A General Anti-Avoidance Rule (GAAR) and the Rule of Law in Japan

Abstract

This article analyzes the role and function of a general anti-avoidance (or anti-abuse) rule (GAAR) in the context of Japan, which is one of the rare countries without a statutory GAAR. Such an analysis is needed because some commentators in recent years have strongly argued for the introduction of a GAAR. This article focuses on the relationship between the international debate and the internal Japanese debate on tax avoidance and a GAAR.

The main arguments of this article are the following two points. First, unlike the recent arguments, it is not logically accurate to connect the current debate on the Base Erosion and Profit Shifting (BEPS) Project of the OECD/G20, or other international tax policy debates on aggressive tax planning (ATP), directly to the introduction of a GAAR into Japan’s tax law. Second, the recent evaluation that argues that the academic debate on tax avoidance in Japan is “lagging,” once we reexamine it, is an overstatement. This article asserts that it should not be taken for granted that a discussion introducing a process to legislate a GAAR in Japan’s domestic tax law, if it once got started, allows tax authorities and courts to disallow tax avoidance more easily; rather, even if it were to be introduced, it is possible and even favorable to introduce a statutory GAAR as a “general anti-avoidance rule without limitation in scope of application” simply to confirm and clarify the current case law doctrines and the interpretations of existing quasi-GAARs. After that, complementary arguments on a GAAR design follow.

Keywords: aggressive tax planning, GAAR, tax morality, cooperative compliance, BEPS

JEL Classification: H26, K34, M14