## _tltn1601

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---

### Scope and recent developments
- Countries with a GAAR include the UK, France, Germany, The Netherlands, Belgium, Canada, China, Singapore, Italy, South Africa, Kenya and Australia.
- The introduction of a GAAR continues to be topical in other jurisdictions such as India and Poland.
- Australia amended its GAAR as part of the Government’s May 2015 budget in the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill to address specific BEPS concerns related to certain multinational groups.
- A GAAR can be statutory or based on case law and can apply to different taxes (income tax, VAT/GST, stamp duties).
- A sample generic GAAR is set out at Appendix A (sample is generic and must be tailored to each tax system).

### Purpose and core design considerations
- Ultimate purpose:
  - Stamp out unacceptable tax avoidance practices by enabling the tax authority, as a provision of last resort, to cancel a tax benefit or assess an increased tax liability when arrangements are blatant, artificial or contrived.
- Design trade-offs and implementation considerations:
  - Must strike down arrangements that undermine the intention of the tax law while not inhibiting ordinary commercial transactions where taxpayers legitimately structure transactions.
  - Legal drafting and administrative capacity are critical for success.
  - The tax authority must make a relevant and valid determination before the GAAR applies; the GAAR is not self-executing.
  - Consider establishing dedicated GAAR panels and ensure dispute settlement infrastructure and taxpayer safeguards.
  - Implementation in developing countries requires careful management.

### Overview of the sample GAAR (Appendix A)
- Subject to specified conditions, the sample GAAR allows the tax authority to determine and assess a different (increased) tax liability where:
  - There is a “scheme” that results in the taxpayer receiving a “tax benefit”; and
  - Having regard to the substance of the scheme, it can be concluded objectively that the taxpayer or a participant entered the scheme for the sole or dominant purpose of enabling the taxpayer to obtain that tax benefit.
- The GAAR can cover many forms of tax benefit and must be tailored to the tax system to ensure adequate scope.

### Conditions for invoking the sample GAAR — detailed elements
A. Scheme
- “Scheme” is widely defined to include any course of action, agreement, arrangement, understanding, promise, plan, proposal, or undertaking, whether express or implied and whether or not enforceable.
- The tax authority should be given flexibility to identify the scheme (whole transaction or some component/combination of components).

B. Tax benefit
- “tax benefit” means:
  - (a) a reduction in a liability to pay tax, including on account of a deduction, credit, offset or rebate;
  - (b) a postponement of a liability to pay tax;
  - (c) any other advantage arising because of a delay in payment of tax; or
  - (d) anything that causes:
    - (i) an amount of gross revenue to be exempt income or otherwise not subject to tax; or
    - (ii) an amount that would otherwise be subject to tax not to be taxed.
- Tax benefits include deductions, reliefs, rebates, credits, offsets, refunds, reductions in tax liability, reductions in income or tax base, or increases in tax loss.
- General principle: tax incentives or concessions specifically provided in law (e.g., tax elections, accelerated depreciation, specific bad-debt deductions) should not normally be caught by the GAAR if taken consistently with policy intent, although contrived exploitation of such concessions may still be caught.
- Identifying/quantifying a tax benefit often requires establishing causality with a scheme and may require determining a relevant counterfactual, which can create complexities including the “do nothing” defense.
- Effective GAARs typically provide further guidance in law, regulations, or guidelines on identifying/quantifying tax benefits.

C. Sole or dominant purpose
- The scheme must be entered into for the sole or dominant purpose of obtaining the identified tax benefit, assessed objectively by reference to the substance of the scheme.
- Factors for determining substance and purpose include:
  - The manner in which the scheme was carried out;
  - Whether any artificiality or contrivance is evident;
  - Whether there is divergence between form and substance; and
  - The result achieved by the scheme compared to a relevant counterfactual.
- The taxpayer’s subjective state of mind or actual fiscal motives are not technically relevant; objective evidence may be required to show a dominant non-tax purpose.
- Drawing the line is a matter of degree:
  - Schemes that make no commercial sense without the tax benefit are more likely to be caught.
  - A genuine commercial purpose can preclude GAAR application even if aspects are tax driven; the question is whether the dominant purpose was to obtain the tax benefit.
- GAAR should not force taxpayers to always select the highest-tax alternative when ordinary commercial reasons justify their choice.

### Example: soap export/import arrangement (illustrative numerical outcomes)
- Facts:
  - Company A (Country A) and Company B (Country B) each buy soap for $50 per box and can sell at retail for $80 per box (economic gain $30 per box).
  - Both countries have export tax exemption regimes without specific integrity provisions.
  - Arrangement:
    - Company A sells/export to Company B for $79 per box.
    - Company B sells/export to Company A for $79 per box.
    - Each later sells acquired soap domestically for $80 per box.
- Transaction outcomes:
  - Transaction 1 (initial export sale): Export price $79; Cost ($50); Economic gain $29; Taxable $0.
  - Transaction 2 (subsequent retail sale): Retail price $80; Cost ($79); Economic gain $1; Taxable $1.
  - Total gain across transactions: Economic gain $30; Taxable $1.
  - Counterfactual (no exports): Retail price $80; Cost ($50); Economic gain $30; Taxable $30.
- Reasons the sample GAAR conditions would be satisfied in this example:
  - The arrangement constitutes a “scheme”.
  - There is a “tax benefit”: the arrangement causes an amount of gross revenue to be exempt or causes an amount that would otherwise be taxed not to be taxed; the tax benefit arises from the scheme when compared to the reasonable counterfactual.
  - Sole or dominant purpose: the mutual export of substantially identical products suggests artificiality/contrivance; divergence between form (export) and substance (domestic sale with tax-exempt sheltering of economic gain); result is sheltering $29 per box of economic gain via export exemption versus $30 taxable in the counterfactual.

### Practical implications and safeguards
- Success factors:
  - Precise legal design and drafting tailored to the country’s legal tradition, constitutional limits, political/administrative structure, and fiscal policies.
  - Administrative capacity to apply the GAAR in a measured, even-handed, and predictable way.
  - Appropriate taxpayer safeguards, dispute resolution infrastructure, and possibly dedicated GAAR panels.
- Consider legislative clarity on:
  - Definition and identification of schemes;
  - Definition, quantification, and causal link for tax benefits (including guidance on counterfactuals and the “do nothing” defense);
  - Objective tests for sole or dominant purpose and examples illustrating the boundary between legitimate tax planning and abusive schemes.

### Conclusion on "sole or dominant purpose" in export schemes
- A conclusion that the sole or dominant purpose of Company A or Company B in entering into the export scheme was to each obtain a tax benefit:
  - Should not be simply drawn from the intention to obtain the export exemption (which is specifically provided for in the tax law of both Country A and Country B);
  - But arises because Company A and Company B took contrived or artificial steps to shelter from tax substantially all of the economic gain from what was, in substance, a domestic sale of products by adopting a transaction structure that took advantage of the tax exemption for exports and they did so in a manner which objectively indicated the presence of a dominant purpose to obtain a tax benefit.
- A GAAR should not obligate a taxpayer to take a course of action that always results in the highest level of taxation where the actual course taken is explicable according to ordinary commercial reasons.

### Illustrative scenarios and application boundary
- Scenario 1:
  - Company A genuinely exported the soap products held by Company A to Company B (with no corresponding import from Company B).
  - Absent further facts, it would not be reasonable to apply the GAAR.
- Scenario 2:
  - Company A exported soap products to Company B with a corresponding import from Company B of a different product (e.g. cleaning products) for subsequent distribution and sale to satisfy different market demands.
  - Absent further facts, it would not be reasonable to apply the GAAR because:
    - A decision to export rather than sell domestically should not, of itself, attract the GAAR, particularly given an express export exemption in Country A’s tax law.
    - Where form and substance align in a genuine export arrangement, the GAAR should not apply.
    - The exchanged products are substantially different and address specific market and commercial needs such that, even if a “tax benefit” could be established, it would not be reasonable to conclude the sole or dominant purpose was to obtain the export exemption.
    - The course of action is explicable by ordinary commercial considerations; tax advantages could not reasonably be considered the “sole or dominant purpose.”
- Borderline case:
  - If Company A exported soap products and imported a soap product with different characteristics (e.g. different scent, ingredients, packaging), determining GAAR applicability is delicate and a matter of degree.
  - It will typically depend on the strength of objective evidence that a reasonable person would conclude the dominant purpose was to obtain the tax benefit.
  - Key evidentiary considerations include how compelling objective evidence is that the scheme is also explicable by ordinary commercial considerations (e.g. extent to which product differentiation matters for different markets).

### Applying the GAAR in practice — procedural steps and limitations
- The sample GAAR is not self-executing and requires the tax authority to make a relevant and valid determination before the GAAR applies.
- Process summary:
  - The tax authority may determine the tax liability of the person who obtained the tax benefit as if the scheme had not been entered into or carried out, or as if a reasonable alternative would have instead been entered into or carried out, and can make compensating adjustments to the tax liability of any other person affected by the scheme.
  - The tax authority must issue an assessment giving effect to the determination or adjustment.
  - An assessment must be served within 5 years from the last day of the tax year to which the determination or adjustment relates.
- The appeal or objection process depends on the country’s domestic tax dispute processes and will determine who bears the burden of proof when a GAAR determination is challenged.
- Anti-avoidance can also be addressed through:
  - Specific anti-avoidance rules (SAARs);
  - Equivalent provisions in tax treaties;
  - Judicial anti-abuse doctrines, as applicable.
- A GAAR must be carefully designed to achieve consistency with existing international legal obligations, including tax treaties.

### Recent national approaches and BEPS-related notes
- Jurisdictions adopting a GAAR include: the UK, France, Germany, The Netherlands, Belgium, Canada, China, Singapore, South Africa, Kenya and Australia.
- The introduction of a GAAR continues to be topical in jurisdictions such as India and Poland. Italy recently enacted its first modern GAAR.
- Australian response to BEPS (key points):
  - Australia amended its existing GAAR in the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 announced in the Federal Budget on May 12, 2015.
  - The multinational anti-avoidance law targets multinationals that:
    - avoid a taxable presence by undertaking significant work in Australia in direct connection to Australian sales but booking their revenue offshore; and
    - have a principal purpose of avoiding tax in Australia or a combined purpose of also reducing their foreign tax liability.
  - The law applies only to foreign entities that are “significant global entities” (e.g. those with annual global income of AU$1 billion or more).
  - Outcomes for multinationals found to be avoiding Australian tax under the new law:
    - Determination resulting in a tax liability for the tax avoided (plus interest) and penalties of up to 100 per cent of the tax owed.
  - The new law uses a “principal purpose” test rather than the “sole or dominant purpose” test used in the sample GAAR.
- Additional contextual details:
  - India: applicability of its GAAR was to be deferred by 2 years per the Budget for fiscal year 2015-16 presented on 28 February 2015; GAAR would be applicable from financial year 2017-18 and, when implemented, will apply prospectively to investments made on or after 1 April 2017.
  - Poland: on 27 April 2015, the amended proposed Tax Code published no longer contains the provision of GAARs that were planned.
  - Italy: new GAAR introduced with Legislative decree n. 128 of 2015 and effective from 1 October 2015.
  - OECD/G20 BEPS Package: final package presented on 5 October 2015.

### Sample GAAR — condensed procedural and definitional elements
- Applicability (when Tax Authority is satisfied):
  - (a) a scheme has been entered into or carried out;
  - (b) a person has obtained a tax benefit in connection with the scheme; and
  - (c) having regard to the substance of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme did so for the sole or dominant purpose of enabling the person referred to in paragraph (b) to obtain a tax benefit.
- Powers and obligations:
  - Tax Authority may determine the tax liability as if the scheme had not been entered into or as if a reasonable alternative had been entered into, and can make compensating adjustments to others affected.
  - If a determination or adjustment is made, the Tax Authority must issue an assessment giving effect to it.
  - An assessment must be served within 5 years from the last day of the tax year to which it relates.
- Definitions:
  - “scheme” includes any course of action, agreement, arrangement, understanding, promise, plan, proposal, or undertaking, whether express or implied and whether or not enforceable;
  - “tax benefit” means:
    - (a) a reduction in a liability to pay tax, including on account of a deduction, credit, offset or rebate;
    - (b) a postponement of a liability to pay tax;
    - (c) any other advantage arising because of a delay in payment of tax; or
    - (d) anything that causes:
      - (i) an amount of gross revenue to be exempt income or otherwise not subject to tax; or
      - (ii) an amount that would otherwise be subject to tax not to be taxed.

*Prepared by: Christophe Waerzeggers and Cory Hillier*

### introduction of one or are otherwise seeking to fine-tune their existing rule. Countries with a GAAR include the UK,

### INTRODUCING A GENERAL ANTI-AVOIDANCE RULE (GAAR) ENSURING THAT A GAAR ACHIEVES ITS PURPOSE

### Scope and recent developments
- Countries with a GAAR include the UK, France, Germany, The Netherlands, Belgium, Canada, China, Singapore, Italy, South Africa, Kenya and Australia.
- The introduction of a GAAR continues to be topical in other jurisdictions such as India and Poland.
- Australia amended its GAAR as part of the Government’s May 2015 budget in the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill to address specific BEPS concerns related to certain multinational groups.
- A GAAR can be statutory or based on case law and can apply to different taxes (income tax, VAT/GST, stamp duties). A sample generic GAAR is set out at Appendix A (sample is generic and must be tailored to each tax system).

### Purpose and core design considerations
- Ultimate purpose: stamp out unacceptable tax avoidance practices by enabling the tax authority, as a provision of last resort, to cancel a tax benefit or assess an increased tax liability when arrangements are blatant, artificial or contrived.
- Design trade-offs:
  - Must strike down arrangements that undermine the intention of the tax law while not inhibiting ordinary commercial transactions where taxpayers legitimately structure transactions.
  - Legal drafting and administrative capacity are critical for success.
  - The tax authority must make a relevant and valid determination before the GAAR applies; the GAAR is not self-executing.
  - Consider establishing dedicated GAAR panels and ensure dispute settlement infrastructure and taxpayer safeguards.
  - Implementation in developing countries requires careful management.

### Overview of the sample GAAR (Appendix A)
- Subject to specified conditions, the sample GAAR allows the tax authority to determine and assess a different (increased) tax liability where:
  - There is a “scheme” that results in the taxpayer receiving a “tax benefit”; and
  - Having regard to the substance of the scheme, it can be concluded objectively that the taxpayer or a participant entered the scheme for the sole or dominant purpose of enabling the taxpayer to obtain that tax benefit.
- The GAAR can cover many forms of tax benefit and must be tailored to the tax system to ensure adequate scope.

### Detailed analysis — conditions for invoking the sample GAAR

A. Scheme
- “Scheme” is widely defined to include any course of action, agreement, arrangement, understanding, promise, plan, proposal, or undertaking, whether express or implied and whether or not enforceable.
- The tax authority should be given flexibility to identify the scheme (whole transaction or some component/combination of components).

B. Tax benefit
- “tax benefit” means:
  - (a) a reduction in a liability to pay tax, including on account of a deduction, credit, offset or rebate;
  - (b) a postponement of a liability to pay tax;
  - (c) any other advantage arising because of a delay in payment of tax; or
  - (d) anything that causes:
    - (i) an amount of gross revenue to be exempt income or otherwise not subject to tax; or
    - (ii) an amount that would otherwise be subject to tax not to be taxed.
- Tax benefits include deductions, reliefs, rebates, credits, offsets, refunds, reductions in tax liability, reductions in income or tax base, or increases in tax loss.
- General principle: tax incentives or concessions specifically provided in law (e.g., tax elections, accelerated depreciation, specific bad-debt deductions) should not normally be caught by the GAAR if taken consistently with policy intent, although contrived exploitation of such concessions may still be caught.
- Identifying/quantifying a tax benefit often requires establishing causality with a scheme and may require determining a relevant counterfactual. This can create complexities, including the “do nothing” defense:
  - Advantages the taxpayer in income cases (taxpayer argues it would have “done nothing” so no taxable amount would have arisen).
  - Advantages the tax authority in deduction cases (doing nothing would mean no deduction, conceding a tax benefit).
- Effective GAARs typically provide further guidance in law, regulations, or guidelines on identifying/quantifying tax benefits.

C. Sole or dominant purpose
- The scheme must be entered into for the sole or dominant purpose of obtaining the identified tax benefit, assessed objectively by reference to the substance of the scheme.
- Factors for determining substance and purpose include:
  - The manner in which the scheme was carried out;
  - Whether any artificiality or contrivance is evident;
  - Whether there is divergence between form and substance; and
  - The result achieved by the scheme compared to a relevant counterfactual.
- The taxpayer’s subjective state of mind or actual fiscal motives are not technically relevant; objective evidence may be required to show a dominant non-tax purpose.
- Drawing the line is a matter of degree:
  - Schemes that make no commercial sense without the tax benefit are more likely to be caught.
  - A genuine commercial purpose can preclude GAAR application even if aspects are tax driven; the question is whether the dominant purpose was to obtain the tax benefit.
- GAAR should not force taxpayers to always select the highest-tax alternative when ordinary commercial reasons justify their choice (e.g., financing choices between debt and equity).

### Example demonstrating application (soap export/import arrangement)
- Facts:
  - Company A (Country A) and Company B (Country B) each buy soap for $50 per box and can sell at retail for $80 per box (economic gain $30 per box).
  - Both countries have export tax exemption regimes without specific integrity provisions.
  - Arrangement:
    - Company A sells/export to Company B for $79 per box.
    - Company B sells/export to Company A for $79 per box.
    - Each later sells acquired soap domestically for $80 per box.
- Transaction outcomes (per provided table):
  - Transaction 1 (initial export sale): Export price $79; Cost ($50); Economic gain $29; Taxable $0.
  - Transaction 2 (subsequent retail sale): Retail price $80; Cost ($79); Economic gain $1; Taxable $1.
  - Total gain across transactions: Economic gain $30; Taxable $1.
  - Counterfactual (no exports): Retail price $80; Cost ($50); Economic gain $30; Taxable $30.
- Reasons the sample GAAR conditions would be satisfied:
  - Arrangement constitutes a “scheme” (documented or verbal).
  - There is a “tax benefit”: arrangement causes an amount of gross revenue to be exempt or causes an amount that would otherwise be taxed not to be taxed; the tax benefit arises from the scheme when compared to the reasonable counterfactual.
  - Sole or dominant purpose: the mutual export of substantially identical products suggests artificiality/contrivance; divergence between form (export) and substance (domestic sale with tax-exempt sheltering of economic gain); result is sheltering $29 per box of economic gain via export exemption versus $30 taxable in the counterfactual.

### Practical implications and safeguards
- Success of a GAAR depends on:
  - Precise legal design and drafting tailored to the country’s legal tradition, constitutional limits, political/administrative structure, and fiscal policies.
  - Administrative capacity to apply the GAAR in a measured, even-handed, and predictable way.
  - Appropriate taxpayer safeguards, dispute resolution infrastructure, and possibly dedicated GAAR panels.
- Consider legislative clarity on:
  - Definition and identification of schemes;
  - Definition, quantification, and causal link for tax benefits (including guidance on counterfactuals and the “do nothing” defense);
  - Objective tests for sole or dominant purpose and examples illustrating the boundary between legitimate tax planning and abusive schemes.

*IMF LEGAL DEPARTMENT 01 I 2016*

### conclusion that the sole or dominant purpose of Compa-

### _tltn1601 - conclusion that the sole or dominant purpose of Compa-

### Conclusion on "sole or dominant purpose" in export schemes
- A conclusion that the sole or dominant purpose of Company A or Company B in entering into the export scheme was to each obtain a tax benefit:
  - Should not be simply drawn from the intention to obtain the export exemption (which is specifically provided for in the tax law of both Country A and Country B);
  - But arises because Company A and Company B took contrived or artificial steps to shelter from tax substantially all of the economic gain from what was, in substance, a domestic sale of products by adopting a transaction structure that took advantage of the tax exemption for exports and they did so in a manner which objectively indicated the presence of a dominant purpose to obtain a tax benefit.
- A GAAR should not obligate a taxpayer to take a course of action that always results in the highest level of taxation where the actual course taken is explicable according to ordinary commercial reasons.

### Illustrative scenarios and reasoning
- Scenario 1:
  - Company A genuinely exported the soap products held by Company A to Company B (with no corresponding import from Company B).
  - Absent further facts, it would not be reasonable to apply the GAAR.
- Scenario 2:
  - Company A exported soap products to Company B with a corresponding import from Company B of a different product (e.g. cleaning products) for subsequent distribution and sale to satisfy different market demands.
  - Absent further facts, it would not be reasonable to apply the GAAR because:
    - A decision to export rather than sell domestically should not, of itself, attract the GAAR, particularly given an express export exemption in Country A’s tax law.
    - Where form and substance align in a genuine export arrangement, the GAAR should not apply.
    - Under scenario 2, the exchanged products are substantially different and address specific market and commercial needs such that, even if a “tax benefit” could be established, it would not be reasonable to conclude the sole or dominant purpose was to obtain the export exemption.
    - The course of action is explicable by ordinary commercial considerations; tax advantages could not reasonably be considered the “sole or dominant purpose.”

- Borderline case:
  - If Company A exported soap products and imported a soap product with different characteristics (e.g. different scent, ingredients, packaging), determining GAAR applicability is delicate and a matter of degree.
  - It will typically depend on the strength of objective evidence that a reasonable person would conclude the dominant purpose was to obtain the tax benefit.
  - Key evidentiary considerations include how compelling objective evidence is that the scheme is also explicable by ordinary commercial considerations (e.g. extent to which product differentiation matters for different markets).

### Applying the GAAR in practice — procedural steps and limitations
- The sample GAAR is not self-executing and requires the tax authority to make a relevant and valid determination before the GAAR applies.
- Process summary:
  - The tax authority may determine the tax liability of the person who obtained the tax benefit as if the scheme had not been entered into or carried out, or as if a reasonable alternative would have instead been entered into or carried out, and can make compensating adjustments to the tax liability of any other person affected by the scheme.
  - The tax authority must issue an assessment giving effect to the determination or adjustment.
  - An assessment must be served within 5 years from the last day of the tax year to which the determination or adjustment relates.
- The appeal or objection process depends on the country’s domestic tax dispute processes and will determine who bears the burden of proof when a GAAR determination is challenged.
- Anti-avoidance can also be addressed through:
  - Specific anti-avoidance rules (SAARs);
  - Equivalent provisions in tax treaties;
  - Judicial anti-abuse doctrines, as applicable.
- A GAAR must be carefully designed to achieve consistency with existing international legal obligations, including tax treaties; conflict issues are easier to manage in future treaties negotiated after a domestic tax treaty override is enacted.

### Recent developments and specific national approaches
- Jurisdictions adopting a GAAR include: the UK, France, Germany, The Netherlands, Belgium, Canada, China, Singapore, South Africa, Kenya and Australia.
- The introduction of a GAAR continues to be topical in jurisdictions such as India and Poland. Italy recently enacted its first modern GAAR.
- Australian response to BEPS (key points):
  - Australia amended its existing GAAR in the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 announced in the Federal Budget on May 12, 2015.
  - The multinational anti-avoidance law is designed to counter erosion of the Australian tax base by multinationals using artificial or contrived arrangements to avoid attribution of business profits to Australia.
  - It targets multinationals that:
    - avoid a taxable presence by undertaking significant work in Australia in direct connection to Australian sales but booking their revenue offshore; and
    - have a principal purpose of avoiding tax in Australia or a combined purpose of also reducing their foreign tax liability.
  - The law applies only to foreign entities that are “significant global entities” (e.g. those with annual global income of AU$1 billion or more).
  - Outcomes for multinationals found to be avoiding Australian tax under the new law:
    - Determination resulting in a tax liability for the tax avoided (plus interest) and penalties of up to 100 per cent of the tax owed.
  - The new law uses a “principal purpose” test rather than the “sole or dominant purpose” test used in the sample GAAR; it can apply where a scheme is entered into for a number of principal purposes as long as one of those principal purposes had the requisite tax avoidance purpose.
  - The measure is intended to act immediately against egregious tax structuring while BEPS Package implementation is ongoing, without adverse impact on legitimate international business activities.
  - The use of the GAAR to combat BEPS is intended to ensure compatibility and harmonization with other laws and tax treaty obligations.
- Additional contextual details:
  - India: applicability of its GAAR was to be deferred by 2 years per the Budget for fiscal year 2015-16 presented on 28 February 2015; GAAR would be applicable from financial year 2017-18 and, when implemented, will apply prospectively to investments made on or after 1 April 2017.
  - Poland: on 27 April 2015, the amended proposed Tax Code published no longer contains the provision of GAARs that were planned.
  - Italy: new GAAR introduced with Legislative decree n. 128 of 2015 and effective from 1 October 2015.
  - OECD/G20 BEPS Package: final package presented on 5 October 2015.

### Sample GAAR (condensed procedural and definitional elements)
- Applicability (when Tax Authority is satisfied):
  - (a) a scheme has been entered into or carried out;
  - (b) a person has obtained a tax benefit in connection with the scheme; and
  - (c) having regard to the substance of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme did so for the sole or dominant purpose of enabling the person referred to in paragraph (b) to obtain a tax benefit.
- Powers and obligations:
  - Tax Authority may determine the tax liability as if the scheme had not been entered into or as if a reasonable alternative had been entered into, and can make compensating adjustments to others affected.
  - If a determination or adjustment is made, the Tax Authority must issue an assessment giving effect to it.
  - An assessment must be served within 5 years from the last day of the tax year to which it relates.
- Definitions:
  - “scheme” includes any course of action, agreement, arrangement, understanding, promise, plan, proposal, or undertaking, whether express or implied and whether or not enforceable;
  - “tax benefit” means:
    - (a) a reduction in a liability to pay tax, including on account of a deduction, credit, offset or rebate;
    - (b) a postponement of a liability to pay tax;
    - (c) any other advantage arising because of a delay in payment of tax; or
    - (d) anything that causes:
      - (i) an amount of gross revenue to be exempt income or otherwise not subject to tax; or
      - (ii) an amount that would otherwise be subject to tax not to be taxed.

*Prepared by: Christophe Waerzeggers and Cory Hillier*

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