 Tax treaty anti-avoidance legislation is abandoned
HMRC published draft anti-avoidance legislation on 1 August 2011 designed to counter schemes which seek to exploit the provisions of the UK’s double tax agreements (DTAs).
Separate provisions were drafted designed to deal with residents and non-residents. The provisions applicable to residents were expected to apply only to contrived schemes where income or gains had been converted into a different form or realised by a different party. The provisions relating to non-residents, however, could have applied to more widely used tax planning measures including treaty-shopping arrangements.
HM Treasury issued a statement on 9 September 2011 that the proposals affecting both residents and non-residents would no longer go ahead. It said:
“The responses so far received have made it clear than the proposed legislation, as drafted, could cause significant uncertainty for compliant UK businesses and overseas investors about its intended scope and practical effect.”
It goes on to say:
“The Government will continue to challenge specific arrangements that clearly seek to abuse provisions in a DTA.”
Therefore, it appears that HMRC will still take tougher stance on treaty abuse but that this is more likely to be through the Courts rather than the statute book. However, in the statement, the Treasury also reserves the right to legislate against Treaty abuse in other ways in the future if deemed necessary.
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