International Fiscal Association

2018
Seoul Congress

cahiers de droit fiscal

international

volume 103
A: Anti-avoidance
measures of general
nature and scope
– gaar and
other rules

1938-2018
 ROSENBLATT & TRON

General Report

Paulo Rosenblatt1
Manuel E. Tron2

Summary and conclusions

General anti-avoidance rules (GAARs hereafter) and other anti-avoidance measures of
general nature and scope resemble a ‘tug of war’; in a GAAR circumstance, these opposite
sides are: (i) the rule of law or the legality principle, and legal certainty (which includes a
restraint to administrative discretion); and (ii) tax equality, occasionally the ability to pay,
and also effectiveness in tax collection; the goal being fairness in taxation.
There is no legal or even universal academic definition of tax avoidance; the term is
frequently applied to any broadly drafted provision that addresses tax avoidance, but it is
not univocal and encompasses diverse rules of general nature and scope, and no country has
yet succeeded in finding a perfect formula to effectively deter and counteract this common
feature of all tax systems. Most GAARs, implicitly or explicitly, rely on a targeting mechanism
or objects clause, a very disputed topic, which relates to a compatibility analysis of the
arrangement with the parliamentary intent or underlying policy of a provision, the tax act or
the tax system as a whole (the so called ‘spirit of the law’).
Tax planning and its varieties is a recurring topic on IFA’s Congresses, in the Cahiers,
research papers and on regional seminars: The interpretation of tax laws with special
reference to form and substance (London Congress, 1965); Tax avoidance/tax evasion (Venice
Congress, 1983); Form and substance in tax law (Oslo Congress, 2002); Tax treaties and tax
avoidance: application of anti-avoidance provisions (Rome Congress, 2010). For this year’s
topic 42 branch reports were prepared, together with two special reports: one concerning
the rules of the OECD and the other regarding the European Union.
The analysis of this year’s topic refers to general anti-avoidance statutory rules and
judge-made doctrines without focusing on the BEPS plan, the changes in the OECD models
or the European Union Anti-Tax Avoidance Directive – ATAD but referring to both with a
focus on the actual effect these international trends have had on domestic law around the
world. This work analyses domestic GAARs or other anti-avoidance measures of general
scope, the relevant case law on the operation of the GAAR (including judge-made doctrines)
and existing safeguards which taxpayers may use to protect themselves.

Different domestic GAARs are analysed and compared; the details of each can be found in
the branch reports. The analysis departs from the primary elements: the tax scheme or
transaction, the tax benefit or advantage, and the purpose or intent of the taxpayer.
Afterwards, the analysis of the application of the GAAR is included, mentioning the denial of

1
Faculty of Law, Universidade Católica de Pernambuco. Pernambuco’s General Attorneys Office. Ferreira Lima,
Bartilotti & Rosenblatt Advogados (Brazil).
2
Manuel Tron, Tron Abogados, SC (Mexico); Honorary President of IFA.
The General Reporters wish to express their gratitude to Rafael Ramirez Moreno Perez, Gabriela Costa Pires,
Gabriela Fonseca Ramos Leal, Marcela Rodrigues de França and Rafaella Xavier Ferreira for the supporting
research on this subject.

IFA © 2018 5
GENERAL REPORT

tax benefits and the re-characterisation of the facts as the most common effects.
The report is also concerned with the potential conflicts between the GAAR and ordinary
provisions such as Specific Anti-Avoidance Rules (SAARs), as well as the relationship
between domestic anti-avoidance provisions and tax treaties.
The case law built so far on the operation of the GAAR or anti-avoidance judge-made
doctrines is briefly analysed. The analysis is limited to the significant legal issues considered
by the courts related to the operation of GAARs, and anti-avoidance concepts or judicial
doctrines. Finally, the protection of the taxpayers’ rights or safeguards in the operation of
GAARs or other similar rules and doctrines is included.
Comparing the different branch reports was a difficult task since the operation of a
GAAR is very fact specific and so it is operated on a case-by-case basis; nonetheless, some
commonalities exist, and certain issues discussed in one country can be useful to another.

There is no perfect tax system in the world, and therefore, the risk of abuse of its shortfalls or
loopholes is real (including the risk of perceiving conducts which are perfectly valid as abuse)
and tax authorities will consistently battle the abuse (real or apparent). The combat will
exist with or without a formally statutory GAAR; it is not possible to evaluate whether
GAARs are better mechanisms than anti-avoidance judicial doctrines or general anti-abuse
rules; based upon the branch reports, there are mixed views on the effectiveness of these
measures, and on its challenges and limits.
Among a number of issues, the analysis of how to resolve the conflicts of application
between domestic SAARs and GAARs, or between the domestic rules and treaty GAARs have
resulted in the conclusion that there is no consensus or even a generalised tendency. A major
matter is that, while it seems to be a universally accepted rule that taxpayers may arrange
their affairs as they like, the notion of ‘abusive’ or ‘aggressive’ interpretation or application of
the law has severely limited the freedom of choice for taxpayers.
To conclude the analysis, this report focuses on matters such as the burden of proof and
a comprehensive discussion on safeguards for taxpayers, considering that a GAAR’s
assessment should be based on reasons, describing its elements and their interconnection,
with consistency, fairness and impartiality, so as to provide the taxpayer the fundamental
rights of information and defence.3
Taxation inevitably raises moral issues. Tax avoidance is recently being perceived as
socially wrong as it reduces revenue and shifts the burden to those who dutifully pay their
share. Yet, taxpayers do not comply for moral reasons. By discussing a GAAR and
anti-avoidance rules of a general scope, an anti-avoidance principle might be slowly taking
shape, in this way.4

1. Introduction
General anti-avoidance rules (GAARs hereafter) and other anti-avoidance measures of
general nature and scope resemble a ‘tug of war’, a strength challenge game in which two

3
Paulo Rosenblatt, General Anti-Avoidance Rules for Major Developing Countries, (Alphen aan den Rijn, the
Netherlands: Kluwer Law International, 2015), ch.1.
4
‘Nothing could be more mundane than taxes, but they provide a perfect setting for constant moral argument
and possible moral progress.’ Liam B. Murphy and Thomas Nagel, The myth of ownership: taxes and justice, (Oxford:
OUP, 2002), 188.

6 
 ROSENBLATT & TRON

teams dwell against each other by pulling on opposite ends of a rope, with the goal to move
the other side into their own direction. In a GAAR circumstance, these opposite sides are: (i)
the rule of law or the legality principle, and legal certainty; and (ii) tax equality and
occasionally the ability to pay; the goal being fairness in taxation and effectiveness.
The right balance between these two opposites is a matter of legislative drafting,
regarding the clarity in the tests applied, the procedure for the operation of the rule and to
ensure its due process, the normative interrelation (domestic and cross-broader), and the
judicial interpretation and construction.
GAARs are an inescapable paradox in many senses.5 Firstly, there is no legal or universal
academic definition of tax avoidance. The term is frequently applied to broadly drafted
provisions that address tax avoidance, but it is not univocal and encompasses diverse rules
of general nature and scope.6 Secondly, no country has yet succeeded in finding a formula to
effectively deter and counteract this common feature of tax systems. Thirdly, no wording is
uncontroversial, since the tests contain terms drafted in a comprehensive manner to address
unforeseen or unforeseeable circumstances. Fourthly, most GAARs, implicitly or explicitly,
rely on a targeting mechanism, a disputed topic, which relates to a compatibility analysis of
the arrangement with the parliamentary intent or underlying policy of a provision, the tax
act or the system as a whole (‘spirit of the law’). And in fifth place, judicial responses
concerning the application of both GAARs and anti-avoidance doctrines are unknown;
courts may render them ineffective, by reducing its scope or creating burdensome tests; or
they might increase uncertainty due to casuistic, incoherent or inconsistent decisions.
Still, countries with a GAAR do not intend to revoke it.7 Amendments are sometimes
introduced to overcome unexpected hindrances.8 Some statutory provisions have been left
aside (rules in force but not applied) where judge-made anti-avoidance concepts have been
more effective tools (such as the fraus legis in the Netherlands, and the several anti-avoidance
doctrines in the United States, for instance).
In fact, GAARs are in the core of the debate on the (im)proper functioning of tax systems
and the protection of the tax base. Described as a war or a game, avoidance reflects a ruthless
relationship between tax authorities and the taxpayer, insofar the boundaries of legitimate
and illegitimate tax planning remain blurred.
This is a recurring topic on IFA’s comprehensive range of subjects in the Cahiers,9 research
papers and seminars. They reflect different contexts, focus on diverse aspects and shed light
on new issues. The 42 branch reports depict interesting perspectives and evidence that more
and more countries have introduced statutory GAARs, have engaged in tax transplants and

5
Graeme S. Cooper, Tax avoidance and the rule of law, (Amsterdam: IBFD, 1997), 25-26.
6
Rebecca Prebble and John Prebble, ‘Does the Use of General Anti-Avoidance Rules to Combat Tax Avoidance
Breach Principles of the Rule of Law?’ (2012) 2 SLU LJ 2, 26.
7
In Sweden, the GAAR was introduced in 1980, revoked in 1993 but reintroduced in 1995, the current wording
being from 1998. Poland is the only reported country where the GAAR was declared null and void in breach of
the rule of law by the Constitutional Tribunal, in 2004. The provision was amended in 2006 and replaced in 2016
to comply with the judicial requirements.
8
Brian Arnold, ‘The Canadian general anti-avoidance rule’ in G. S. Cooper (ed), Tax avoidance and the rule of law
(Amsterdam: IBFD, 1997), 230-238.
9
The Interpretation of Tax Laws with special reference to Form and Substance (London Congress, 1965); Tax avoidance/tax
evasion (Venice congress, 1983); Form and substance in tax law (Oslo Congress, 2002); Tax treaties and tax
avoidance: application of anti-avoidance provisions (Rome Congress, 2010). These are subjects that directly refer to
this topic, but the list can be longer if it encompasses anti-avoidance related issues.

 7
GENERAL REPORT

experienced singular judicial reactions.10 Hence, there is a higher degree of coincidence

among these measures because they address similar questions and share common
elements.11
In the 2002 IFA Congress in Oslo, one of the conclusions of the general report on the
subject ‘Form and substance in tax law’ was that countries would challenge tax avoidance
schemes with or without a GAAR; in its absence, judge-made doctrines or civil law concepts
are commonly applied as anti-avoidance measures of a general nature.12
The current subject does not intend to re-discuss that premise; instead, it will build on it.
Given that anti-avoidance measures of a general nature are applied in most jurisdictions,
one country can learn from the other on how to draft GAARs, identify comparable features,
solve similar issues and analyse significant judicial responses.
GAARs or judge-made doctrines have a long history in the realm of taxation and are like
tricks or cards up the sleeve whenever tax revenue falls. It is no surprise that this debate
reappears under economic crisis. Actually, it has been gaining strength on the international
tax policy agenda in the last 20 years.
The introduction of the Base Erosion and Profit Shifting – BEPS plan in the OECD models
(Multilateral Tax Conventions – MTC 2017 and the Multilateral Instrument – MLI)13 is an
example of how the OECD pushed this topic forward internationally, by recommending the
inclusion of a harmonised treaty anti-abuse provision in the Double Tax Treaties (especially
in Action 6, with reference to the Principle Purposes Test – PPT and, to some extent, the
Limitation on Benefits – LOB).14 Another example is the European Union Anti-Tax Avoidance
Directive – ATAD,15 which must be transported by the EU member states into domestic law
by 31 December 2018. We were very fortunate to have obtained reports from both the OECD
and the EU on this subject.
The object of this general report is to analyse domestic GAARs or other anti-avoidance
measures of general scope, by considering their statutory design, the relevant case law on
the operation of the GAAR and judge-made doctrines, and any existing safeguard for the
taxpayers.
The first section will compare and analyse different domestic GAARs, in respect to their
statutory design. It also contemplates amendments or substitutions to previous provisions
in some jurisdictions. A detailed description of the statutory features of each country can be
found in the branch reports. This section will consider GAARs primary elements: the tax

10
The law is generally stated as at 31 October 2017, when most branch reports were submitted, although some
updates were sent in early 2018.
11
Violeta R. Almendral, ‘Tax Avoidance and the European Court of Justice: What is at Stake for European General
Anti-Avoidance Rules?’ (2005) 33 Intertax 12, p. 560. Judith Freedman, Beyond boundaries: developing approaches to
tax avoidance and tax risk management, (Oxford: CBT, 2008), 1-6. Jinyan Li, ‘Tax Transplant and Local Culture: A
Comparative Study of the Chinese and Canadian GAAR’ (2010) 11 Theo Inq L 2, 658-662.
12
Frederik Zimmer, ‘IFA General Report: Form and Substance in Tax Law’ in Cahiers de Droit Fiscal International (IFA,
2002, Vol.87A), 30-31.
13
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, adopted on 24 November
2016.
14
Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 – 2015 Final Report, OECD, Paris,
2015. Available at:
oecd-ilibrary.org/docserver/download/2315331e.pdf. [Accessed: 10 Ma. 2018]. See also, Michael Lang et al.,
GAARs – A Key Element of Tax Systems in the Post-BEPS Tax World. Amsterdam: IBFD, 2016.
15
Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly
affect the functioning of the internal market, [2016] OJL 193.

8 
 ROSENBLATT & TRON

scheme or transaction, the tax benefit or advantage, and the purpose or intent of the
taxpayer. Sometimes, these tests are not explicit but come out whenever a case is put
forward. Singular features from some jurisdictions are also considered.
Firstly, the definition of tax avoidance is difficult, not to say impossible and contentious
in all countries that have or consider introducing a GAAR and other anti-avoidance measures
of general nature. Experience shows that there is a variation of the design options.
In general, GAARs refer to tax avoidance schemes, transactions, arrangements, acts or
courses of action to describe conducts or facts which are subject to the rule’s operation. In
some places, this definition is combined with generic attributes or indeterminate concepts
such as ‘acceptable’ or ‘unacceptable’, ‘permissible’ or ‘impermissible’, ‘responsible’ or
‘irresponsible’; or it may contain a list of indicia of tax avoidance.
Besides, it is commonplace to address the re-characterisation of the tax avoidance
conduct on tests based on the nature and form of the arrangement, particularly with
reference to ‘artificiality’, ‘complexity’, ‘abnormality’ or ‘commerciality’. Otherwise, GAARs
may have tests based on the substance over form, economic reality or economic substance
doctrines.
GAARs may be applicable to any step within a transaction, to a combination of steps or
transactions, to the overall scheme, or to a series of transactions. Statutory or judge-made
tests may require an order such as pre-ordination, pre-planning, completion or circularity.
The tax benefits or advantages of the scheme or arrangement are the second element of
such rules and doctrines. It is the signpost of tax avoidance schemes, the motive they are
perceived and challenged by revenue authorities, and at the same time the consequence
and the reason for tax avoidance arrangements. The report compares statutory provisions
on this test, the definition of the state of affairs, the counterfactual or the alternative
hypothetical result the conduct would have attained but for the tax avoidance transaction.
There are diverse approaches to this requirement, which are usually vague, unclear, and may
or may not refer to a list of types, features or indicia of tax advantages.
The third primary element is the intent or purpose in entering into or carrying out the
scheme to obtain a tax benefit. The link between the tax avoidance scheme and the benefit
is purposed-based or intention-based. Countries struggle to avoid a subjective approach,
but no one has been able to challenge avoidance so far without tests based on an inquiry
into the intent or motive of the taxpayer (even when they say so). A list of statutory indicia of
reasons, objectives, effects and consequences of the scheme are regarded as objective
purpose considerations.
Such tests vary concerning their scope, which relates to the definition of who has the
relevant purpose. Some GAARs refer to protected choices, choices available to the taxpayer,
or courses of action afforded or permitted by the legislation or by the relevant tax provisions.
Likewise, the report analyses the abuse of law, fraud of law, or the misuse and abuse, which
relate to this point.
The GAAR consequences are compared in this topic, the denial of tax gains and the
re-characterisation of the facts being the most usual. Since tax assessments to which the
GAAR applies are commonly based on hypothetical judgements, the report comments on
requirements of the identification of the scheme and the determination of the counter-
factual. Normally, GAARs are effective only for tax purposes and do not alter other legal and
commercial obligations. This means the normal consequences of the facts keep being
produced as if no GAAR were applied. Penalty regimes and other effects are debated too.
This part of the report also discusses the potential conflicts between GAARs with
ordinary provisions such as Specific Anti-Avoidance Rules (SAARs). The relationship between

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GENERAL REPORT

domestic anti-avoidance provisions and tax treaties is an important issue covered in this
part, particularly treaty GAARs. The report draws on the case of coexistence of both a GAAR
and SAARs, or a domestic and a treaty GAAR. In some places, there is an exclusive application
order, while in others both may be applied-even in tandem - which may raise disputes.
Part two focuses on the case law built so far on the operation of the GAAR or
anti-avoidance judge-made doctrines. The analysis is limited to the significant legal issues
considered by the courts. The aim of exploring a number of cases from different branches, is
to find similarities and differences between comparable judicial responses to tax avoidance.
Finally, part three highlights the protection of the taxpayers’ rights or safeguards in the
operation of GAARs or similar rules or doctrines, especially on how to confine the discretion
it confers on tax officials.
The analysis carried out in this report considers the system of law – civil v common – and
constitutional backgrounds. It remarks the influences on the domestic environment played
by double taxation treaties, BEPS, and – if this is the case – ATAD.
Currently, many countries have a GAAR, whilst others are debating its introduction,
amendments or substitutions. The purpose of an analytical report is to be able to compare
different rules that have common features. It recognises that every GAAR is unique, a
product of a tax system’s history, culture, effectiveness, approach to statutory interpretation,
tax morale and so forth. Nevertheless, it makes it possible to learn from one another what
types of design options make a workable GAAR, and which experiences turned out to be
inefficient and consequently led to a judicial overruling or legislative counter-action.

2. General anti-avoidance rules or doctrines

2.1 General overview: tax avoidance

Tax avoidance is a concept familiar to many countries and to the international community,
but entails a definitional challenge, both in theory and in practice (policy and application
levels). Normally, it is defined in negative16 or circular ways, but there are attempts either to
qualify it as ‘impermissible’, ‘illegitimate’, ‘aggressive’ or ‘unacceptable’, or with reference to
its consequences or effects, as the ones employed in the commentaries by the EU and the
OECD.17
Because anti-avoidance measures target unidentified hypotheses and recipients, their
language is broad, vague and indeterminate. Such pitfalls create opportunities for taxpayers
to exploit loopholes and ambiguities of tax legislation. It is impossible to legislate on
avoidance within perfect boundaries. GAARs are often drafted as catch-all provisions.18
The branch reports state that it is a principle of law that taxpayers are entitled to arrange
their affairs in a tax efficient manner, which includes optimising the tax burden. Such a

16
Philip Baker, ‘Tax avoidance, tax evasion & tax mitigation’ (2000) GITC, available at <http://www.taxbar.com/
documents/Tax_Avoidance_Tax_MitigationPhilip_Baker.pdf> [Accessed 8 March 2011], 12.
17
In the OECD Study into the Role of Tax Intermediaries, aggressive tax planning refers to two areas of concern for
revenue bodies: (i) planning involving a tax position that is tenable but has unintended and unexpected tax
revenue consequences, and (ii) taking a tax position that is favourable to the taxpayer without openly disclosing
that there is uncertainty whether significant matters in the tax return accord with the law.
18
Graeme S. Cooper, ‘The Design and Structure of General Anti-Tax Avoidance Regimes’ (2009) 63 BIFD 1, 28.

10 
 ROSENBLATT & TRON

taxpayer’s right or freedom is sometimes considered part of the constitutional right to

private property. Still, they recognise that this principle (which is usually referred to as the
Duke of Westminster, derived from the House of Lords notorious case19) is limited by
anti-avoidance rules.
A difficult task is to translate these principles and boundaries into statutory language to
shape an effective tool to tackle tax avoidance arrangements, but at the same time build
confidence that it will not interfere with legitimate tax planning, freedoms, domestic and
international level playing fields, economic growth and welfare.20
GAARs and other general anti-avoidance measures are drafted in mixed ways, due to the
variety of legal culture, system, structure and responses to tax avoidance. They target similar
situations and contain primary elements (definitional or substantive): tax scheme,
arrangement or transaction; tax benefit or advantage; and purpose or intent of the
taxpayer.21 At the international level, the PPT and ATAD rely on similar patterns. In this
context, it is possible to generalise and draw on similarities and differences.
The following subheadings compare these primary features but also address secondary
ones; non-essential aspects, with ancillary functions. The comparative taxation approach is
based on functionality, aiming at relating solutions to common policy issues by identifying
patterns for comparability between tax systems.22 It works on a qualitative basis only, since
it does not quantify any of the data collected, in spite of the significant number of branch
reports (also, these reports reflect the reporters’ experience and maybe subject to local
criticism).
These elements need to be interconnected in the operation of the GAAR, in order to
avoid its application by the tax officials without justification and evidence. Some GAARs are
construed on civil law concepts or judge-made doctrines, while others are legislated. Where
a statutory rule is enacted, it may be designed shortly or in detail. Normally, amended or
new versions of previous GAARs are longer and more detailed. These rules are also diverse in
terms of consequences, procedure and protections to taxpayers.

2.2 The tax avoidance scheme, arrangement or transaction

2.2.1 Definitional problem and scope

GAARs aim at deterring or counteracting tax avoidance. However, there is a definitional

problem to describe the conducts that attract the provision in statutory language. The first
primary element, the characterisation of the facts subject to the operation of the GAAR, is
contentious as it is usually referred to as a scheme, transaction or arrangement, act or course
of action, in order to operate on a general basis without excluding any possible taxable
event.
Most branch reports affirm their GAAR is based on broad standards. Some countries

19
IRC v. Duke of Westminster [1936] AC 1 (HL).
20
Brian Arnold, ‘The Canadian general anti-avoidance rule’ in G. S. Cooper (ed), Tax avoidance and the rule of law
(Amsterdam: IBFD, 1997), 225-230.
21
Nabil Orow, General anti-avoidance rules: a comparative international analysis, (Bristol: Jordans, 2000), xxix-xxxix.
22
Carlo Garbarino, ‘Comparative Taxation and Legal Theory: The Tax Design Case of the Transplant of General
Anti-Avoidance Rules’ (2010) Theo Inq L 11, 765-790.

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GENERAL REPORT

attempt to reduce the vagueness by adding generic attributes such as ‘unacceptable’ (New
Zealand, Israel), ‘impermissible’ (South Africa, India), ‘illegitimate’ (Israel), ‘aggressive’ (EU,
OECD), ‘unjustified’ (Russia), just to name a few. Instead, such terms bring more uncertainty
as they are a matter of judgement (personal, moral or social).
The scope of the GAAR depends on the question whether it applies to steps or subparts
within a transaction, to the whole arrangement only, or to a series or combination of
schemes.23 It may virtually apply in any circumstance: if some steps can configure tax
avoidance once detached from the whole scene – a surgeon or a butcher can find a slice that
fits in the legal description; it can become ineffective if it cannot be applied to avoidance
steps introduced in an overall legitimate transaction; and ‘series’ may give rise to questions
whether it requires a sequence in temporal (pre-planning or pre-ordinance) or logic senses
(completion or circularity).24
Countries that have experienced judicial constraints on the scope of the GAAR – or
where the step transactions doctrine has been judicially tested – have often introduced
amendments allowing for a wider or narrower application, to encompass a scheme, steps or
a series of transactions. Australia, Canada, New Zealand, Hong Kong, Israel, Japan25,
Singapore, South Africa, Sri Lanka and India defined the scope of a scheme, subparts and
composite transactions, although with slight differences in the wording. The UK general
anti-abuse provision (the ‘UK GAAR’) applies to a single part of or the wider arrangement
viewed as a whole, and it does not require any sequence, once object of the Ramsay line of
cases (see section 3 below).
Countries that adopt civil law concepts such as the abuse of law or fraud of law – with or
without statutory base –, usually allow for a broad application of the GAAR. In France, an
abuse of law can occur in an act or a series of acts, although it requires an overall assessment
of the arrangement and not of each act individually.
The EU ATAD also builds on this previous experience from other countries and on the
Court of Justice of the European Union – CJEU case law to include an all-encompassing
definition of scheme, transaction, or arrangement, to include steps within an overall scheme
or a series.

2.2.2 The codification of the form and substance doctrine: artificiality, the ‘true nature’,
contrivance, lack of commerciality, fictitiousness, unusualness, abnormality, complexity and
genuineness tests

Secondary, non-essential elements of statutory GAARs are often developed in courts before
they are introduced in legislation.26 In respect to the definition of the tax avoidance acts,
schemes, arrangements or transactions, tests related to their ‘nature’ are commonplace.
Over half of the reported countries contain some sort of test related to the ‘nature’ of the
arrangement, particularly artificiality, contrivance, lack of commerciality, fictitiousness,

23
Brian Arnold, ‘The long, slow, steady demise of the General Anti-Avoidance Rule’ (2004) 52 Can.Tax.J. 2, 493-496.
24
Vern Krishna, Tax Avoidance: the General Anti-Avoidance Rule, (Canada: Carswell, 1990), 61.
25
According to the Japanese branch report, there is no GAAR but quasi-GAARs, which are as broad and general
but still not considered a GAAR. Italy also had a quasi-GAAR that preceded the current provision.
26
Jinyan Li, ‘“Economic Substance”: Drawing the Line Between Legitimate Tax Minimization and Abusive Tax
Avoidance’ (2006) 54 Can.Tax.J. 1, 32-33. Brian Arnold, ‘The long, slow, steady demise of the General
Anti-Avoidance Rule’ (2004) 52 Can.Tax.J. 2, 504.

12 
 ROSENBLATT & TRON

unusualness, abnormality27, complexity and genuineness. These familiar tests are disputed
since they are inconsistent and grant discretion to tax authorities; inventive transactions can
be straightforward, while ordinary schemes can be quickly marketed; complexity is a feature
of tax systems and there is no evidence that anyone is moving towards simplification.
These concepts are interconnected or used as synonyms and have no precise contours.
They are normally applied in the sense of ‘a lack of logical and coherent correspondence of
the arrangement and the underlying economic reality.’ The perception of an underlying
‘true’ nature which opposes legal form is a false dichotomy. Frequently the legislation
describes the taxable events in terms of legal transactions which do not necessarily
correspond to private law concepts (e.g., permanent establishment, business and employ-
ment).28
The French GAAR contains a ‘true character’ test,29 and a similar wording, ‘the true nature
of the taxable event’ was transplanted into other countries (Argentina, Chile and Brazil).
Portugal and Turkey contain a test on the artificial nature of a transaction, referred to as the
‘artificial nature’, in the first, and the ‘unreal taxable event and transaction’, in the latter.
In Singapore, a tax avoidance arrangement is defined as ‘an arrangement that is artificial,
contrived or has little or no commercial substance.’ Other jurisdictions contain a list of
non-exhaustive objective features of what might constitute an avoidance arrangement
(Australia, Hong Kong, Poland and India). The Israeli Supreme Court has developed several
tests during the years to distinguish between artificial and non-artificial arrangements.
Additionally, the most influential doctrines on this element come from Germany and
the CJEU. The German GAAR is based on the concept of abuse of rights and the abuse of legal
arrangements, whose inappropriateness test is largely applied by other countries
(Luxembourg, Norway, Switzerland and Spain). There is no clear definition of what
constitutes an inappropriate, or feasible, legal arrangement.
The CJEU case law concepts of ‘genuine economic activity’ and ‘wholly artificial
arrangement’ have not only been applied throughout the member states in relation to
harmonised taxes (VAT) but expanded and became part of the domestic GAARs of many
European countries (Austria, Denmark, Finland, Italy, Luxembourg, Czech Republic and
Spain, for example).30
The ATAD contains a non-genuine arrangements requirement, which must have regard
to all relevant facts and circumstances, and is considered an objective criterion, defined with
reference to ‘valid commercial reasons which reflect economic reality’. It is unclear whether
it is equivalent to the ‘wholly artificial arrangement’ test of the CJEU’s long-standing case
law.
These secondary criteria can lead to many more questions, whether they are applied in
tandem or not, if they have the same content or refer to different circumstances (see the
German and Spanish ‘artificial or improper’ tests, for instance), and so forth.

27
South Africa’s former GAAR contained an abnormality test, its ‘Achilles Heel’, which did not find its way in the
current provision. Instead, a lack of commerciality test was introduced.
28
Judith Freedman, Beyond boundaries: developing approaches to tax avoidance and tax risk management, (Oxford: CBT,
2008), 2.
29
The former Spanish GAAR also contained a ‘true legal nature’ test, in the current version replaced by a
‘notoriously artificial’, ‘deceptive’ or ‘improper’ criterion.
30
The CJEU can restrict the application of a GAAR of any member state if it breaches an internal market freedom.

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GENERAL REPORT

2.2.3 The codification of the ‘economic substance’, ‘substance over form’ and ‘fiscal nullity’
doctrines

Tests on the nature of the arrangements have their origin in the judicial anti-avoidance
doctrines developed in the US and the UK.
The North-American doctrines have advanced gradually and applied interchangeably,
in tandem or overlapping one another. They are often seen as subcategories of a wider
doctrine, ‘economic substance’ or ‘substance over form’, but there is no consensus on which is
dominant.31 The US ‘economic substance’ doctrine was codified in 2010. It is based on a
comparative analysis that evaluates, among other factors, whether there is a change in the
taxpayer’s economic position. It faces the same difficulties as other tests on the nature of the
arrangement, since it requires to draw a line between private law and tax law; it presumes a
tension between legal form and economic substance, which does not inevitably occur
because tax provisions are not necessarily built on purely economic concepts.32
With regard to the Duke of Westminster principle, doctrines on form and substance did
not gather support in the UK, until the increasing tax avoidance aggressiveness led the
courts to develop the so-called ‘fiscal nullity’ doctrine. It is similar to the US doctrines but
narrower, in the sense that judges considered it their role to view facts realistically – an
activist movement later known as ‘new realism’.
The 2010 UK anti-abuse rule follows this rationale because it targets ‘contrived and
abnormal steps’, and because there is a list of non-exhaustive indicia of abusiveness related
to the tension between the tax treatment and the ‘economic reality’.
Several branch reports stated that the ‘substance over form’ or ‘economic substance’ are
either an anti-avoidance doctrine applied in their jurisdictions (India, Japan, Liechtenstein,
Ukraine and Sweden), or an element of their statutory GAAR (Austria, Chile, Finland, India,
Indonesia, Italy, and Norway), or one of the criteria contained in a list of features of an
avoidance arrangement (Australia and Hong Kong). In the Republic of Korea, a codified
‘substance over form’ principle is what normally is called a GAAR, despite disagreements on
this labelling.
Sometimes, these doctrines have different names: the ‘principle of material truth’ (Czech
Republic), ‘doctrine of reality’ (Denmark), ‘the acceptable economic conduct’ (Israel), the
‘genuine economic sense’ (Russia), the ‘economic reality principle’ (Argentina, Uruguay) and
the ‘economic reasonable’ test (Japan).33
Confirming one of the conclusions of the 2002 IFA general report on form and substance,
this is an argument often used by tax officials and even courts to curb perceived tax avoidance
in the absence or insufficiency of a statutory GAAR, which is the case reported in Brazil,
Japan, Mexico, Indonesia and Peru.
Other countries have considered that judge-made doctrines and a lack of a statutory
definition of ‘tax avoidance’ have resulted in legal uncertainty and codified them into a

31
Brian Arnold, ‘A comparison of statutory general anti-avoidance rules and judicial general anti-avoidance
doctrines as a means of controlling tax avoidance: Which is better? (What would John Tiley think?)’ in J. A. Jones,
P. Harris and D. Oliver (eds), Comparative perspectives on revenue law: essays in honour of John Tiley (Cambridge: CUP,
2008), 15-17.
32
Brian Arnold, ‘The Canadian experience with a general anti-avoidance rule’ in J. Freedman (ed), Beyond
boundaries: developing approaches to tax avoidance and tax risk management (Oxford: CBT, 2008), 31.
33
The ‘economic reasonable’ test was developed by the Japanese courts, which applies to unreasonable or
abnormal acts.

14 
 ROSENBLATT & TRON

GAAR (India in 2013, with effects in 2017; UK in 2013; and Italy in 2015).
There are many arguments against codifying these doctrines, especially because taxes
are generally levied on the legal form of an arrangement rather than on its economic
substance. Also, the legal definition of tax bases does not necessarily correspond to its
economic reality, for example: taxes on property are seldom based on market values; levies
on alcohol and tobacco, for health policy reasons, might more than double their final costs;
and there are a number of taxes with fixed rates that are a distance from any factual basis.34
Still, codification seems to be the trend.

2.3 The tax benefit, advantage or gain

‘Where there’s smoke, there’s fire’. In many languages this saying means that there are signs
or rumours of something wrong or something that is not (entirely or partly) true. This is how
a GAAR case starts: a tax advantage is perceived by tax officials, because it puts the taxpayer
in a privileged position in relation to others in a similar circumstance. The gain is both a
consequence of and a reason for the tax avoidance transaction.35
What would otherwise have happened if the scheme had not been entered into? It
requires a prediction on the alternative state of affairs and taxable events by reference to
what other taxpayers would have done in similar circumstances. This is a difficult finding,
probably impossible or speculative. Furthermore, there are legitimate tax benefits provided
by the system. The identification of a tax benefit (reduction, suppression or deferral of tax,
just to name a few) depends, too, on a comparison between the taxpayers’ economic
situation before and after the scheme was entered into or carried out.
Several GAARs contain some sort of comparative requirement (for example Australia,
Norway, Germany, Portugal, Switzerland and Italy). In Italy the ‘undue tax savings’ require
this comparative approach, but only if the more burdensome, avoided transaction is feasible
and produces the same economic outcome. The ‘result element’, as it is called in Portugal,
needs the advantageous tax situation to be compared with the non-use of the arrange-
ments. The US applies the economic substance doctrine to the cases where the transaction
changes the taxpayer’s economic position in a meaningful way without any clear definition
what meaningful stands for.
Australian courts established a two-step test to analyse the alternate postulates: the
annihilating approach, which compares only events and circumstances that actually
happened or exist; and the reconstruction approach that involves a substitute set of
arrangements as a reasonable alternative to the avoidance scheme.
In a cross-border context, Switzerland set the comparison between the tax benefit that
corresponds with the difference between the resulting tax burden when applying the
specific tax treaty compared to the tax burden without it.
Another question is whether parliament expected the taxpayer to pay the ‘minimum’,
the ‘right’ or the ‘maximum’ amount of tax. In all the reports it is stated that taxpayers have
the right to arrange their affairs in an efficient way to minimise their tax burden. Since
taxpayers need to be treated equally, there is a risk to punish ingenuity, invention and

34
Rachel Anne Tooma, Legislating against tax avoidance, (Amsterdam: IBFD, 2008), 44-50.
35
Nabil Orow, General anti-avoidance rules: a comparative international analysis, (Bristol: Jordans, 2000), 94-109.

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GENERAL REPORT

cost-effective businesses.36
Despite being an essential part of GAARs, the tax advantage usually is a self-evident
element that can exist in GAARs in different forms, as it can be:
i) implicit and taken for granted (Argentina, Austria, Brazil, Denmark, Serbia and Turkey);
ii) mentioned but non-defined (Chinese Taipei, Finland, Liechtenstein, Luxembourg, Israel
and the US);
iii) broadly described with general formula that may include a reduction in or avoidance
(total or partial) of tax; a deferral or postponement of tax otherwise payable; or a
granting of a tax credit, refund, relief or an increase of tax losses to reduce total income
(Canada, Chile, France37, Hong Kong, India, Italy, Japan, Republic of Korea, New Zealand
Peru, Portugal, Russia, Singapore, South Africa, Spain, Sri Lanka and the UK);
iv) a combination of a broad definition coupled with a statutory list of features that
correspond to a tax benefit (Australia and Poland).
The broader and more comprehensive the definition, then virtually any scheme may be
subject to the GAAR. Nonetheless, this is the most common method in place.
A list-based approach pointing the types of features of tax benefit in an avoidance
context might restrict the scope of the GAAR – or even frustrate its application to unforeseen
or unforeseeable circumstances – and may turn it into a SAAR. To overcome this hindrance,
a hybrid approach combines a comprehensive definition with a non-exclusive list of tax
benefits. It is not always easy to qualify in one or in the other approach, which happens when
a broad, comprehensive definition is drafted as a list, as is the case of New Zealand’s GAAR.
The US codified that the ‘economic substance’ doctrine refers to ‘tax benefit’ but does not
define it. It adds the word ‘substantial’, similar to the ‘significant’ tax benefit in Sweden and
Switzerland, which are unclear.
In some countries, such as France and Spain, the GAAR does not mention the
postponement or deferral of taxes, but it is usually seen as part of the concept of tax
advantages or benefit.
The EU ATAD allows the tax advantage to be broadly interpreted by the member states.
The OECD’s PPT is limited to benefits available under the specific tax treaty, not in domestic
law.

2.4 The taxpayer’s purpose or intent

2.4.1 Overview and scope

The third primary element of a GAAR, the taxpayer’s purpose or intent is what connects the
other two elements – arrangement and tax benefit. Yet, there are strong views that it is not
a necessary element of GAARs, because taxation should not be dependent on subjective
criteria or moral judgements concerning the taxpayer’s state of mind. Two people can
arrange their affairs in the same way; while one has a clear motive, the other one only
achieves the result accidentally.
However, without a link between the two other elements, then virtually any conduct

36
William Barker, ‘The Ideology of Tax Avoidance’ (2009) 40 Loy.U.Chi.L.J., 230.
37
The French GAAR uses the term ‘alleviation’ to define tax benefit, which is undefined.

16 
 ROSENBLATT & TRON

that attracts a tax benefit would be subject to a GAAR. Other branches of law (even criminal)
make inquiries into intent or motive, with different sorts of test. Not every GAAR is explicit
on this element (for example Japan, Republic of Korea and Serbia).
In order to avoid subjective judgements and given the difficulty or impossibility to
provide evidence of one’s state of mind, some GAARs adopt objective tests with reference to
reasons, objectives, effects or consequences of the scheme38 (Argentina, Australia, Chile,
New Zealand and Spain39). Still, objective considerations are inferences or presumptions
regarding the intention of the taxpayer, since a scheme or a document does not have a
‘purpose’. Anyhow, a list of non-exclusive statutory factors as guidelines on the purpose of
the taxpayer, as in Australia, can be an adequate GAAR design.
This element of intent involves a distinction between tax and non-tax motives. Transac-
tions are often multiple-purposed, and tax, business, private, or family purposes are not
mutually exclusive. The decision-making process often depends on multiple incentives and
transactions can be arranged in different ways. The question is whether a GAAR is able to
balance multiple purposes of a scheme and to determine their relevance in the circum-
stances.40
This test might be narrow if limited to a ‘sole purpose’, ‘the exclusive purpose’ or ‘the
purpose’ (Belgium, Brazil, France, Luxembourg, Spain and Turkey); intermediate in case it
accepts a ‘significant’, ‘primary’, ‘main’41, ‘one of the main’, ‘one of the principal’, ‘paramount’,
‘predominant’, ‘dominant’, ‘ruling’, ‘prevailing’, ‘decisive’, ‘principal’ or ‘most influential’
purpose which requires a balance of mixed purposes (ATAD, Austria, Australia, Canada,
Czech Republic, Denmark, Hong Kong, Israel, Norway, Peru, Poland, Russia, South Africa,
Sweden, Sri Lanka and the UK); or broad if it requires ‘one of the purposes’ or ‘a purpose’
(India and New Zealand).42 Some countries apply a ‘not merely incidental purpose’ test to
narrow down the GAAR’s operation (Canada and New Zealand), or a vague ‘relevant’ or
‘substantial’ purpose test (Spain and the US). The OECD’s PPT has an intermediate scope as
it refers to ‘one of the principal purposes’.

38
Michael Lang, ‘The general anti-abuse rule of Article 80 of the draft proposal for a Council Directive on a
Common Consolidated Corporate Tax Base’ (2011) 51 ET 6, 225.
39
As reported, the ‘lack of other legal or economic relevant consequences’ (‘the effects test’) is considered to have
made the current Spanish GAAR objective and free from the subjective approach of the previous version.
40
Philip Baker, ‘Tax avoidance, tax evasion & tax mitigation’ (2000) GITC, available at <http://www.taxbar.com/
documents/Tax_Avoidance_Tax_MitigationPhilip_Baker.pdf> [Accessed 8 March 2011], 12. Frans Vanistendael,
‘Taxation, Tax Avoidance and the Rule of Law’ (2010) 16 A.P.T.B. 3, 214. See also, Graeme S. Cooper, ‘Australia’s
GAAR Comes Alive in the Courts’ (2011) Tax An J 559-566, 561.
41
“When considering such a provision, some countries may prefer to replace the phrase “a main purpose” by “the
main purpose” to make it clear that the provision should only apply to transactions that are, without any doubt,
primarily tax-motivated. Other countries, however, may consider that, based on their experience with similar
general anti-abuse rules found in domestic law, words such as “the main purpose” would impose an unrealisti-
cally high threshold that would require tax administrations to establish that obtaining tax benefits is objectively
more important than the combination of all other alleged purposes, which would risk rendering the provision
ineffective. A State that wishes to include a general anti-abuse rule in its treaties will therefore need to adapt
the wording to its own circumstances, particularly as regards the approach that its courts have adopted with
respect to tax avoidance.” [Para 36 of Commentary on Art. 1] United Nations, Model Tax Convention between
Developed and Developing Countries. New York, 2011, available at:
http://www.un.org/esa/ffd/documents/UN_Model_2011_Update.pdf. [Accessed: 10 March 2018].
42
Harry Erlichman, et al., ‘The Statutory Context of the GAAR’ in H. Erlichman (ed), Tax avoidance in Canada: the
general anti-avoidance rule (Toronto: Irwin Law, 2002), 30-32.

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GENERAL REPORT

To define who has the relevant purpose is another issue: the parties in a transaction,
anyone connected to the scheme or who has benefited from it. GAARs, expressly or implicitly,
tend to have a broad scope and apply irrespective of whose intent or purpose it was, except
for some judgements that restricted its breadth (see 3 below).
After determining the relevant purpose, the next stage is to find whether entering into
or carrying out a scheme has the purpose of gaining a tax benefit.

2.4.2 The form and motive of the transaction: business purpose, non-tax purpose and bona fide
purpose

Arrangements often have multiple purposes. It is a Hercules’ task to weigh them and to
conclude if avoidance is the main one.43 Austria calls it the ‘motive test’.
Courts have developed secondary tests – often codified – aimed at presuming the main
or one of the main purposes by balancing the motives (business, family or non-tax) and the
form of the transaction. Such tests were coined in the US Supreme Court case Gregory v.
Helvering,44 alongside with the ‘economic substance’ doctrine (see section 3.2.3 below). These
are probably among the most influential anti-avoidance doctrines in the world, even when
rejected by the legislature or by the courts. Besides the US, other countries (Russia, Sweden
and Ukraine) have reported a regular application of the ‘business purpose test’.
The scope of the GAAR may be limited by these tests, since business or commercial
elements can be inserted in a transaction to demonstrate that it was not overall tax-moti-
vated. Israel’s Supreme Court, for example, applies the ‘(fundamental) commercial purpose
test’, according to which no avoidance exists when an arrangement has genuine commercial
purposes other than obtaining a fiscal advantage, based on all facts and circumstances
(economic equivalence of multiple purposes, economic substance, profits expectation and
risks of the arrangement).
A ‘not-tax purpose test’ is an alternative to overcome this hindrance in Germany, but tax
and non-tax purposes are not mutually exclusive;45 and the ‘economic purpose test’ (Liech-
tenstein, Peru and the UK) is another substitute to the ‘business purpose test’, although very
similar.
When the Supreme Court of Canada rejected to apply the ‘business purpose’ doctrine, a
GAAR was enacted and a ‘bona fide purpose other than to obtain a tax benefit’ was put in its
place to cover also family and investment schemes. India transplanted this test. The current
South African GAAR followed this path and contains a ‘bona fide purpose, other than
obtaining a tax benefit test’, which is more limited for it includes a ‘business test’.
Frequently, civil law countries apply tests based on form and motive without a statutory
basis,46 and motive is usually called ‘cause’ (see Germany, for example).

43
Luís Eduardo Schoueri, ‘Planejamento Tributário e o “Propósito Negocial” - Mapeamento de Decisões do
Conselho de Contribuintes de 2002 a 2008’ in L. E. Schoueri and R. d. Freitas (eds), (São Paulo: Quartier Latin,
2010), 17-18.
44
Gregory v. Helvering 293 US [1935] 465 (SC), 469.
45
Frederik Zimmer, ‘IFA general report: Form and Substance in Tax Law’ in Cahiers de Droit Fiscal International (IFA,
2002, Vol.87A),48.
46
There was an unsuccessful attempt to introduce the ‘business purpose’ in the GAAR provision in Brazil, but
Congress rejected it. Still, the Tax Administrative Court often applies this test.

18 
 ROSENBLATT & TRON

2.4.3 Parliamentary intention, the apparent policy of the legislation and purposive interpretation

Tax avoidance is repeatedly associated with ambiguities and loopholes in the tax legislation
coupled with the literal construction of statutory provisions in a way that parliament did not
expect or that the legislation did not address. Taxpayers often take advantage of the tax
system by ‘cosmetic’ strategies, i.e. the manipulation of legal forms, so that the arrangement
either falls within the letter of the tax act to attract a benefit or falls out of the taxing
provisions.
An arrangement is formally in compliance with the law but not with its object, purpose
or spirit. The purpose of the arrangement is commonly defined with the aid of targeting
mechanisms, tests that relate the end result of the transaction in accordance with, or
contrary to, the parliamentary intention or underlying purpose of the legislation.47 The
Portuguese and the Dutch named it the ‘normative requirement’.
A GAAR may invite the courts to go beyond the literal meaning of the tax provisions,
with a purposive interpretation, or by giving the provision a textual, contextual and
purposive approach. Civil law countries are used to a purposive approach or teleological
interpretation, and common law counties are gradually adopting it, too.48 Thus, some branch
reports stated that the purposive approach is one of the GAAR features.
The plain wording of a tax statute may be interpreted according to the economic
meaning, to policy and social considerations, to fundamental values of the system, to private
law concepts and principles (Argentina, Israel, Liechtenstein and Norway), or it may be
construed with a realistic or commercial view of the facts (Australia and New Zealand).
Notwithstanding, a GAAR is not a principle of interpretation, but a substantive rule with
statutory criteria.
This is divisive of the role of the judges, whether they are restrained to apply strictly the
words of the statutes or to take part in the policy-making process.49 The more broadly a
GAAR is designed, the more attractive for the judiciary to adopt an extensive or purposive
approach; conversely, a potential limitless GAAR may be judicially limited.
A targeting mechanism is a disputed idea not only in taxation but in all fields of law. It
opposes views on the values of the tax system, such as individual liberty and equality.
Purposive approach may refer to the intent of the legislature or the underlying tax policy,
i.e., what was intended by parliament or its members when the provision was enacted, but
the legal words were insufficient to clearly express. It can mean a prediction of what the
legislature would have intended had it considered the particular circumstances to which the
statute should apply and foreseen its consequence; an approach aimed to fill the gaps left by
parliament. It can also be viewed as the ‘statutory scheme’, considering an objective finding
of the purpose features in a provision or within the entire act or legislation.
These methods are subjective and may lead to speculation.50 There are not always
preambles or explanatory notes to establish the tax policy, and if there are, these might be
ambiguous. ‘It is not the function of a GAAR, any more than of the judiciary, to fill gaps left

47
See OECD, International tax avoidance and evasion: four related studies (1987).
48
Justin Dabner, ‘The Spin of a Coin - In Search of a Workable GAAR’ (2000) JAT, 232-233.
49
Timothy Edgar, ‘Building a Better GAAR’ (2008) 27 4, 841.
50
Malcolm Gammie, ‘Tax avoidance and the rule of law: A perspective from the United Kingdom’ in G. S. Cooper
(ed), Tax avoidance and the rule of law (Amsterdam: IBFD, 1997), 198-204.

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GENERAL REPORT

by the failure to set out parliamentary intention.’51

There are statutory attempts to guide judges on how to determine legislative intent.
According to the branch report, the Turkish GAAR, establishes these criteria: ‘the wording of
the applicable rule(s); the general design of the legislation; comparison between the tax
consequences of the transaction carried out and those resulting from a more normal
transaction (i.e. a more obvious, straightforward transaction).’ South Africa codified the
‘choice doctrine’, to accept arrangements conceived for non-tax purposes but structured in a
more tax efficient manner. And the UK general anti-abuse rule highlights that such findings
should consider ‘the economic consequences that parliament intended to be suffered’ and
also the ‘choices’ afforded by the tax legislation to the taxpayer in the broad context of the
tax provisions read as whole.
It is a very contentious test. Tax legislation is full of details, complexities and interacts
with other tax and non-tax rules in diverse statutes. It is enacted by varied legislatures, at
different times and with multiple, colliding purposes. Many tax-motivated transactions are
provided by the tax system to incentive the taxpayer to behave in certain ways. It is more
difficult to ascertain the purpose of stand-alone provisions than when it is part of a tax
regime.

2.4.4 The anti-abuse rules: the codified doctrines of the ‘abuse of law’, ‘abuse of legal forms’ and
‘fraus legis’

Civil law countries have developed anti-avoidance doctrines based on private law concepts,
later codified in many jurisdictions. In private law, an abuse of law means the action exceeds
its limits, usually when someone acts with an improper motive. In short, there is societal
abuse when the action is driven to circumvent the law to achieve a result not intended by the
legislature;52 and intentional abuse when the action aim s at harming a third party.
The abuse of forms and the abuse of legal entities are species of the abuse of law and relate
to atypical business structures undertaken with no valid economic motives than to obtain a
tax benefit. Argentina, Chile and Chinese Taipei apply this test, and many European countries
have followed Germany’s developments on this concept.
In the fraus legis concept, an individual applies a legal provision outside its purpose to
circumvent a restriction or an obligation specified in another provision. In many countries,
tax avoidance is reported as the ‘circumvention’ of the tax law or of the tax burden (Belgium,
Italy, Luxembourg, New Zealand, Poland and Portugal). In the Netherlands, fraus legis is the
main anti-avoidance doctrine, which rendered the GAAR ineffective. The indirect transaction
doctrine is very similar, but no country reported its codification or recent application.
These indefinite concepts lack a uniform approach and vary from one jurisdiction to the
other.
France was one of the first countries to introduce a general anti-abuse rule in the tax
system (l’abuse de droit), which was amended in 2008 to codify the fraus legis (fraude à la loi). In
Spain, the abuse of law (abuso de derecho) and fraus legis (fraude de ley) were codified, too.

51
Judith Freedman, ‘Interpreting tax statutes: tax avoidance and the intention of Parliament’ (2007) 123 L.Q.R. Jan,
74-75. See also, Judith Freedman, ‘Designing a General Anti-Abuse Rule: Striking a Balance’ (2014) A.P.T.B.
167-173.
52
The Czech branch report refers to unjustified harm, meaning that the offending taxpayer reduces the tax
income of a state which could otherwise be redistributed for the benefit of other members of society.

20 
 ROSENBLATT & TRON

Argentina, Belgium, Chile, Italy, Luxembourg codified one or the other, or both.
The notion of abuse is not inherent to common law countries, where the person’s
motives in exercising his own rights are irrelevant. The word ‘abuse’ has a different meaning
in their tax acts, although similarities exist. New Zealand was the first common law country
to introduce the expression ‘taking an abusive tax position’ in its statutes.53 The Canadian
GAAR holds a ‘misuse and abuse’ test, but the distinction between these words is unclear.54
South Africa and India transplanted this test. And the UK enacted a general anti-abuse rule,
instead of a GAAR.
Codified anti-abuse doctrines refer to arrangements entered into or carried out with the
purpose to obtain a tax advantage against the provision’s underlying object, purpose or
spirit. The abuse occurs when the taxpayer puts himself outside the scope of a taxing act or
inside a tax reducing, exempting or postponing provision, via the literal wording of a
provision.
The case law of the CJEU clearly inspired (or somehow forced) the member states to
develop anti-abuse rules (see section 4 below). The ATAD contains an ‘object or purpose of
the applicable tax law test’, too.

2.5 The consequences of the GAAR application to a given case

Once the tax avoidance is identified and the rule applied, a second step is the definition of its
legal consequences. It is clear from the branch reports that if the result of a tax avoidance
arrangement is the obtaining of a tax advantage, then obviously the denial of this gain is a
commonplace consequence. In theory, the objectives of GAARs are firstly to deter avoidance
schemes and secondly, to counteract these schemes by denying the gain they had tried to
achieve.
Another commonality in the branch reports is that the consequences of the operation of
GAARs are restricted to tax purposes, and do not change the legal (private) forms of the
arrangements for all the non-tax reasons.
The denial of a tax benefit or advantage is enough when the tax avoidance scheme was
entered into or carried out with the main purpose to fall within an exempting or reducing
tax provision (a relief or a tax loss, for example). The tax advantage can be cancelled totally
or partially.
It will be insufficient to tackle tax avoidance transactions that fall outside of a taxing
provision. By disregarding the tax avoidance arrangement, it will require a determination of
a hypothetical set of circumstances or an alternative state of affairs in order to find the
appropriate liability to the arrangement. This means GAARs need to establish criteria to
re-characterise or reassess consequences for the whole or part (step) of the disregarded
arrangement or series of transactions; also termed reclassification or reconstruction.
It is difficult to determine (or speculate on) the ‘appropriate’ legal form to be put in place
of the disregarded tax avoidance scheme. Most reporters alerted on the uncertainty of a
re-characterisation in a GAAR context as it might grant limitless powers to tax agents.
GAARs generally grant tax authorities the discretion to tax as appropriate, for example

53
Craig Elliffe, ‘Tax Avoidance and the Supreme Court - Waiting for Godot?’ (2008) 14 NZBLQ 3, 3.
54
David G. Duff, ‘The Supreme Court of Canada and the General Anti-Avoidance Rule: Canada Trustco and
Mathew’ (2006) 60 B.F.I.T. 54, 64-68.

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GENERAL REPORT

the Canadian ‘as is reasonable in the circumstances’, the New Zealand’s ‘in a way the
Commissioner thinks appropriate’, or the UK’s ‘just and reasonable’; or by reference to the
‘purpose of the law’.55
The former Belgium GAAR was made ineffective and substituted because tax officers
were only allowed to re-characterise a transaction with an alternative legal arrangement
that had similar legal consequences. In the Netherlands, the GAAR (richtige heffing) was
rendered inoperative because it did not allow for the re-characterisation of tax avoidance
arrangements and was replaced by the more flexible fraus legis doctrine. The Brazilian GAAR
does not refer to re-characterisation, which contributes to its uncertainty. And the Turkish
report stated that the prohibition of analogy in tax matters limits the possibility of re-char-
acterisation.
In the EU ATAD, the non-genuine arrangements shall be ‘ignored’, whilst the tax liability
shall be established in accordance with national law. It is unclear whether it encompasses a
reconstructive component. Similarly, the OECD report states that the consequence of the
application of the PPT is the denial of the tax benefit under the treaty only and is not
intended to result in a re-characterisation of arrangements.
Other consequences may arise from a GAAR application, if certain conditions are met,
such as shortfall interest (which is familiar to most branch reports, but with different charges
and initial counting periods), economic penalties and even the possibility of filing criminal
charges against the taxpayer (Spain).
Penalties are common in many GAARs but the rates diverge. In Australian, 50 per cent of
the ‘scheme shortfall amount’ applies but may be lowered to 25 per cent if there is ‘a
“reasonably arguable” case that the GAAR does not apply.’ In Chile, a 100 per cent penalty
may apply to the tax advisor, although limited to a certain fixed amount. The Finnish GAAR
does not provide for penalties, unless ‘the taxpayer intentionally filed an incorrect or
deficient tax return,’ to which a 3-7 per cent penalty may be added. France adopts an 80 per
cent fine for abuse of law. Israel provides for a 15 per cent to 30 per cent fine. In Hong Kong,
apparently the hardest penalty regime reported here, the fine may equal to three times the
underpaid tax. The Italian GAAR has high penalties, from 90-180 per cent. New Zealand’s
penalties range from a 20 per cent shortfall fine to a 100 per cent in the event of an ‘abusive
tax position’. South Africa establishes a minimum penalty of 75 per cent and the UK may
charge 60 per cent. Ukraine sanctions tax avoidance from 25 to 70 per cent of the reassessed
tax. And some places have no GAAR penalty regime (Belgium, Canada, Luxembourg, the
Netherlands, Norway, Peru, Poland and Switzerland).
Higher fines are usually associate to fraud and evasion, which are often applied to tax
avoidance cases since the dividing line between them is blurred.56
A few GAARs additionally allow for compensating adjustments, i.e., to compensate or
reimburse the taxes already paid in connection with the discharged scheme (Australia, Italy,
Japan, Luxembourg and Norway). Contrariwise, the Portuguese branch report states that
the operation of the GAAR does not have circumstantial tax effects on ‘taxes on the transfer
of immovable property or equity, duties and fees on registration or any other secondary

55
Argentina, Austria, Belgium, Canada, Chile, Chinese Taipei, Finland, France, Germany, India, Israel, Republic of
Korea, Liechtenstein, Luxembourg, New Zealand, Norway, Peru, Poland, Portugal, Serbia, Russia, Singapore,
South Africa, Spain, Sri Lanka, Sweden, Switzerland, the UK and Ukraine.
56
This report does not comment on tests related to evasion such as the ones applied to fictitious transactions,
sham and so forth, although the general reporters are aware they have been used in tax avoidance contexts as
well because of the imprecise distinction between evasion and avoidance.

22 
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taxations’.
Finally, a GAAR may apply only to the taxpayer, or to any beneficiary (‘connected party’)
or to any party involved in the scheme or series of transactions (‘accommodating party’),
which may or may not include tax advisors (India, Luxembourg and New Zealand).

2.6 Conflicts between domestic and treaty GAAR or between domestic GAAR and
SAAR

GAARs are catch-all provisions designed to act upon ordinary charging or exempting rules.
Tensions between them and other anti-avoidance rules, particularly with treaty GAARs and
SAARs, may happen and only one should prevail in the circumstances.57
Conflicts cannot be resolved by purposive interpretation alone, for GAARs are not simply
rules of statutory construction as they modify the meaning of other provisions or set
alternative taxable events. Still, they usually do not establish criteria of prevalence in the
event of colliding rules.58 A GAAR should not always predominate, because under legislative
purpose, there might be choices and incentives provided by the ordinary tax provisions. An
inflexible precedence rule might render the GAAR ineffective or bring uncertainty.
In cross-border situations, the interaction between domestic and treaty GAARs and how
said conflict is resolved under the rules of the jurisdiction, is problematic if one prevails or if
both may be applied independently or simultaneously. In a domestic environment, GAAR
and SAARs often live together but are subject to conflict and may overlap. The GAAR may be
used as a complement to a SAAR, especially if the latter is being circumvented by an
avoidance scheme, or they can be applied together but independently from one another
(Austria, Belgium, Finland, Japan, Liechtenstein, New Zealand, Norway, Portugal and the
US). As observed in the Argentine report, there is a tendency to apply a GAAR as a remedy to
decide complex issues.
If the Latin maxim rule of construction ‘generalia specialibus non derogant’ (a general rule
does not revoke a specific provision) is the solution – essentially where the GAAR is
considered a provision of last resort (ultimum ratio or remedium) or a residual rule in cases
where the requirements for application of a SAAR are not met (Australia,59 Belgium, Chile,
Chinese Taipei, Czech Republic,60 Israel, Italy, Japan, Republic of Korea, Liechtenstein, the
Netherlands, Norway, Poland, Spain, Switzerland, Singapore and Sweden)61 – then, there is
a risk of the domestic GAAR being rendered ineffective. This might be the case if the scheme
is structured to circumvent a SAAR.
The reports suggest if a SAAR has an objective and specific nature, it can apply more
easily. Conflicts between GAARs and SAARs habitually arise when this is not the case – or
when the SAAR does not have precedence over the GAAR –, and it is an unsettled issue in
several reported jurisdictions or have not raised any conflict to date (Argentina, Canada,
France, Germany, Israel, Japan, Luxembourg, Serbia and Singapore).

57
Nabil Orow, General anti-avoidance rules: a comparative international analysis, (Bristol: Jordans, 2000), 183, 348-361.
58
Craig Elliffe, ‘International Tax Avoidance - The Tension between Protecting the Tax Base and Certainty of Law’
(2011) J.B.L. 7, 4-5.
59
The Australian branch report states that no provision in the GAAR says it is a measure of last resort, but SAARs
would be considered first in practice.
60
The Czech branch report says the GAAR should be only used in exceptional cases as an ‘emergency break’.
61
The Luxembourg report says the GAAR would apply first.

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GENERAL REPORT

All reports give a sound explanation on how treaties are internalised in each jurisdiction
according to principles of international law and constitutional background. In some, inter-
national law prevails over domestic law (Belgium, Canada, Chile, Chinese Taipei, Czech
Republic, Finland, France, Israel, the Netherlands, Poland, Serbia, Sri Lanka and Ukraine),
whereas in others the principle of speciality governs (Brazil, Germany, Italy and Liechten-
stein).
The OECD commentary to the MTC established that domestic GAARs do not need to be
particularly referred to in DTTs to be applied and effective.62 The inclusion of a treaty GAAR
or other anti-avoidance rules of general nature such as LOB,63 based on the OECD Model Tax
Convention (MTC), is not widespread yet. Many countries have no treaty GAARs to date,
while others have reported that no conflict exists between domestic and treaty GAAR
(Brazil, Denmark, Finland, Germany, Liechtenstein, New Zealand, Peru, Russia, Serbia,
Singapore, South Africa, Spain, Sweden, Switzerland and Turkey).
The BEPS ‘Principal Purposes Test (PPT)’ in the Multilateral Instrument (MLI), concerned
with the abuse of tax treaties, tends to invert that scenario in the long run. Conflict between
domestic GAARs and treaty provisions may also rise in the context of BEPS-PPT and
EU-ATAD.
A DTC may establish that the domestic GAAR or SAAR would not apply in a cross-border
situation, but usually it is the opposite, providing that the domestic GAAR would apply in
any international context (Australia, Austria, Canada,64 Chinese Taipei,65 Czech Republic,
Finland, France, Germany, Israel, Japan, Luxembourg, New Zealand, Norway, Poland, South
Africa, Sweden, Switzerland, the UK and the US). Notwithstanding, there can be limitations
if the benefits arise from the treaty or if the treaty states otherwise. Anyhow, the operation
of GAARs do not override DTTs but aids to counteract schemes that exploit specific short-
comings in them, or in the interaction between DTTs and domestic law.

3. Case law on statutory or court-developed GAARs

3.1 General overview

This part of the report examines both the interpretation of statutory GAARs in courts and
the development of anti-avoidance judge-made doctrines. Since avoidance is based on
ambiguous, indeterminate concepts, there is a necessary reliance on the judiciary. Courts
usually define the elements of GAARs in a way similar to the creation of judicial doctrines.
Their role is not to assure a GAAR is applied and to raise revenue but, as the Argentine branch
report pointed out, their function is: to provide certainty to the tax system through consistent
decisions, to avoid exceeding their constitutional power, to balance GAAR with other inter-
pretations of principles of law and limit its operation to the exceptional cases it is supposed
to address.

62
OECD, Commentaries on the articles of the model tax convention. Available at: http://www.oecd.org/berlin/
publikationen/43324465.pdf. [Accessed: 11 March 2018].
63
LOB clauses in all or some DTTs were reported by Germany, Israel, Italy, Singapore, Russia, Turkey, Ukraine and
the US.
64
The Canadian GAAR was amended in 2005 to include tax treaties’ avoidance.
65
There is a treaty-related anti-avoidance rule in Chinese Taipei.

24 
 ROSENBLATT & TRON

The branch reports presented and analysed their remarkable cases without any intention
of exhaustiveness, for it would be virtually impossible to cover all cases. In this general
report, these cases are not described again; some of them are selected in terms of singularity
and relevance,66 and then commented on. There are ample academic or professional
analyses with full description of the facts, context and rationale of outstanding cases.
Some countries have had a GAAR or have been challenging avoidance on the grounds of
judge-made doctrines for a long time, with varied degrees of success. In the following juris-
dictions, there are long-lasting statutory GAARs that were extensively considered by courts:
New Zealand (the oldest of all GAARs, from the 1890s, and the current version from 2007)
Australia (1915; current version from 1981 and recently amended in 2013) Finland (1920’s and
current version since 1943), the Netherlands (1925),67 Argentina (1941), Luxembourg (1941),
France (1941), Austria (1962), Spain (1963), Italy (1973),68 Hong Kong (1986) and Canada (1998).
GAARs and judge-made doctrines evolve, circumstances change, legislation is revoked
and new one implemented; some GAARs have been amended or substituted by new
versions, due to judicial restraints. Significant court hearings on GAARs show that this is a
hot topic in which decisions are often taken by voting (non-unanimous). That reflects a
difficulty to predict their results.
This report does not measure avoidance, nor the effectiveness of anti-avoidance rules or
doctrines. It does not speculate whether a certain case would have achieved a different
result if heard by a court of another jurisdiction, or by other judges of the same country or of
diverse ranks. Tax concepts are subject to cultural, historical and linguistic particularities,
and the way judges see their constitutional role is dissimilar.
This part gives a comparative analysis of the case law regarding the elements of GAARs
and general anti-avoidance rules or doctrines of a general scope. The cases are not analysed
in an orderly, straightforward, country-by-country fashion but in no particular order. The
report explores cases that spread and influence other jurisdictions, transforming the law.
The readers should bear in mind these two alerts: ‘GAARs on paper can be more or less
the same, whereas in action may reflect a variety of judicial responses;’69 and ‘tax-avoidance
cases often leave as many questions open as they answer […].’70
Any study on tax avoidance needs to start with the Duke of Westminster case, delivered by
the UK House of Lords, in 1936, and with Lord Tomlin’s notorious quote: ‘every man is entitled
if he can to order his affairs so as that the tax attaching under the appropriate acts is less
than it otherwise would be.’71 The so-called ‘Duke of Westminster principle’ is cited authorita-
tively in common and civil law countries throughout time. It is one of the pillars of modern
western liberal democracies and the basis for tax planning. Taxpayers have the right to

66
Paulo Rosenblatt, General Anti-Avoidance Rules for Major Developing Countries, (Alphen aan den Rijn, The
Netherlands: Kluwer Law International, 2015), ch.5.
67
In 1987, the Finance Minister decided not to apply the richtige heffing (the Dutch GAAR) and resort to the fraus
legis doctrine instead.
68
The Italian statutory GAAR was enacted in 2015 codifying the abuse of law doctrine.
69
Jinyan Li, ‘Tax Transplant and Local Culture: A Comparative Study of the Chinese and Canadian GAAR’ (2010) 11
Theo Inq L 2, 655-662.
70
Judith Freedman, ‘Converging Tracks? Recent Developments in Canadian and UK Approaches to Tax Avoidance’
(2005) 53 Can.Tax.J. 4, 1038.
71
IRC v. Duke of Westminster [1936] AC 1 (HL).

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GENERAL REPORT

minimise tax and courts must respect rights and obligations created by the parties.72 Taken
to the extreme, this idea led to a pro-taxpayer literalism and the outburst of aggressive
avoidance.73
In the 1980s, in the line of Ramsay74, Furniss v. Dawson75, Craven v. White76 and BMBF77 cases,
the court shifted from strict literalism to a purposive approach. Later it took a self-restraining
position and denied the ‘Ramsay principle’78 of being a judge-made doctrine (namely the
‘disregard’ or ‘fiscal nullity’ doctrines) but rather a form of realistic interpretation of facts.
In the US Gregory v. Helvering case,79 contemporary to the Duke of Westminster and equally
quoted, the Supreme Court viewed its role as to interpret the constitution purposively and
developed the most important existing anti-avoidance doctrines.80
In France the abuse of law (abus de droit) was gradually developed by the Conseil d’Etat
(the French Supreme Administrative Court) and extended into tax matters.81 In 1941 it was
codified as the French GAAR and amended several times later. The ‘abnormal act of
management’ doctrine (l’acte anormal de géstion), which has no statutory basis, co-exists with
the GAAR, and allows for the tax administration to challenge acts or arrangements that do
not correspond to the ‘natural business interests of the taxpayer’.82
In the first significant GAAR case in Australia, Purcell,83 the High Court took a literal
approach and limited the rule’s operation.84 In Newton85 and following cases, tests were
judicially developed in a way that made the provision ineffective. The current GAAR was
introduced to overcome this hindrance, and it was amended in 2013 ‘to strengthen the
application of the GAAR and override the judicial interpretation of tax benefit’. The courts
have analysed the elements of the GAAR in detail.
The Canadian GAAR was enacted after the Supreme Court rejected to apply
anti-avoidance doctrines in the Stubart case.86 87 It took a decade before a GAAR case, Canada

72
Philip Baker, ‘Tax avoidance, tax evasion & tax mitigation’ (2000) GITC, available at <http://www.taxbar.com/
documents/Tax_Avoidance_Tax_MitigationPhilip_Baker.pdf> [Accessed 8 March 2011], 9-10. Arnold (2008),
above fn. 13, 3-4.
73
Brian Arnold, ‘Reflections on the Relationship Between Statutory Interpretation and Tax Avoidance’ in H.
Erlichman (ed), Tax avoidance in Canada: the general anti-avoidance rule (Toronto: Irwin Law, 2002), 46-48.
74
WT Ramsay Ltd v. Inland Revenue Commissioners [1982] AC 300 (HL).
75
Furniss (Inspector of Taxes) v. Dawson [1984] AC 474 (HL).
76
Craven v. White [1989] AC 398 (HL).
77
Barclays Mercantile Business Finance Ltd v. Mawson [2005] STC 1; [2004] UKHL 51.
78
Judith Freedman, ‘Interpreting tax statutes: tax avoidance and the intention of Parliament’ (2007) 123 L.Q.R. Jan,
p. 53.
79
Jerome B. Libin, ‘Congress Should Address Tax Avoidance Head-On: The Internal Revenue Code Needs a GAAR’
(2010-2011) 30, 342.
80
Patrick S. Atiyah and Robert S. Summers, Form and substance in Anglo-American law: a comparative study of legal
reasoning, legal theory, and legal institutions, (Oxford: Clarendon, 1987), 249-266.
81
See Janfin case: CE, 27 September 2006, No. 260.050, Sté Janfin DF 2006 No. 47, comm. 744, concl. L. Olléon.
82
Frans Vanistendael, ‘Judicial interpretation and the role of anti-abuse provisions in tax law’ in G. S. Cooper (ed),
Tax avoidance and the rule of law (Amsterdam: IBFD, 1997), 134-144.
83
Deputy Commissioner of Taxation (Cth) v. Purcell [1921] 29 CLR 464 (HCA) (‘Purcell’).
84
Maurice Cashmere, ‘A GAAR for the United Kingdom? The Australian experience’ [2008] BTR 2, 130. Tony G.
Pagone, ‘Part IVA: The General Anti-Avoidance Provisions in Australian Taxation Law’ (2003) 30 MULR 27, 2-3.
85
Newton v. FCT (1958) 98 CLR 1 (UKPC) (‘Newton’).
86
Stubart Investments Ltd. v. The Queen [1984] CTC 294 (SCC).
87
Brian Arnold, ‘The long, slow, steady demise of the General Anti-Avoidance Rule’ (2004) 52 Can.Tax.J. 2, 504. Vern
Krishna, Tax Avoidance: the General Anti-Avoidance Rule, (Canada: Carswell, 1990), 1.

26 
 ROSENBLATT & TRON

Trustco, was heard before the Supreme Court.88

In Argentina, where there is a long-lasting GAAR, the Supreme Court limited the
purposive interpretation in tax matters in several decisions.89
This demonstrates there is a long road from the introduction of a GAAR until a case is
final, and how the results are unpredictable. Many branches reported their recently enacted
GAARs have not been tested yet or have no relevant judgements (Belgium,90 Brazil,91 Chile,
Denmark, India, Liechtenstein, Peru,92 Poland, Portugal, South Africa, Singapore, Sri Lanka
and the UK).

3.2 Noteworthy cases on the operation of the statutory GAARs

In several jurisdictions, the courts have been called upon to decide on tax avoidance cases,
and they have frequently resorted to civil law concepts, developed their own doctrines or
applied statutory GAARs defining its primary and secondary elements.

3.2.1 Scheme, arrangement or avoidance, and the step transactions doctrines

The scope of GAARs or other anti-avoidance rules or doctrines of general nature depends on
the definition of the scheme, arrangement or transaction. As discussed above (section 2.2),
judges have the difficult task to define whether it applies to parts or steps within a broader
arrangement, to a combined series of transactions, and whether these steps or transactions
are pre-ordained, pre-planned, sequential or interdependent.
The ‘step transaction’ doctrine, a sub product of the ‘substance over form doctrine’, allows
for the tax officials to disregard steps incorporated in a major transaction for tax purposes,
so that the scheme can be viewed as a whole and the tax provision applied to it; or transac-
tions can be combined into a single composite one and determined by the overall effect
rather than by each individual transaction. It is regularly applied in the US as a statutory
interpretive doctrine. In Minnesota v. Helvering lays the famous quotation made by Justice
Sutherland: ‘A given result at the end of a straight path is not made a different result because
reached by following a devious path.’93
It is controversial since arrangements are likely to be planned in a tax-efficient manner.
The more a transaction is divided into steps, the easier to find one or more that are tax-mo-
tivated.
Australia’s former GAAR suffered judicial restraints on the broad definition of the
scheme. The current version introduced an ampler concept but was not free from court
limitations. In Peabody, the High Court created a test by which the GAAR could be applied to
a part of the scheme only if it could ‘make sense on its own’ or ‘be able to stand on its own and

88
Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC 54.
89
Fallos 155:248; 234:310; 306:783; 249:425; 281:170.
90
According to the Belgium branch report, there is no case law on the recent GAAR, except for the Constitutional
Court judgement considering it valid under the principle of legality if applied within certain boundaries.
91
Brazil has had a GAAR since 2001 but there is no case law on its operation. A few cases were reported by the local
branch from the Federal Tax Administrative Court, which is not part of the Judiciary.
92
The Peruvian branch report says the GAAR has never been applied because the Finance Minister suspended it.
93
Minnesota Tea Co v. Helvering 302 US (1938) 609 (SC). See also, Griffiths v. Helvering 308 US (1939) 355 (SC), 358.

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GENERAL REPORT

not be robbed of all practical meaning’.94 This test produced more uncertainty.95 The Court
decided that the Commissioner must correctly identify the scheme, in order to reduce
discretion, but this also restricted the scope of the GAAR in the event of factual mistakes or
denied the definition of the scheme in alternative ways. This test was abandoned in Hart,96.
which set that ‘action’ may refer to a single step and ‘plan’ and ‘scheme’ to a series of steps or
arrangements.
The New Zealand GAAR refers to ‘schemes’ and ‘all steps and transactions’. In Ben Nevis,
the Supreme Court stated that this definition was imprecise, but it was parliament that
chose it to be that way, leaving it to the courts to decide what should fall within or without
the provision. It said that tax avoidance can be found in an individual step or in a combination
of steps.97
The Supreme Court of Canada dealt with similar issues in a few cases (OSFC,98 Mathew99
and Lipson100). The main question was whether a series of transaction needs to be
‘preordained’ or ‘pre-planned’, or whether an ‘actual knowledge’ was needed. The Court
decided these were not GAAR requirements; rather, there should be an interdependent
relationship between tax and non-tax steps, and that they must be viewed in the whole
context.
In Ramsay101 and Furniss v. Dawson,102 the UK step transactions doctrine was developed on
the necessity of interrelation between steps. In the first case, the House of Lords decided that
courts are entitled to look at the relevant plan as a whole, where there is a composite, pre-or-
dained transaction or series of transactions having steps inserted for no purpose other than
tax avoidance; in the second case, that a realistic view of the facts should not be confined to
circular self-cancelling transactions, but extended to linear, pre-ordained series of transac-
tions entered into for tax avoidance purposes. As mentioned above, later the Court took a
restrictive approach and confined the Ramsay principle to a statutory interpretive approach.
The Tokyo High Court, in Japan, rejected to deny a tax benefit to the relevant series of
transactions on the grounds that an unreasonable step had been included for tax avoidance
purposes.103
The seminal case AQQ,104 in Singapore, decided by the Supreme Court 26 years after the
GAAR was enacted, found that ‘arrangement’ is a composite term that includes component
steps or a combination of steps ‘that may be individually unobjectionable’.
The ‘indirect transactions’, ‘indirect business’ or ‘indirect contracts’ doctrine is a similar
approach to the steps transactions; in civil law countries – usually a species of fraus legis
(fraud of law). It was mentioned in the following reports: Argentina, Mexico, Portugal and
Spain (although the Spanish report said it is in disuse).

94
Federal Commission of Taxation v. Peabody (1994) 181 CLR 359.
95
Julie Cassidy, ‘Peabody v FCT and Part IVA’ (1995) 5 Revenue L.J. 2 199.
96
Federal Commissioner of Taxation v. Hart [2004] ATC 4599 (HCA)
97
Ben Nevis Forestry Ventures Ltd v. Commissioner of Inland Revenue [2009] 2 NZLR 289 [NZSC].
98
OSFC Holdings Ltd v R, 2001 FCA 260.
99
Mathew v R, 2005 SCC 55.
100
Lipson v R, 2009 SCC 1.
101
WT Ramsay Ltd v. Inland Revenue Commissioners [1982] AC 300 (HL).
102
Furniss (Inspector of Taxes) v. Dawson [1984] AC 474 (HL).
103
Tokyo High Court Decision 2015-03-25, Hanji 2267-24
104
Comptroller of Income Tax v AQQ and another appeal (“AQQ”).

28 
 ROSENBLATT & TRON

3.2.2 The judicial finding of a tax benefit, advantage or gain

A finding on the tax benefit is a challenge in tax avoidance cases.

In Australia, the High Court found, in Peabody105 and Spotless,106 that the tax benefit must
be defined objectively, in connection with the scheme. In the latter case, the Court rejected
the dichotomy between commercial profit and tax benefit; but in Hart,107 it was decided that
there is not a necessary association of profit-making and the obtaining of a tax advantage.
This shows how difficult it is to determine that a tax benefit arises from an avoidance
scheme.
Recently, in RCI (James Hardie)108 and Futuris,109 the issue lied with the taxpayers’ counter-
factual position: whether he would have done what he had done but for the tax advantage.
Because of these two cases, the GAAR was amended in 2013 in order to give prominence to
the purpose test.
A comparable point was raised in OSFC, where the Supreme Court of Canada said the tax
benefit was the first necessary finding of a scheme to which it was connected, and required
‘a determination of whether a transaction or series of transactions would, but for the GAAR,
result in a tax benefit.’110 In Canada Trustco,111 the Court understood that determining whether
a tax benefit arises from a transaction (or a series of transactions) is the first step in applying
a GAAR, although a difficult matter of fact, for it requires a comparison between hypothetical
alternatives.
In Hong Kong, it was found, in Tai Hang Cotton Mill,112 that a tax benefit requires a
counterfactual benchmark to show that, in non-tax avoidance circumstances, the result
would have been different. It does not necessarily mean there was an avoidance scheme.
That same rationale was followed in Hit Finance.113 In Ngai,114 the tax benefit was considered
the first element to be identified and could be found from a clear change in the financial
position of the taxpayer.
The French Administrative Supreme Court analysed the scope of the tax benefit and
decided that it had to be defined considering the overall result of the arrangement. The
abuse of law provision cannot apply to schemes which do not result in any tax advantage for
the taxpayer.115
In Russia, tax avoidance is mostly dealt with by judge-made doctrines. Some of them
have been codified in 2017 and are known as the ‘unjustified tax benefit’ doctrine, a general
principle that a reduction of a tax base is undue if based on an overall analysis of the fact.

105
Federal Commission of Taxation v. Peabody (1994) 181 CLR 359.
106
Federal Commissioner of Taxation (Cth) v. Spotless Services Ltd (1996) ATC 5201 (HCA).
107
Federal Commissioner of Taxation v. Hart [2004] ATC 4599 (HCA).
108
RCI Pty Ltd v FCT [2011] FCAFC 104.
109
Futuris Corporation Ltd v FCT (2012) ATC 20-306.
110
OSFC Holdings Ltd v R, 2001 FCA 260.
111
Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC 54.
112
Commissioner of Inland Revenue v. Tai Hing Cotton Mill [2007] 10 CACV 343/2005 HKCFAR 7047.
113
CIR v. HIT Finance Ltd (2007) 10 HKCFAR 717.
114
Ngai Lik Electronics Company Ltd v. CIR (2009) FACV 29/2008 (HJCFAR).
115
CE, Décision No. 294,535, Tomasina, RJF 2007, No. 1,297, 10 Jul. 2007, concl. P. Collin.

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GENERAL REPORT

3.2.3 Ascertaining the purpose or intent

In Australia, the purpose test was scrutinised by the courts. In Newton, it was decided that
‘the purpose’ did not mean the ‘sole’ or ‘principal purpose’ but ‘one of the purposes.’116 The
current GAAR adopted a ‘dominant purpose’ test accordingly. But then again, the issue
turned on dominance should be determined when two or more purposes drive a transaction.
In Spotless,117 the High Court affirmed that dominant means the ruling, prevailing, or most
influential purpose, not a secondary purpose. In Consolidated Press118 and Metal Manufac-
turers,119 it was said that the dominant purpose does not depend upon the awareness of the
taxpayer, so it can be attributed to any of the relevant parties or even to a professional
adviser. And in Hart, the High Court stated that the identification of a tax benefit alone
should not lead inevitably to the conclusion that avoidance is the dominant purpose.120
Relatedly, the Supreme Court of New Zealand decided in Ben Nevis,121 that a tax avoidance
purpose is not a merely incidental purpose but a principal object of the arrangement.
In Canada, the ‘primary purpose’ was tested before the Supreme Court, which decided in
OSFC,122 that the ‘primary purpose’ is to be determined objectively according to the facts and
circumstances after the identification of the tax advantage in connection with the scheme.
In Canada Trustco,123 the Court confirmed that the primary purpose of the overall transaction
is a factual inquiry, in the sense of the end-result. This could make it difficult to find an
avoidance when avoidance steps are inserted into a transaction only to obtain a tax benefit,
if the overall transaction has a non-tax purpose, as it was later recognised in Lipson.124
In the UK, the Ramsay line of cases dealt with the notion of purpose for the characteri-
sation of avoidance, first accepting it as a necessary test, but later rejecting the argument
that a transaction could be disregarded for fiscal purposes on the grounds that the taxpayer
had the purpose or intent of avoiding tax. Shiu Wing,125 Tai Hang Cotton Mill126 and Ngai,127 all
cases decided in Hong Kong, followed the reasoning in Ramsay.
The French Supreme Administrative Court added a purpose test to the ‘abuse of law’
provision, by affirming that the test could apply to acts that had no motive other than to
avoid or reduce the tax burden to which the taxpayer would normally have been subject in
view of the circumstances and activities.128 Motive has a subjective character.129 In Janfin, in
the line of CJEU case law, it was decided that the tax authority is allowed to apply the general
civil concept of abuse of law to any tax matter when the taxpayer obtains a benefit from a
literal application of the legal text with no motive other than to avoid or mitigate the tax

116
Newton v. FCT (1958) 98 CLR 1 (UKPC).
117
Federal Commissioner of Taxation (Cth) v. Spotless Services Ltd (1996) ATC 5201 (HCA).
118
FCT v. Consolidated Press Holdings Ltd [2001] HCA 32.
119
FCT v. Metal Manufacturers [2001] FCA 365.
120
Federal Commissioner of Taxation v. Hart [2004] ATC 4599 (HCA).
121
Ben Nevis Forestry Ventures Ltd v. Commissioner of Inland Revenue [2009] 2 NZLR 289 [NZSC].
122
OSFC Holdings Ltd v R, 2001 FCA 260.
123
Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC 54.
124
Lipson v. Canada [2009] SCC 1, [2009] 1 SCR 3 (SCA).
125
Shiu Wing Ltd v. Commissioner of Estate Duty [2000] 3 HKLRD 76 (HKCFAR).
126
Commissioner of Inland Revenue v. Tai Hing Cotton Mill [2007] 10 CACV 343/2005 HKCFAR 7047.
127
Ngai Lik Electronics Company Ltd v. CIR (2009) FACV 29/2008 (HJCFAR).
128
CE, Plén., 10 Jun. 1981, No. 19079, RJF 9/81, No. 787.
129
Thierry Pons and Clément Coirault-Quinquet, ‘Abuse of Law in France: Developments regarding Financial
Transactions’ (2005) 45 ET 1, 28-29.

30 
 ROSENBLATT & TRON

burden.130
In Argentina, the intent was considered part of the economic reality principle in re
Huarte.131
According to the Austrian report, the intent to avoid taxes is a requirement under the
GAAR, and it is explained by examining whether the arrangement would have taken place
but for the tax-saving result. However, in some cases, the Supreme Court understood that
‘non-fiscal reasons for the structure’ need to be ‘substantial’ to qualify a scheme as tax
avoidance.

3.3 Judge-made general anti-avoidance doctrines or concepts

3.3.1 Substance over form and economic substance doctrines

Most branches reported that judges take the substance over form doctrine into account
while examining the facts. The US landmark Supreme Court case Gregory v. Helvering132 is its
birthplace.133
The economic substance is a similar doctrine applied in cases where the economic
reality is given precedence over the legal form chosen by the taxpayer. It usually requires a
meaningful change to the taxpayer’s economic position in a non-tax manner, i.e., an
assessment of the taxpayer’s pre- and post-tax profit, of what he achieved beyond the tax
advantages, and of whether he had a real expectation of economic profit from the
arrangement.
In Brown, Justice Harlan stated his famous dictum: ‘the tax laws exist as an economic
reality in the businessman’s world, much like the existence of a competitor. Businessmen
plan their affairs around both, and a tax dollar is just as real as one derived from any other
source.’134 In Frank Lyon, the Supreme Court decided in favour of the taxpayer because it could
not ‘ignore the reality that the tax laws affect the shape of nearly every business transac-
tion.’135
Lower courts have developed this test with varied results, but doctrines based on the
dichotomy substance and form did not develop consistently.136
In Australia, the current provision incorporated explicitly a form and substance test.137 In
Spotless138 and Consolidated Press,139 the High Court recognised it as a relevant matter under

130
CE, 27 Sep. 2006, No. 260.050, Sté Janfin DF 2006 No. 47, comm. 744, concl. L. Olléon.
131
Fallos 249:657.
132
Gregory v. Helvering 293 US (1935) 465 (SC), 468.
133
Frans Vanistendael, ‘Judicial interpretation and the role of anti-abuse provisions in tax law’ in G. S. Cooper (ed),
Tax avoidance and the rule of law (Amsterdam: IBFD, 1997), 134-144.
134
Internal Revenue v. Brown (1965) 380 US 563 (SC).
135
Frank Lyon Co v. United States (1978) 435 US 561 (SC)
136
See Commissioner v. Court Holding Co., 324 U.S. 331 (1941); True v. United States, 190 F.3d 1165, 1174 (10th Cir. 1999);
Newman v. Commissioner, 894 F.2d 560, 562 (2d Cir. 1990); Kuper v. Commissioner, 533 F.2d 152, 155 (5th Cir. 1976); Derr
v. Commissioner, 77 T.C. 708, 722 (1981); Rev. Rul. 2002-69, 2002-2 C.B. 760.
137
Mullens v. FCT (1976) 135 CLR 290.
138
Federal Commissioner of Taxation (Cth) v. Spotless Services Ltd (1996) ATC 5201 (HCA).
139
FCT v Consolidated Press Holdings (2001) 207 CLR 235.

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GENERAL REPORT

the GAAR. In the first – and also in Hart –140 the Court understood that commercial decisions
and tax driven considerations are not mutually exclusive.
In Challenge Corp,141 the New Zealand Supreme Court decided the case against the
taxpayer on the grounds of a ‘lack of commercial reality’. But in Peterson, it said that uncom-
mercial terms were not uncommon in financing arrangements.142 In Ben Nevis143 and Penny
and Hooper,144 the economic substance was again considered a relevant matter.
The Canadian Supreme Court, in Stubart,145 rejected to apply a substance over form
doctrine in the absence of a GAAR. It followed that the GAAR was enacted. In Canada
Trustco,146 Mathew147 and Lipson148, the Court decided that economic substance might be
relevant but not determinative for applying the statutory GAAR so long as it is part of a
‘factual context’.
The Ramsay principle was first regarded as an ‘economic substance’ doctrine, but later
the UK House of Lords rejected this idea by declaring that it was merely a principle of
statutory construction. Following Ramsay reasoning in McDowell, the Supreme Court of India
ruled against the taxpayer based on the indefinite concept of ‘colourable devices’,149 which
was not defined but was recognised a substance over form doctrine.150 In Azadi Bachao
Andolan, the Court denied an economic substance approach. Nonetheless, in Vodafone,151 the
substance over form and the colourable devices concepts were recognised as part of the
Indian law.
The ‘abuse of law’ (the French GAAR) is a variety of the substance over form doctrine,
since it refers to the ‘true character’ of acts. Additionally, there is the abnormal act of
management doctrine, applied in parallel to the abuse of law, where the tax administration
can challenge arrangements that do not correspond to the natural business interest of the
taxpayer.152 There is extensive case law on this doctrine, and the French report analyses some
of it in-depth.
The Parke Favis y Cía Argentina S.A.I.C. case, decided by the Supreme Court of Argentina,
applied the GAAR to disallow a deduction in an intra-group payment of royalty because the
‘true nature of transaction’ test revealed an absence of a contractual relationship between
the parties.153 The Argentine report describes cases that adopted an economic substance
approach. In the most recent one reported, re Consorcio de Empresas Mendocinas potrerillos
SA,154 the Court rejected to apply the GAAR on the grounds that the legal forms can only be
disregarded when ‘the discordance between the form chosen and the economic substance is

140
Federal Commissioner of Taxation v. Hart [2004] ATC 4599 (HCA).
141
CIR v. Challenge Corp. Ltd [1986] STC 548 (UKPC).
142
Peterson v. CIR [2005] STC 448.
143
Ben Nevis Forestry Ventures Ltd v. Commissioner of Inland Revenue [2009] 2 NZLR 289 [NZSC].
144
Penny and Hooper v. Commissioner of Inland Revenue [2011] NZSC 95 (NZSC).
145
Stubart Investments Ltd. v. The Queen [1984] C.T.C. 294 (SCC).
146
Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC 54.
147
Mathew v. Canada [2005] 2 SCR 643 (SCC).
148
Lipson v. Canada, [2009] SCC 1; [2009] 1 SCR 3.
149
McDowell & Co Ltd v. CTO (1985) 154 ITR 148.
150
P. V. S. S. Prasad, ‘Vodafone Decision - Balancing the “Form” and “Substance”’ (2012) 6 JIT 5, 677-678.
151
Vodafone International Holdings B.V v. Union of India & Anr [2012] 458 SCI.
152
Zoë Prebble and John Prebble, ‘Comparing the General Anti-Avoidance Rule of Income Tax Law with the Civil
Law Doctrine of Abuse of Law’ (2008) B.F.I.T., 159-160.
153
Fallos 286:97.
154
CSJN, 31 October 2017.

32 
 ROSENBLATT & TRON

manifest or ostensible; otherwise, priority should be given to the legal forms used by
taxpayers.’
In Germany’s report, the courts developed an ‘inadequacy test’, which establishes a
hypothetical counterfactual in reference to what ‘an imaginary third party in the same
circumstances’ would have done in the same circumstances. The Austrian Supreme Court
stated that a ‘statistical frequency of appearances of specific arrangements is not a decisive
parameter’ of ‘unusualness’. And the Swiss Federal Supreme Court applies the non-statutory
GAAR if the transaction or structure is unusual, inappropriate or strange.
The Israeli courts have developed an economic substance doctrine and shaped the limits
of the statutory GAAR. The Supreme Court is reported to apply ‘the acceptable economic
conduct’ and other tests alike to distinguish between artificial and non-artificial transac-
tions, taking into account all the circumstances of a given transaction.
In Japan, the ‘economic reasonable’ test was developed by the courts and applies to
unreasonable or abnormal act of ‘a purely rational economic person’.155
Successive reforms of the Spanish GAARs (the latest one in 2015) led to almost no
decisions, and the Courts relied more on judge-made doctrines. The only decision on the
operation of the GAAR up to now – where it did not resort to alternative anti-avoidance
doctrines – concerned a leveraged acquisition of intra-group company participations case,
in which the Court reasoned on the basis of the concept of artificiality, evaluating the
economic substance of the facts.

3.3.2 Business purpose and other form and motive test

Tests based on the motive of the transaction, the business purpose being the flagship, have
also origins in judge-made doctrines, particularly in Gregory v. Helvering.156 They are an aid to
the purpose test to weigh and balance tax and non-tax purposes in a transaction.
In Frank Lyon,157 the US Supreme Court established a two-pronged test: ‘economic
substance’ and ‘business purpose’. Lower courts apply these tests either conjunctively
(broader approach) or disjunctively (narrower approach), and have even created other
tests.158
in Ben Nevis, the New Zealand Supreme Court has recognised business purpose as a
criterion for applying the GAAR; it found that the tax advantage was a principal purpose and
not merely incidental to a business purpose.159
Although the Supreme Court of Canada rejected to apply a judge-made business
purpose test in Stubart,160 the GAAR did not include it in its requirement but instead adopted
a broad ‘non-tax purpose’ test. In fact, the application of a business purpose test is limited to
corporate schemes and may not include partnerships or family structures, or investments
without a commercial nature.
The business purpose was included in the underlying factors of the triad of Ramsay but,

155
Sapporo High Court Decision 1976-01-13, Shogetsu 22-3-756.
156
Gregory v. Helvering 293 US (1935) 465 (SC).
157
Frank Lyon Co v. United States (1978) 435 US 561 (SC).
158
Patricia Lampreave, ‘An Assessment of the Anti-Tax Avoidance Doctrines in the United States and the European
Union’ (2012) 66 B.F.I.T. 3, 158.
159
Ben Nevis Forestry Ventures Ltd v. Commissioner of Inland Revenue [2009] 2 NZLR 289 (NZSC).
160
Stubart Investments Ltd. v. The Queen [1984] C.T.C. 294 (SCC).

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GENERAL REPORT

in the end of the day, the House of Lords rejected it.

The Israeli Supreme Court applies the ‘fundamental commercial test’ to ascertain
whether the taxpayer had commercial purposes besides the tax advantage obtained, and
how fundamental they were regarding all facts and circumstances, the economic substance,
the profit expectation and the risks involved.
The Japanese Supreme Court applied a business purpose test in the Yahoo case,161 where
it denied foreign tax credit caused by purely artificial arrangements or ‘by improper use of
the reorganisation provisions as a means of tax avoidance’. However, the local branch report
regarded it as a one-off decision.
With regard to the fraus legis doctrine, the Dutch report said: ‘the envisaged tax benefit
should not be the only reason or the most essential motive for the taxpayer to enter into a
legal arrangement, but the taxpayer should also have a business (commercial) motive.’
Also, the Spanish branch reported that a ‘valid commercial reason or motive’ doctrine
(motivos económicos válidos) is in fashion and extensively used by the tax authorities and
courts, particularly a consequence of the implementation of the EU-Merger Directive in
Spain. Nonetheless, it is not considered well defined.

3.3.3 Judge-made tests on the targeting mechanism: ‘Parliamentary Intention’, the ‘Choice
Principle’, ‘Parliamentary Contemplation’ test, Teleological Interpretation, ‘Abuse of Law’ and
‘Fraus Legis’

Tax avoidance has been recurrently described as conduct contrary to the ‘intention’ of
parliament, to the ‘legislative purpose’ or to ‘choices afforded by legislation’, which means
the taxpayer satisfies the plain text of the statute but frustrates the object, spirit or purpose
of the legislation due to unforeseen or unforeseeable circumstances.
Some countries increasingly adopt a purposive or teleological approach as a method to
find the tax policy underneath the legislation applicable to the circumstances, which is not
usually adequate for a GAAR.
In ‘Gregory v. Helvering, the US Supreme Court decided upon purposive construction,
which held that a taxpayer is only entitled to a tax benefit if established that the result is
‘within the (plain) intent of the statute’.162 In the Knetsch163 case, the Court referred to ‘congres-
sional concern’ but did not explain its meaning.
The former Australian GAAR did not contain a targeting mechanism, which led the
courts to develop the ‘choice principle’, according to which the taxpayers could choose
between alternatives provided by the legislation.164 Therefore, that GAAR became
inoperative and was replaced.165 In this new context, the concept of choice was rejected in
Hart.166
Similarly, New Zealand adopted a choice principle, which protected a tax advantage
‘afforded by the legislation’. The Supreme Court decided in Challenge Corp that: ‘a tax

161
The Supreme Court Decision 2016-02-29, Minshu 70-2-242.
162
Gregory v. Helvering 293 US (1935) 465 (SC), 468.
163
Knetsch v. United States (1960) 364 US 361 (SC)
164
Mullens v. FCT (1976) 135 CLR 290. See also, Slutzkin v. FCT (1977) 140 CLR 314 [HC].
165
Tony G. Pagone, ‘Part IVA: The General Anti-Avoidance Provisions in Australian Taxation Law’ (2003) 30 MULR
27, 7.
166
Federal Commissioner of Taxation v. Hart [2004] ATC 4602 (HCA).

34 
 ROSENBLATT & TRON

avoidance arrangement was one where a taxpayer derived a tax advantage from a
transaction without suffering the reduction in income, loss or expenditure which parliament
intended those qualifying for a reduction in tax liability to suffer’.167 And in Peterson, the
taxpayer reduced his ‘liability to tax without suffering the economic consequences which
parliament intended,’168 in the line of the UK Willoughby case (see below).
In Ben Nevis, the Supreme Court developed the ‘tandem approach’ and the ‘parliament
contemplation’ tests. In the first one, taxing and anti-avoidance provisions have the same
weight and need to work in tandem to be given appropriate meaning according to the
parliament’s overall purpose; and in the second, the taxpayer must satisfy that the use made
of the specific provision is within its intended scope and prove that he has not used the
provision in a way which cannot have been within the contemplation and purpose of
parliament.169
In Canada Trustco, the Supreme Court of Canada addressed the ‘object, spirit or purpose’
and ‘misuse and abuse’ tests in the GAAR. The Court held such inquiries were not concerned
with an ‘overriding policy of the Act’ but with a textual, contextual and purposive interpre-
tation of the tax provision. There will be a finding of abusive tax avoidance when the circum-
stances are identified regarding the ‘object, spirit and purpose’ test.170 In Mathew, the Court
affirmed that a general principle of interpretation should apply ‘to determine the intention
of the legislator by considering the text, context and purpose of the provisions at issue.171
The UK House of Lords formulated the ‘economic burden’ approach in Willoughby, a case
not decided in the line of Ramsay.172 According to that approach, the legislation establishes
certain conditions and consequences to a tax advantage. The taxpayer is only entitled to it if
he has suffered this ‘economic burden’. There are no guidelines on how to determine parlia-
mentary intent in such circumstances.173
The dual test is applied by the Israeli Supreme Court to evaluate the legitimacy of the tax
planning. A ‘positive’ tax planning is based on ‘the intentional and stated policy of the
legislator to grant tax exemption or relief’; and a ‘negative’ tax planning contradicts the
purpose of the law (‘whether the legislator would have changed the law had it been
confronted with the tax planning of the taxpayer’).
In Singapore’s AQQ case,174 the Court of Appeal adopted the ‘scheme and purpose
approach’, according to which the taxpayer must show that the tax advantage arose from
the use of a specific tax provision within the intended scope and parliament’s contemplation
and purpose.
Civil law countries traditionally rely on continental European ‘abuse of law’ or ‘fraud of
law’ concepts, which relate to arrangements that are structured in a way to obtain a tax
benefit that is contrary to the purpose or spirit of the tax legislation.
The development of the ‘abuse of law’ concept under CJEU case law and its impacts on

167
CIR v. Challenge Corp. Ltd [1986] STC 548 (UKPC).
168
Peterson v. CIR [2005] STC 448.
169
Craig Elliffe and Jessica Cameron, ‘The Test for Tax Avoidance in New Zealand: A Judicial Sea-Change’ (2010) 16
NZBLQ June 443.
170
Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC 54.
171
Mathew v. Canada [2005] 2 SCR 643 (SCC).
172
CIR v. Willoughby [1997] 4 All ER 65 STC 995 (HL).
173
Philip Baker, ‘Tax avoidance, tax evasion & tax mitigation’ (2000) GITC, available at <http://www.taxbar.com/
documents/Tax_Avoidance_Tax_MitigationPhilip_Baker.pdf> [Accessed 8 March 2011], 9-10.
174
Comptroller of Income Tax v AQQ and another appeal.

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GENERAL REPORT

the domestic systems of the member states is paramount. The prohibition of abusive
practices was considered an inherent EU law general principle, regardless of any specific EU
or domestic provision, and expected to be taken comprehensively to apply to harmonised
and non-harmonised areas in all fields irrespective of transposition.
The basis of this EU law principle was set in Emsland-Stärke,175 and Halifax176 was the first
case to apply it in a tax context. Significant debates on tax avoidance are centred on the EU
fundamental freedoms but also on the elements of anti-avoidance legislation of general
nature. While in Avoir Fiscal,177 the Court held that ‘the fight against tax avoidance cannot
justify a discriminatory treatment,’ in Cadbury Schweppes,178 it was set that ‘a national measure
restricting freedom of establishment may be justified where it specifically relates to wholly
artificial arrangements aimed at circumventing the application of the legislation of the
Member State concerned.’ Consistent with the extant CJEU case, member states may apply
domestic anti-avoidance legislation to safeguard a balanced allocation of taxing rights, but
a general presumption of abuse is not allowed and must be established on a case-by-case
basis.
The French branch report said the approach by the Conseil d’État follows the CJEU case
law. In Italy, the Supreme Court considered the prohibition of abuse as a ‘governing inter-
pretive rule in the system.’ And the Swiss GAAR is a court developed doctrine (Steuerumge-
hungsdoktrin) on the prohibition of abuse of right (or a prohibition of arbitrary conduct), a
principle contained both in the Civil Code and in the Constitution.
As said by the Dutch report, the parliamentary history (including parliamentary
discussions of a legislative proposal) is an important factor to determine the object and
purpose of the legislation, when applying the fraus legis. The Czech Republic’s Supreme
Administrative Court is also progressively applying the principle of the prohibition of
abuse.179
The ATAD is expected to promote this principle even further in Europe.

4. GAAR and taxpayer’s safeguards

As general safeguards, the rule of law (or the legality principle), the freedom to organise
one’s affairs in a tax efficient manner and the protection of legitimate expectations are
repeatedly mentioned by the branch reports. Nonetheless, where a GAAR is in place, it blurs
the boundaries of the rule of law since it inevitably confers discretion on tax officials, that
may enact risks of unfairness, discrimination and arbitrariness on taxpayers.180
Proper protections may balance revenue’s interests and taxpayers’ rights.181 Some places

175
ECJ, 14 December 2000, C-110/99, Emsland-Stärke, EU:C:2000:695.
176
ECJ (Grand Chamber), 21 February 2006, C-255/02, Halifax plc, EU:C:2006:121.
177
ECJ, 28 January 1986, 270/83, Commission v. France, EU:C:1986:37.
178
ECJ, 12 Septembre 2006, C-196/04, Cadbury Schweppes, EU:C:2006:544.
179
First case to apply the abuse of law: judgement no. 1 Afs 107/2004-48.
180
Nabil Orow, General anti-avoidance rules: a comparative international analysis, (Bristol: Jordans, 2000), 201-206.
181
Duncan Bentley, Taxpayers’ rights: theory, origin and implementation, (Kluwer, 2007), 1. Ana Paula Dourado, ‘The
Delicate Balance: Revenue Authority Discretions and the Rule of Law - Some Thoughts in a Legal Theory and
Comparative Perspectives’ in C. Evans, J. Freedman and R. Krever (eds), The Delicate Balance: Tax, Discretion and the
Rule of Law (Amsterdam: IBFD, 2011), 30-31.

36 
 ROSENBLATT & TRON

adopt a charter or bill of rights, sometimes set in the Constitution.182 Only a few provide for
specific GAAR safeguards. Most branch reports affirmed that taxpayers are subject to
standard audits, regular assessments and general procedures to objection and appeal,
except for Chile, France (the abuse of law procedure – AOP), Italy, New Zealand, Portugal,
South Africa, Spain, and the UK. In the Netherlands, the richtige heffing provided for a special
procedure, particularly the prerequisite of approval by the Minister of Finance. It is one
reason the fraus legis is applied instead, without any procedural requirements. The Spanish
report also said tax authorities put the GAAR aside and apply anti-avoidance doctrines that
do not need a special procedure.
As much as having deterring and counteracting effects, a GAAR is also a matter of
building trust. Legal certainty is not achieved if safeguards are revoked or not applied, or if
judicial anti-avoidance doctrines are invoked whenever the GAAR is inapplicable – especially
to circumvent difficult statutory tests or procedural requirements.
Since there is no ‘wish list of safeguards’, this general report presents the most common.183
A list of statutory protected or immune transactions (‘safe harbours’) is contentious. A
broad definition of ‘acceptable’ or ‘responsible’ tax planning is difficult to apply, because of
the indefinite tests based on options or choices afforded or encouraged by the legislation. A
narrow short-listed one may become a roadmap to aggressive tax avoidance.
In India and Poland there is a monetary threshold for the application of the GAAR.
Guidance, rulings and clearances are expected to promote uniform official interpre-
tation and application of GAARS. These statements can be published or unpublished,
binding or non-binding, public or individualised. Nevertheless, as a board game, it moves
the pawn back to the start. If tax provisions were unable to give specific guidelines, why
would an extra-statutory ruling? Too much detail might undermine the generality of GAARs.
Such proceedings are usually costly, time-consuming, it might create opportunities for
administrative arbitrariness and may result in more complex, detailed and lengthy
legislation.
Several countries provide a private ruling, although usually limited to the persons and
particular transactions described in the ruling (Australia, New Zealand, Hong Kong, Israel,
Italy, Liechtenstein, Finland, Poland and Sri Lanka). Taxpayers can request for a binding
private ruling in Spain which third parties can rely on. Canada publishes summaries of the
facts and rulings to provide future guidance, without a statutory basis. In South Africa, the
Commissioner decides whether or not to accept a private ruling. In Sri Lanka there are
binding public rulings.
The UK’s general anti-abuse rule provides that the HMRC will publish guidance including
examples of potentially targeted arrangements and obliges the courts to consider them.
In France, taxpayers are entitled to individual clearances on the abuse of law procedure
(AOP). If the tax authority does not respond to them in six months, they cannot invoke the
AOP anymore, unless the taxpayer has not carried out the scheme as described in the
clearance or not disclosed all relevant information and documents.
The Austrian report states that there is a legal possibility to have a limited ruling to test
the appropriateness of an arrangement, but in practice this is very difficult to obtain.
The Belgian report provides for an advance tax rulings system by a separate branch of

182
Philip Baker, ‘Taxpayers’ Charters and a Taxpayers’ Charter for Europe’ in W. Nykiel and M. Sek (eds), Protection of
taxpayer’s rights: European, international and domestic tax law perspective (Warsaw: Kluwer, 2009), 130.
183
The general reporters do not engage in discussing protections related to the EU freedoms.

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GENERAL REPORT

the tax administration, binding on tax authorities but limited to assess whether there are
non-tax motives in the arrangement.
Chile provides for both binding and no binding consultation afforded to the taxpayers.
In the Chinese Taipei report, taxpayers may apply for advisory opinions and tax officials
must respond within six months. Portugal also provides for a ruling mechanism, and the
absence of an answer within 150 days, renders the GAAR non-applicable.
An advance tax agreement is provided in Luxembourg, which is valid for five years,
binding during this period unless the facts were not completely disclosed, or it becomes
incompatible with EU or international law. In Sweden, an independent body, the Council for
Advance Tax Rulings publishes binding rulings, which include the GAAR.
Another important safeguard refers to consistency, uniformity and expertise in the
application of the GAAR, by centralising its application with the head or senior officer (in
some countries, such as Hong Kong, India, New Zealand, South Africa, Poland and Sri Lanka,
only with the Commissioner, the Ministry or the Head of Revenue Administration).
An independent advisory panel or committee can be an important protection, but it
depends on its composition – appointment of members, the parity of representatives (from
the Revenue, business and academia), and the expertise in complex tax matters.
In Australia, a tax official needs to refer to the tax office’s counsel, formed by senior tax
officers and GAAR specialists. To proceed, an advisory panel with representatives from the
tax office and from business must be consulted. Its opinions are non-binding.
In Canada, a decision to apply the GAAR needs to be reviewed by the Taxation Head
Office. There is a non-statutory advisory committee composed only of representatives of the
Department of Finance and the Department of Justice; and its opinions are non-binding.
There is an approving panel in India.
In France, both the taxpayer and the Revenue can request a non-binding opinion from a
national abuse of law committee, an independent body composed of three tax judges, a law
professor, a lawyer, a notary and an accountant. Opinions are published annually.
In Spain, the Advisory Commission issues binding reports within three months.
Chile has a consultative anti-avoidance committee within the tax administration ‘to
advise, recommend and propose definitions and lines of action regarding the application of
the GAAR’. The committee is composed of the National Director and high rank tax officials.
In the UK, the general anti-abuse rule can be applied by an officer designated by the
Commissioner, and there is also a GAAR advisory panel.
In the Polish GAAR, the Head National Revenue Authority is assisted by the Council for
tax avoidance matters, a specialised advisory board composed of representatives from the
tax office, taxpayers and academia; it provides non-binding opinions on the operation of the
GAAR for the tax administration and for the taxpayer.
In the safeguards list, judicial review and the definition of burden of proof are essential
to maintain the checks and balances in the system. All the reports mentioned judicial review
as a safeguard in place. The aim should not be to replace administrative discretion by judges’
subjective assessments but to impartially control ultra vires discretion that does not meet
the statutory criteria (unlimited discretionary power or a carte blanche).184 A problem is to
secure a fair trial within a reasonable time when many cases are reported to take around a
decade before they receive a final verdict.
The attribution of the burden of proof is problematic. Very few GAARs provide for

184
Nabil Orow, General anti-avoidance rules: a comparative international analysis, (Bristol: Jordans, 2000), pp. 211-216.

38 
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specific rules on this matter. They either leave it to the general rules of judicial evidence or to
the courts.
In Australia, the burden of proof is on the Commissioner to identify the scheme and the
tax benefit.185 In Canada, the courts decided to divide it: while the Revenue must identify the
scheme, the tax advantage and the misuse and abuse of the provision, on a balance of
probabilities, the taxpayer has to prove the transaction was entered into for bona fide
purpose and ‘to refute the Minister’s assumptions of fact.’186
The French tax office has to prove the artificiality of a scheme and the tax benefit, and it
is on the taxpayer to demonstrate there is not an abuse of law. In Germany, the tax authority
has to prove an inappropriate legal structure and an unintended tax benefit.
In Austria, the burden of proof is on the tax officials but the taxpayer has an obligation to
cooperate, which in practice means he must provide evidence of a substantial non-fiscal
reason for entering into or carrying out an arrangement.
In Belgium, Denmark, Finland, Luxembourg, Serbia, Singapore, Switzerland, Russia,
there is a division of the burden of proof between the tax authority and the taxpayer as well.
In Chile, Chinese Taipei, the Republic of Korea, the Netherlands, Sweden and Ukraine, the
burden of proof is generally only on the tax authority. Conversely, the burden of proof is
generally on the taxpayer in the Czech Republic, India, Israel, Italy187 and Sri Lanka.
The UK general anti-abuse rule allocates the onus probandi on the tax officials to show
that there are tax arrangements, the tax arrangements are abusive, and the counteraction
proposed by HMRC is just and reasonable.
In relation to the OECD report, it states that safeguards are a matter of domestic law.
However, its opinion is that the PPT places the burden of proof on the tax administration.
Important safeguards are proportionality and the protection against criminalisation of
legitimate tax planning. Taxpayers often equate the risk and the costs involved in a tax
arrangement. Disproportionate fines may have collateral effects such as an increase in
litigation, longer trials, more resistance and an enhancement of corruption.
Safeguards against retrospective effects are significant. The question is whether a GAAR
should only apply prospectively, rewarding aggressive tax planners, or retrospectively to
alter the legal consequences of past conduct threatening certainty. Some countries contain
a constitutional presumption against retrospective legislation, even in tax matters.188 A
GAAR may limit retrospective judge-made doctrines, but it may be enacted to overrule
unfavourable judicial responses with retrospective effects.
Some GAARs have been enacted prospectively (Australia, Canada, the UK and India). In
Canada, the Supreme Court rejected retrospective amendments.189 In civil law countries,
GAARs have developed from the abuse of law doctrine which may apply retrospectively. It
did not seem a concern of these countries in the branch reports.
Time limits also exist for the reassessment period. This period is three to four years in
Canada, although it might be extended in certain cases (for instance when it involves
non-residents). In Austria, it ranges from three to ten years depending on the type of tax and
other circumstances. In Sweden, this time limit is six years.

185
Federal Commission of Taxation v. Peabody 94 ATC 4597.
186
OFSC Holdings Ltd v. Canada [2001] 260 (FCA). Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC
54. Lipson v. Canada [2009] SCC 1; [2009] 1 SCR 3 (SCC), 4.
187
The Israeli courts have reversed the burden of proof in some cases.
188
Philip Baker, ‘Some recent decisions of the European Court of Human Rights’ (2010) ET, 597.
189
Canada Trustco Mortgage Co v. Canada [2005] 2 SCR 601; [2005] SCC 54 (SCC).

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GENERAL REPORT

Further protections should also be considered, for example: privacy, confidentiality and
secrecy regarding the taxpayer’s information and particularly within the context of the
recent multilateral convention on automatic exchange of information; the right to access to
information on the operation of the GAAR in any stage; and the right against excessive
taxation, with especial concern on the BEPs consequences.

5. Conclusions
In the 1958 World Soccer Cup, Brazil played against Russia. A tale persists until today: the
Brazilian coach presented to the players what he perceived an indefectible winning strategy.
A famous soccer player, Garrincha said ‘fine, but have you agreed to all of that with the
Russians?!’190 That is the same underlying rationale of a GAAR. There is no perfect rule
because the drafter cannot agree its terms with the parties involved and especially with the
judges. Nonetheless, one can learn from the case law and use it as a roadmap to improve
that extraordinary rule.
A comparison is a difficult task since, as many branch reports have ascertained, GAARs
are very fact specific and operate on a case-by-case basis. However, some commonalities
exist, and certain issues discussed in one jurisdiction can be useful to other ones. This
general report highlights the patterns of drafting GAARs and other rules and doctrines alike
from 42 different branch reports. Anyhow, a one-size-fits-all approach should be avoided.

190
This is a common rhetorical question in Brazil, whenever something is not well-arranged with all the parties
involved, and despite the fact that people do usually not realise where it came from.

40 
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After a careful review and discussion amongst the reporters, we have concluded that:

5.1
There is no perfect tax system in the world; the risk of abuse of its shortfalls or loopholes is
real. The risk, on the other hand, of perceiving as abusive conducts which are perfectly valid
is equally real or even more so. Tax authorities around the globe will combat the abuse
(real or apparent) with or without a statutory GAAR.191 The first casualty of this fight against
the ‘legal abuse’ of the tax systems is the legal certainty for the taxpayer; it may be totally
lost in the absence of a formally established and well-drafted GAAR. From the branch
reports, it is not possible to evaluate whether GAARs are better mechanisms than
anti-avoidance judicial doctrines or general anti-abuse rules. There are mixed views on the
effectiveness of these measures, and on its challenges and limits.

5.2
When creating GAARs, many countries have resorted to include generic attributes within
the described conduct such as: ‘unacceptable’, ‘impermissible’, ‘illegitimate’, ‘aggressive’ or
‘unjustified’, among others. This is intended to try to reduce the legal uncertainty GAARs
create. However, considering the lack of content or clear definition of said attributes, it
tends to generate the opposite (more uncertainty). The described experiences suggest that
the operation of a GAAR tends to be more effective and to generate less conflicts when the
description of the primary elements is made by using terms with a clear content (either
specifically defined), or as a matter of law, i.e., terms that are traditionally already in use in
that specific country.

5.3
A common feature of GAARs is the generation of a legal/tax ‘schizophrenia’ by only
re-characterising the transactions ‘for tax purposes’ while the legal (commercial) aspect of
the transactions involved remains as it was agreed and executed. This creates a number of
different issues when, after the application of the GAAR, the same transactions provoke
other tax consequences, becoming not only inconsistent but even contradictory.

5.4
There is no consensus about how to resolve the conflicts of application between domestic
SAARs and GAARs, or between the domestic rules and treaty GAARs. This is a matter of
concern, since it aggravates the lack of legal certainty and may lead to a case of authorities
going “GAAR shopping”.

191
This report reaffirms the conclusion on form and substance made in the Oslo 2002 IFA general report.

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GENERAL REPORT

5.5
While it seems to be a universally accepted rule that taxpayers may arrange their affairs as
they like, truth is that there is a big ‘but’ in this sentence. This ‘principle’ is no longer as valid
as it used to be, mostly because of the notion of ‘abusive’ or ‘aggressive’ and its interpre-
tation or application in the law. It is worth noting, though, that there is not a single report
that mentions the existence of an obligation in any jurisdiction to pay the higher
alternative or even the ‘fair share’ of tax.

5.6
All of the above, together with the tendency to shift the burden of proof from the
authorities to the taxpayer, almost ensures that, at least in the near future, GAARs will
remain disputed. Therefore, they will end up being interpreted and applied by judges. The
discussion on safeguards is paramount, being the most important that a GAAR assessment
should be based on reasons, describing its primary (and secondary, if it is the case)
elements and their interconnection, with consistency, fairness and impartiality, so as to
provide the taxpayer with the fundamental rights of information and defence.192

Taxation raises inevitably moral issues. Tax avoidance is recently being perceived as socially
wrong as it reduces revenue and shifts the burden to those who dutifully pay their share. Yet,
taxpayers do not comply for moral reasons. By discussing a GAAR and anti-avoidance rules
of a general scope, an anti-avoidance principle might be slowly taking shape.193

192
Paulo Rosenblatt, General Anti-Avoidance Rules for Major Developing Countries, (Alphen aan den Rijn, The
Netherlands: Kluwer Law International, 2015), ch.1.
193
‘Nothing could be more mundane than taxes, but they provide a perfect setting for constant moral argument
and possible moral progress.’ Liam B. Murphy and Thomas Nagel, The myth of ownership: taxes and justice, (Oxford:
OUP, 2002), 188.

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 45
 International Fiscal Association
2018
1938-2018 Seoul Congress

cahiers
International Fiscal Association
Cahiers de de droit fiscal
international
droit fiscal
international

volume volume 103

103a
A: Anti-avoidance
measures of general
nature and scope
– gaar and
other rules

2018
Seoul
Congress

1938-2018