Specific Anti-avoidance Rules (SAAR)

Globalisation has resulted in greater multinational enterprise (MNE) operations. Emerging economy MNEs are also establishing or acquiring subsidiaries abroad. MNEs carry out complex international transactions involving intangibles and multi-tiered services. They tend to structure transactions such that intra-group prices—transfer pricing—are determined reflecting tax considerations. This includes shifting of profits from one jurisdiction to another in a way that their global tax contributions are minimised. MNEs view such behaviour as ‘tax efficiency’. Tax administrations view it as comprising artificial means to avoid tax worldwide, that may be strictly legal but unintended in the law. Therefore, they have introduced anti-avoidance measures in their tax laws to minimise the shifting of the tax base abroad by MNEs to low-tax jurisdictions. Some rules against such ‘tax planning’ target specific identifiable means of tax avoidance and are, therefore, termed specific anti-avoidance rules (SAAR) for both domestic and international tax avoidance. Such rules attempt to contain tax avoidance through transfer pricing including excessive payments among related businesses for mutual international transactions, questionable sources of funds received as share capital or loans, transactions that strip out dividends or bonuses and artificial arrangements in transfers of movable property. Selected prevailing practices are examined in this chapter.