Anti-Avoidance Measures Are Unavoidable...
Kitty Miv, Editor
31 July, 2020
Last week we looked primarily at BEPS-related measures, and this past week has also been a BEPS-heavy one, as the machinery of tax administration creaks back into gear, so it makes sense to maintain our focus on the measures being put in place by national governments and multilateral bodies alike, to minimize base erosion and profit shifting.
With this in mind, the addition by Switzerland of protocols to its double taxation agreements with Cyprus, Liechtenstein, and Malta to implement minimum standards developed as part of the OECD's BEPS project was not particularly surprising.
The amending protocols were agreed with Liechtenstein on July 14, Malta on July 16, and Cyprus on July 20.
Each protocol contains an anti-abuse clause, to deny access to treaty benefits for arrangements or transactions where the principal purpose of that arrangement or transaction is to inappropriately derive a tax benefit.
On a multilateral level, in addition to recently updating G20 countries on the progress being made in helping developing countries to combat BEPS (as discussed last week), the OECD has released its annual BEPS progress report, giving details to the G20 of how it plans to take forward its work in the coming year.
As part of its 15-point Action Plan on BEPS, released in 2015, the OECD set four Actions as minimum standards countries should adopt. Countries adopting the minimum standards - a condition of joining the BEPS Inclusive Framework - are required to introduce measures to remove any "harmful" tax provisions from their domestic tax regimes (Action 5), amend their tax treaty rules to prevent treaty abuse (Action 6), implement country-by-country reporting rules (Action 13) and exchange these reports with other countries, and work with other countries to improve cross-border tax dispute resolution mechanisms, mainly under the auspices of Mutual Agreement Procedures (Action 14).
Under Action 5 on harmful tax practices the report revealed that since 2016, over 285 regimes have been reviewed to ensure that there is substance associated with the activities they are intended to attract, and virtually all harmful preferential regimes have now been amended or abolished. Furthermore, over 30,000 exchanges of information on rulings, covering over 18,000 rulings, have taken place, thereby ensuring greater transparency of the arrangements between tax administrations and taxpayers.
With regard to treaty abuse provisions, under Action 6, the OECD report revealed that most OECD/G20 Inclusive Framework members have relied on the BEPS Multilateral Instrument (BEPS MLI). To date, the BEPS MLI has been signed by 94 jurisdictions, 49 of which have ratified it, thereby modifying approximately 300 bilateral tax treaties.
Under Action 13, on Country-by-Country Reporting, the first exchanges of Country-by-Country reports (CbCR) took place in June 2018, and the OECD explained that as of May 2020, there have been more than 2,500 bilateral relationships established for the exchange of CbCR under the Convention for Mutual Administrative Assistance in Tax Matters, under bilateral double tax conventions, and tax information exchange agreements, and between European Union (EU) Member States, the report revealed.
Meanwhile, on a more granular national level, in the UK, new proposals were recently released designed to address the promotion and enabling of tax avoidance schemes.
The Government unveiled a number of planned legislative changes to existing anti-avoidance regimes to strengthen HMRC powers to further clamp down on the market for tax avoidance.
These included changes under the Disclosure of Tax Avoidance Schemes (DOTAS) regime to ensure that the UK tax authority can act quickly and decisively where promoters fail to provide information on their avoidance schemes and clients.
Changes have also been proposed to enable HMRC to more effectively issue "stop notices" to promoters under Promoters of Tax Avoidance Scheme (POTAS) rules, to make it harder to promote schemes that do not work, and to prevent promoters from abusing corporate entity structures to avoid their obligations these rules.
The proposed legislative amendments would also ensure that HMRC can obtain information about the enabling of abusive schemes (for the purposes of the Enablers Penalty Regime) as soon as they are identified and ensure that enabler penalties are imposed without delay when a scheme has been defeated at tribunal.
Finally, the proposed legislative changes would update the UK's General Anti Abuse Rule, the primary objective of which is to deter taxpayers from entering into abusive arrangements and to stop would-be promoters from promoting such arrangements.
The legislative amendments put forward would ensure that the General Anti Abuse Rule (GAAR) can be used to counteract partnerships as intended.
A consultation on the measures has been launched alongside the release of draft legislation, with input requested by September 15, 2020.
Until next week!
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