The Chamber of Tax Advisers of Russia International Tax Congress   St Petersburg 19 September 2013 David Russell AM QC Were going to get Kuroda – me consolation prize Thomas Lee – persistent Had to change from Transfer Pricing Told could pick own topic – only requirement was that it be “sexy” Don’t usually associate sex with tax: 3 letter monosyllabic words ending in “X” Churchill/Attlee post 1945 – if you see something which big, healthy and strong you will want to put a tax on it Cases in Australia in which I have been involved involving sex industry – interesting tax issues (employer/employee relationship, section 51AE) but not really suitable for here Thomas thought it necessary in subsequent e-mail to explain that what he meant was an attractive topic which would grab attention So idea of practice development

General Anti-Avoidance Provisions: Do they really work, and do they discourage foreign investment?

Role of Presentation General outline of topic Full paper available on Chamber website or russell@wentworthchambers.com.au

The Chancellor’s Foot The need for stable and predictable outcomes to litigation and disputes A function of the Rule of Law The “smell test” and the Revenue’s nose

Tax avoidance responses Ramsay doctrine Abus de droit Business purpose test (US) General Anti Avoidance Rules

GAARs – an Australian innovation Predates Federation Part of Federal Income Tax from the outset Suggests GAARs are not the end of the world – but for a long time not effective Modern history started in 1981

Key concepts Sham Evasion Mitigation Avoidance

Key concepts (revised) “Acceptable” tax planning “Gross”, “egregious” or “unacceptable” tax avoidance Not entirely clear how differs from third and fourth concepts on previous slide

GAAR considerations Removal of implication against tax avoidance on other provisions. How to strike a reasonable balance? Former section 260 as example

Key issues Change of legal form of receipt Choices in legislation Disposal in income source Antecedent liability

Interpretation in the Courts Minds can reasonably differ Explanatory materials (“travaux preparatoires”) of little assistance in common law context

Problems? “Do nothing” alternative Commercial arrangements

The UK approach Aronson Review Broad spectrum v. narrow spectrum

GAAR advantages - Aronson Deterrence of “unacceptable” schemes A level playing field for business and professionals Enhanced certainty in construction of provisions Improved simplicity in legislative drafting Administrative simplicity without discretion Building trust

Risks Cherry picking of Report Mission creep Inversion of role of taxpayers and revenue Difference of perspective

Economic effect Potential to create issues of sovereign risk Need to have both consistency if approach and a realistic approach to commercial issues A very high price can be exacted if competitive advantage foregone

THE END