Which Anti-Avoidance Measure Should Thai Government Apply to Counteract Abusive Tax Avoidance?

Abstract

Unacceptable or abusive tax avoidance is any lawful action that reduces or discharges tax liability, but it is against the spirit of tax law. Such tax avoidance makes the loss of tax revenue and adversely affects the equity of income redistribution and the economic efficiency of taxation. Therefore, anti-avoidance measures are necessity to counteract abusive tax avoidance. A strict interpretation approach ensures legal certainty but it leads to unacceptable tax avoidance. Meanwhile, a purposive interpretation approach helps the court to counteract unacceptable tax avoidance schemes. This brings about the equity of taxation but devalues legal certainty. Accordingly, statutory anti-avoidance rules are another measure to counteract abusive tax avoidance.

This article has studied the statutory anti-avoidance rules. And it has found that such rules are divided into 2 categories: Specific Anti-Avoidance Rules and General Anti-Avoidance Rules. The UK has adopted Specific Anti-Avoidance Rules to deal with particular tax avoidance schemes. Specific Anti-Avoidance Rules identify with precision the type of transaction to be dealt with and prescribe with precision the tax consequences of such a transaction. Therefore, Specific Anti-Avoidance Rules that deal with specified transactions will inevitably leave tax loopholes. General Anti-Avoidance Rules are suggested to be adopted in the UK. General Anti-Avoidance Rules set out broad criteria to be applied to any tax avoidance schemes without being tied to specific cases.

This article suggests that as for Thai courts, they should consider and apply the purposive interpretation to strike down unacceptable tax avoidance schemes (by looking beyond the words of tax provisions to seek the underlying purpose and looking beyond the form of the taxpayer’s transaction to seek its economic substance) together with the application of Ramsay principle, if they consider that the taxpayer’s transaction/scheme is designed to avoid paying tax in the way which is contrary to the spirit of law. As for the Thai government, Ministry of Finance and Revenue Department should make secondary legislation to adopt and apply General Anti-Avoidance Rules to support present Specific Anti-Avoidance Rules. Such legislation should have the following characteristics: (a) drawing a distinction between acceptable and unacceptable tax avoidance transactions/ schemes; (b) applying General Anti-Avoidance Rules to transactions/schemes which are designed to avoid tax in a manner contrary to the spirit of law; (c) allowing an exception for acceptable tax planning; (d) incorporating a reasonable clearance procedure/a short-time pre-transaction rulings system under which there is no charge for applications, and the taxpayer has the right to appeal to the court against the refusal of Revenue Department for his/her application; and (e) specifying that only the Head Office of Revenue Department can invoke General Anti-Avoidance Rules.