Government to consult on anti-avoidance measures to prevent treaty shopping
Anti-avoidance provisions to be introduced in 2012 aim to remove relief or exemption from UK tax where, in the Government’s view, unfair advantage has been taken of the UK’s favourable tax treaty network. Draft provisions will be announced later this year with an invitation for representations on these provisions.
The Government has become increasingly aware of the importance of protecting its tax base from erosion in the field of international tax planning. As well as a tightening of transfer pricing rules, greater scrutiny has been given to taxpayers’ structures that look to optimise the benefits of double taxation relief and take advantage of double tax treaties.
It is already the case that a UK company wishing to claim relief for overseas tax must take reasonable steps to minimise its overseas tax liability.
Likewise, in an effort to combat “treaty shopping” (where companies look to take advantage of the UK’s favourable treaty network by interposing a company in an intermediate location, whether the UK or elsewhere), the UK has been re-negotiating double tax treaties to include clauses that restrict treaty shopping (the UK/US and UK/Netherlands treaties being examples).
The Government is taking unilateral action to protect tax revenues from erosion by the use of structures that result in UK tax treaty benefits being given where (in the Government’s view) such benefits are not properly due.
It will be interesting to see how this is achieved, given that this could be regarded as effectively, unilaterally imposing conditions not provided for in the relevant treaty. Also the legislation must not breach the UK’s existing obligations (including those under the EU treaty). Draft clauses will be published this autumn and representations will be invited.