Should the General Anti-Avoidance Rule Become an International Tax Doctrine?

Abstract

Tax is a cost of business which affects business decisions. From time-to-time taxpayers employ a host of creative strategies to minimize their tax liability so as to avoid detection and litigation by the relevant authorities. Increasingly, tax shelters promote tax avoidance, leading to a decrease in government revenues. Furthermore, some countries actually face the ineffectiveness of judicially-created anti-tax avoidance doctrines.

In 1987, Canada enacted the Canadian Income Tax Act incorporating the General Anti-Avoidance Rule (GAAR) to establish a better taxation standard, eliminate unacceptable tax avoidance and maintain the spirit of tax provisions. So far, rules under this doctrine have become a prospective tool for countries confronting tax avoidance problems in terms of ineffective literal interpretation and tax law loopholes.

It should be understood that GAAR is a new concept which is likely to require changes to the existing anti-avoidance measures or even require new legislative measures, in the current taxation system. Taxpayers tend to believe that the government needs GAAR merely as a tool to collect the largest revenue possible by eliminating any tax avoidance opportunities. However, the analysis of this study found that GAAR was not formulated for this purpose. Rather, the main theme of GAAR is to protect the spirit of tax provisions. As long as it is no abusive against the spirit of tax laws tax avoidance is still acceptable even if there is no business purpose involved. GAAR can become an internationally fundamental tax doctrine to help reduce the ineffectiveness of the literal interpretation of tax laws. Changes to the existing anti-avoidance measures or new legislative measures are not undertaken merely because GAAR is a revenue-raising tool. In fact, GAAR promotes the most effective use of tax measures and fairness in the tax system as well as the certainty of law enforcement in our society.

The theme of this paper is to examine GAAR's contribution in preventing unacceptable tax avoidance in countries which had adopted GAAR, such as Canada Australia, New Zealand and China. Another lesser objective of the paper is to examine the consistency of tax benefits in the current taxation system and the well-established tax law spirit in the international community.

The study will focus mainly on (I) the concept, origin, and elements of GAAR; (2) responses in jurisdictions which have fully adopted GAAR; (3) responses in jurisdictions which have not fully adopted GAAR; (4) the application of GAAR, considering its scope, burdens of proofs, and interpretation approach compared with other anti-avoidance doctrines, as well as problems arising from GAAR and development measures; (5) the blueprint for a GAAR, considering measures to identify and discourage tax avoidance; (6) the necessary legal infrastructure for a GAAR in promoting predictability and the spirit of law; and (7) possible changes in the international society if GAAR becomes standard anti-avoidance doctrine, and recommendations.

Subject Area

Law

Degree Date

2012

Document Type

Dissertation

Degree Name

S.J.D.

Department

Dedman School of Law

Advisor

Christopher H. Hanna

Number of Pages

xxii, 301

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