Proposal to legislate the circumvention norm in tax law

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The Ministry of Finance proposes to legislate the unwritten circumvention rule in tax law. The proposal is largely based on the unwritten rule, but nevertheless entails some change. 

The circumvention rule has been developed through long-term practice, and is intented to create a boundary between acceptable tax planning and unacceptable tax evasion. The purpose of the statutory rule is to clarify the content of the rule and to increase the predictability of taxpayers. The circumvention rule shall come into force from the income year 2020. It is proposed to include the rule in the Tax Act as the new s 13-2. Furthermore, the Minstry proposes that the rule shall apply also for VAT through a reference rule in s 12-1 of the VAT Act.

The most important changes by legislating the circumvention rule are as follows:

  • Any possible tax advantage abrouad should no longer be regarded as business effects (as opposed to what the Supreme Court came to in the Hydro Canada judgment, Rt. 2002 s. 456).
  • An objective assessment of the purpose of the transaction shall be made. The assessment means that the taxpayer’s personal motivation must be disregarded. An objective purpose assessment is in accordance with the Supreme Courts ruling in Ikea.
  • It is not in favor of the taxpayer where a circumvention opportunity is mentioned in the legal preparations without being followed up with special circumvention rules.