tax conventions, plays a crucial role in removing tax related barriers to cross border trade and investment. It is the basis for negotiation and application of bilateral tax treaties between countries, designed to assist business […]

Japan vs Denso Singapore, November 2017, Supreme Court of Japan

In this case a tax assessment based on Japanese CFC rules (anti-tax haven rules) had been applied to a Japanese Group’s (Denso), subsidiary in Singapore. According to Japanese CFC rules, income arising from a foreign subsidiary located in a state or territory with significantly lower tax rates is deemed to arise as the income of the parent company when the principal business of the subsidiary is holding shares or IP rights. However, the CFC rules do not apply when the subsidiary has substance and it makes […]

Zimbabwe vs CRS (Pvt) Ltd, October 2017, High Court, HH 728-17 FA 20/2014

The issue in this case was whether tax administration could tax a “non-existent income” through the “deeming provisions” of s 98 of Zimbabwe’s Income Tax Act. A lease agreement and a separate logistical agreement had been entered by CRS Ltd and a related South African company, for the lease of its mechanical trucks, trailers and tankers for a fixed rental. The tax payer contended that the rentals in the agreements were fair and reasonable. The tax administration […]

Norway vs. A AS, October 2017, Tax Tribunal, NS 71/2017

A Norwegian company, A, first acquired shares in Company C from a unrelated party D for tNKR 625. Company A then transferred the acquired shares in C to a subsidiary E, a shell company established by C for the purpose of the transaction. Company A then sold the shares in subsidiary E to the unrelated party D, from which it had originally bought the shares in C, for tNKR 3830, a price almost six times […]

New Zealand vs Honk Land Trustee Limited, 10 March 2017, Court of Appeal

The Court of Appeal upheld decisions of the High Court confirming the Commissioner of Inland Revenue’s disallowance of a $1,116,000 management fee for income tax purposes. The Court of Appeal dismissed Honk Land Trustees Limited’s (“HLT”) appeal on the following alternative grounds: (1) there was no satisfactory evidence to show that management services were in fact provided; (2) there was no sufficient nexus shown; and (3) in the event the management fees were deductible, they […]

UK vs. Ladbroke Group, February 2017, case nr. UT/2016/0012 & 0013

Tax avoidance scheme. Use of total return swap over shares in subsidiary to create a deemed creditor relationship. Value of shares depressed by novating liability for large loans to subsidiary. The scheme used by Ladbroke UK involved a total return swap and a novation of loans to extract reserves. Used to achieve a “synthetic transfer” of the JBB business to LB&G. In essence, this involved extracting the surplus which had accumulated in LGI and transferring it to […]

Norway vs. IKEA Handel og Ejendom, October 2016, HRD 2016-722

In 2007, IKEA reorganised its property portfolio in Norway so that the properties were demerged from the Norwegian parent company and placed in new, separate companies. The shares in these companies were placed in a newly established property company, and the shares in this company were in turn sold to the original parent company, which then became an indirect owner of the same properties. The last acquisition was funded through an inter-company loan. Based on […]

Netherlands vs Corp, October 2016, Supreme Court 16/01370

In this case company A had acquired the business (assets and liabilities) of another company, through an Acquisition B.V. Company A provided a loan of EUR 300,000 to Acquisition B.V. in 2008. The Acquisition B.V. failed to perform well and went bankrupt in 2011. Company A claimed a write-down loss on the loan in its corporate income tax return. The Tax Administration stated that this was an extreme default risk loan and did not accept […]

UK vs Cadbury- Schweppes, September 2006, European Court of Justice, Case C-196/04

The legislation on ‘controlled foreign companies’ in force in the United Kingdom provided for the inclusion, under certain conditions, of the profits of subsidiaries established outside the United Kingdom in which a resident company has a controlling holding. The United Kingdom tax authorities thus claimed from the parent company of the Cadbury Schweppes group, established in the United Kingdom, tax on the profits made by one of the subsidiaries of the group established in Ireland, […]

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