Trending Video: New Anti-Abuse Tax Provisions
Kat Saunders Gregor, Ropes & Gray tax partner and co-founder of the tax controversy group, examines the influx of new anti-abuse provisions around the world.
Hi, I'm Kat Gregor, and I am a tax partner in Ropes and Gray's Boston office. In this trending video, I am going to talk about the influx of new anti-abuse provisions around the world.
In 2012, the OECD was asked by the G20 to look at practices amongst large multi-national corporations who were engaging in tax planning and optimization strategies on a global basis that were perceived as aggressive, potentially abusive means of shifting profits from high-tax jurisdictions to low-tax jurisdictions to try and reduce down those corporations' global tax liability. The main goal of the project was to come up with a list of recommendations from the OECD for member countries around the world that they could then implement to try to combat or reduce the ability of companies to use these types of strategies on a going forward basis.
So what this means is that now an individual or a corporation that is looking to make an investment, say, into a new jurisdiction, is going to have to evaluate not just a GAAR (a general anti-abuse rule) in the country that they're investing into, they'll have to analyze their transaction under any countries that they invest through, and from the perspective of the country they're investing from, as well as if they intend to rely on any treaties for obtaining any form of tax benefit or reduction of withholding taxes, they will then also have to analyze the transaction under the new principal purpose test. So that can create uncertainty in the market. You may have a structure that is likely to be respected by one jurisdiction, perhaps the jurisdiction you're investing from, but could fail the anti-abuse rule in the jurisdiction you're investing in or perhaps not be eligible for treaty benefits if it is perceived to be designed for the principle purpose of obtaining tax treaty benefits.
Both clients that are looking to make new investments across jurisdictions, or clients who already have existing multi-national structures in place, they're going to need to look at these new rules and take a close look at the structures that they're either proposing to use or their existing structures to ensure that those structures will meet these new tests at a very basic level. In particular, clients in the private equity industry that are used to investing in a particular jurisdiction may now need to re-evaluate transactional structures that they've used for generations of prior funds. For example, a fund that is on its fifth or sixth iteration investing in a particular jurisdiction may find that its historic structure for investing in that jurisdiction no longer works under these new rules when applying either the new restrictions on the use of tax treaties or on a particular jurisdiction's anti-avoidance rule.