Domestic and International Anti Abuse Rules
Anti-abuse rules aim to combat the abuse of tax laws and treaties in order to prevent taxpayers from obtaining a tax position otherwise inconsistent with the intent of the law or treaty. In this regard, domestic tax laws often include a General Anti Abuse Rule (“GAAR”), while BEPS Action 6 outlines the anti abuse measures in relation to tax treaties. On this note, Federal Decree-Law No. 47 of 2022 (“UAE CT Law”) includes a GAAR provision in Article 50.
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Particular |
GAAR - Article 50 of the UAE CT Law |
BEPS Action Plan 6 - Prevention of Tax Treaty Abuse |
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Why? |
· To prevent the taxpayers from obtaining unfair tax advantages |
· To prevent the granting of treaty benefits in inappropriate circumstances |
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When? |
· Absence of valid commercial substance · Absence of non fiscal reasons reflecting economic reality · Main purpose to obtain a Corporate Tax advantage that is not consistent with the intention or purpose of this Decree-Law |
· Treaty shopping · Double non-taxation · Main purpose to indirectly access the benefits of a tax treaty between two jurisdictions without being a resident of one of those jurisdictions |
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What is the impact?
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· Authority will assess the GAAR applicability on any transaction or arrangement of the taxpayer · Tax authorities can make adjustments to the tax liability for any unfair tax advantage obtained |
· Taxpayers engaged in treaty abuse strategies undermine tax sovereignty by claiming treaty benefits in situations where these benefits were not intended to be granted · Tax authorities can apply the Principal Purpose Test (“PPT”) or the Limitation of Benefit (“LoB”) |
Impacted Areas:
The below mentioned arrangements can attract the attention of Authorities.
· Business modelling
· Business restructuring
· Financing arrangements
· Related party transactions
· International transactions
· Sham transactions
· Unlawful accounting adjustments
How can Crowe help?
• Identify gaps between the existing arrangements and advise of the remedial measures to ensure compliance with the law.
• Advising on the documentation to be maintained to support any future inquiries from the authorities.
• Advising on any business restructuring or arrangements from the GAAR perspective.
