Tag Archives: supreme court

Revised proposals to amend the general anti-avoidance rule

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On August 4th, 2023, the Department of Finance Canada (“Finance”) released draft legislative proposals which included revised proposals to amend the general anti-avoidance rule (the “GAAR”) in section 245 of the Income Tax Act (Canada) (the “ITA”) (the “Revised GAAR Proposals”). The revised proposals follow several GAAR proposed amendments initially introduced in the 2023 Federal Budget (“Budget 2023”) tabled on March 28th, 2023.

The proposals to amend the GAAR will apply to transactions that occur on or after January 1st, 2024, except for the amendments to the preamble to the GAAR and related provisions which will come into force on Royal Assent.

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Hybrid entity classification following the Anson decision

For many years, both the Canada Revenue Agency (CRA) and Her Majesty’s Revenue and Customs (HMRC) have treated limited liability companies (LLC) formed under Delaware law as hybrid entities, in that a LLC has been “opaque” for the purposes of domestic tax law despite being generally disregarded or treated as a partnership for United States tax purposes.

Hybrid entities, including LLCs, are due to be somewhat of a hot topic next month because, as part of its Base Erosion and Profit Shifting (BEPS) project, the OECD is due to present its recommendations to the G20 Finance Minister in relation to “Action 2: Neutralizing the effects of hybrid mismatch arrangements”. However, over the summer the United Kingdom Supreme Court has stepped into the fray in its decision in Anson v. Commissioners for Her Majesty’s Revenue and Customs ([2015] UKSC 44).

This decision emphasizes that entity classification for international tax purposes is highly dependent on the facts and the governing law applicable to the entity, despite guidance from tax authorities that prefers to apply a “one size fits all” approach.  As discussed below, the Anson decision may create renewed interest and support for taking a tax position that diverges from the traditional opaque characterisation of a US LLC.

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