Karen B. Brown

A Comparative Look at Regulation of Corporate Tax Avoidance

I. Preface Karen B. Brown.- II. Overview of Country Reports Karen B. Brown.- III. Country Reports.- Australia Maurice Cashmere.- Canada Carl McArthur.- China Kevin Holmes.- Croatia Natasa Zunic Kovacevic.- France Daniel Gutmann.- Germany Ulrich Palm.- Hungary Eva Erdos, Zoltan Nagy and Zoltan Varga.- Italy Carlo Garbarino.- Japan Keigo Fuchi.- Netherlands Raymond Luja.- New Zealand Zoe Prebble and John Prebble.- Poland Bogumil Brezezinski and Krzysztof Lasinski-Sulecki.- Slovenia Nana Sumrada.- Taiwan Keh-Chang Gee and Yuan-Chun (Martin) Lan.- United Kingdom Sandra Eden.- United States Tracy Kaye.- IV. Appendix (Diagram of Anti-Avoidance Law by Country).- V. List of Contributors.

Comparative Regulation of Corporate Tax Avoidance: An Overview

Reports of more than 15 countries indicate 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 evidence that penalty and reporting provisions have, in some instances, deterred proliferation of aggressive tax avoidance schemes.

Taxation and Development: Overview

In an effort to promote internationally accepted standards that embody principles underlying their own systems, developed countries have, in some respects, ignored the spill-over effect of their tax regimes on the viability of strategies of countries in the developing world to attract much needed investment. A reconsideration of the principles underlying the decisions made by higher-income countries concerning the proper allocation of taxing jurisdiction over income arising from global operations of multinationals could and should result in a re-examination of the ways in which countries, particularly developing ones, are able to build economies. This chapter provides an overview of contributions that consider whether 19 different countries use their tax laws to attract foreign investment or to encourage investment in developing countries.

Regulation of Corporate Tax Avoidance

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.