TaxTMI 
TaxTMI 
Impermissible avoidance arrangement - (New) Section 179 / (Old) Section 96
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....urden initially lies on the tax authority to establish that tax avoidance is the principal purpose, subject to the presumption in sub-section (2). Sub-section (1) requires satisfaction of both of the following: • the arrangement's main purpose is obtaining a tax benefit; and • at least one of the four tainted elements under clauses (a)-(d) exists. Clause (a): Non-Arm's Length Rights or Obligations This clause targets arrangements where the parties create rights or obligations that independent parties dealing at arm's length would not ordinarily create. The rationale is that genuine commercial transactions are negotiated by parties acting independently and in their own economic interests. ....
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....e in economic position. An arrangement may satisfy all legal formalities yet still fail this test if it exists primarily on paper. Clause (d): Use of Artificial or Non-Bona Fide Methods This clause examines how the arrangement has been implemented. Even where the rights created and commercial substance appear acceptable, the arrangement may still be impermissible if it is entered into through methods not ordinarily employed for genuine business purposes. Examples include: • unnecessarily complex transaction structures; • artificial intermediaries; • multiple redundant entities; • unusual sequencing of transactions solely to obtain tax benefits. The emphasis is on the....
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....s three situations: • Reduction - Paying less tax than would otherwise be payable. • Avoidance - Eliminating tax liability altogether. • Deferral - Paying tax at a later date rather than immediately. • (b) Increase in refund • A person receives a larger refund because of an arrangement. • (c) Reduction, avoidance or deferral because of a tax treaty • This extends the definition to treaty benefits. • (d) Increase in refund because of a tax treaty • If a treaty allows a taxpayer to claim a refund otherwise unavailable under domestic law, the additional refund is also a tax benefit. • (e) Reduction in total income ....
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.... • (c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or • (a) Inconsistency Between the Legal Form and Economic Substance of an Arrangement • It implies that where substance of an arrangement is different from what is intended to be shown by the form of the arrangement, then tax consequence of a particular arrangement should be assessed based on the substance of what took place. In other words, it reflects the inherent ability of the law to remove the corporate veil and look beyond form. • (b) Use of Artificial or Contrived Transactional Mechanisms • Round-Trip Financing Arrangements. It has been explained in un....
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....carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of, the arrangement is to obtain a tax benefit, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit. In view of this provision, where only a part of the arrangement is to obtain a tax benefit even if the whole arrangement is permissible, the whole arrangement may be treated as an impermissible arrangement. Meaning of Tax Benefit The term of "tax benefit" has been defined in section 102(10) includes,- • (a) a reduction or avoidance or deferral of • tax or • other amount payable under this Act; or • (b) an increase ....