Why Australia is Strengthening its GAAR
Australia is strengthening its general anti-avoidance rule (GAAR) to ensure it counters tax avoidance schemes that are carried out as part of a broader commercial transaction.
'The fact that the High Court denied the Commissioner special leave to appeal the Full Federal Court decision in RCI, which involved a 'do nothing' counterfactual in relation for an internal structure, seems to have caused the Commissioner particular offence.', said Jonathon Leek, partner at Taxand Australia.
Leek said that it is not necessarily a universally-held belief that the Part IVA rules need strengthening, adding that most practitioners would say that the mere fact that the Commissioner is losing some Part IVA cases does not mean the rule is not functioning as intended.
Rather, he proposes that the Commissioner needs to take greater care in the selection and preparation of Part IVA cases.
'The preparation of evidence in such cases is critical,' he said. 'But if the Commissioner won every Part IVA case, that should also be cause for concern.'
There are fears that the legislative gap created by the changes will cause uncertainty for taxpayers.
'I suspect the reforms will be more far-reaching (than merely shutting down the 'do nothing' counterfactual defence) simply because the opportunity has now presented itself, and that makes it very hard to advise,' said Leek.
First published in the International Tax Review, 13 March 2012