Article 30. Tax Avoidance

  1. Legislative measures directed to denying Tax effectiveness to otherwise legal transactions whose purpose is principally directed to the reduction of Tax liabilities of particular Taxpayers and which are artificial, blatant and contrived are appropriate measures to maintain the integrity of the taxation system.

    This provision affirms that Tax avoidance legislation whether specific or general is a valid approach to counter artificial, blatant and contrived Tax reduction arrangements and to maintain the integrity of the Tax system. However, a reasonable balance is needed that the paragraphs below seek to achieve.
  2. Such measures need to recognise both the purpose of many provisions of taxation law which afford Tax relief to Taxpayers who enter into transactions as an incentive for them to do so, and also the legitimacy, within clearly defined limits, of Taxpayer choice of the form of transactions and business structures which the Taxpayer will adopt.

    Tax avoidance legislation should not deny a Taxpayer the benefit derived from incentives provided in the legislation or the benefit of reasonable choices among alternative transactions or business structures. The applicable doctrine of when a general anti-avoidance rule will become actionable will vary from country to country. However, in order to maintain the system's integrity, the threshold should be a high one since the Taxpayer has otherwise complied with all requirements of the Tax legislation. Furthermore, a Taxpayer should have the right to carry out reasonable Tax planning within what is permitted.
  3. Tax avoidance legislation shall be drafted with sufficient clarity that its scope can be readily understood and discretion shall not be granted to Tax Officers beyond the specific words of the Tax avoidance legislation.

    What is most important in practical terms concerning Tax avoidance laws is that they be clear, well known, and not open to the discretion of the Tax Administration or, worse yet, particular Tax Officers. Taxpayers are entitled to reasonable certainty in their Tax affairs. Broadly worded Tax avoidance legislation which gives wide discretion in interpretation is unfair and would undermine the integrity of the Tax system. Providing sufficient clarity allows Taxpayers to comply with the legislation when managing their Tax affairs and thereby achieves the goals of the Tax avoidance legislation.