HM Revenue and Customs’ (HMRC) August 1st anti-avoidance legislative draft is a response to attempts by some UK taxpayers to exploit the existing framework for double taxation agreements (DTAs).
With approximately 120 bilateral DTAs, the main purpose of the proposed UK legislation is two-fold:
1) Reinforce the right of the HMRC to ensure that individuals, companies and other taxpayers are appropriately taxed and cannot benefit from the provisions of a DTA.
2) Reduce any liability of UK taxation.
Items of income that would be impacted by the proposed legislation include; dividends, interest, or income from debt- claims and royalties or income falling within the other income article of the DTA. These transactions should be well documented in the corporate archives with appropriate resolutions, board minutes, transfer pricing reports or other means.
While the measure strives to balance the inherent conflict, it appears that the proposal is more subjective to the motivation behind the transaction as opposed to an objective determination.
The draft legislation can be found at http://www.hmrc.gov.uk/drafts/dta-avoidance-tech-note2.pdf.