Concept and Implementation of CFC Legislation

S. 4001. Introduction

General anti-avoidance rules (GAAR) are general instruments conceived to cover all forms of abusive arrangements with regards to all existing tax-related laws within a legal system. GAARs have a broad scope of application; so broad that it might overlap and conflict with that of one or more specific anti-avoidance rules (SAAR). This chapter examines the interplay or conflict between controlled foreign company (CFC) legislation and GAARs either forming part of domestic law or tax treaty law because “the relationship between domestic anti-abuse rules and double taxation treaties is a complex and unsettled issue.” Whether a transaction or scheme triggers a CFC rule, a domestic or treaty GAAR or more than one norm; whether a conflict of norms or divergence arises; and how such a case should be handled are unresolved issues that deserve attention.

Therefore, Section 2 analyses the different domestic approaches available to states in countering tax avoidance, emphasizing on CFC rules, general anti-avoidance rules and doctrines, and their relationship within domestic legal systems. Section 3 is concerned with tax treaty general anti-avoidance rules i.e. the principal purpose...