Canadian Supreme Court decision in Alta Energy Luxembourg: Critical reflections for Indian General Anti-Avoidance Rules

Abstract

On November 26, 2021 the Supreme Court of Canada (SCC) released its much-awaited decision in Alta Energy Luxembourg putting an end to a controversy which was viewed with bated breath all across the globe, not just by the curious onlookers of the tax system but also by experts and especially those who continue to unravel the application of General Anti-Avoidance Rules (GAAR) in the space of fiscal laws.

On a larger level the dispute relates to interplay between General Anti-Avoidance Rules and tax treaties. At another level, the dispute forces a rethink in tax-policy space on the extent to which the so-called anti-avoidance approach should be allowed to interplay with the traditionally understood (and fairly settled) approach to interpreting and applying fiscal laws. The decision rejects the Government appeal, categorically upholding the availability of the tax benefits which arise upon a plain reading of the relevant provisions of tax treaty. The decision, in a sense, also limits the application of General Anti-Avoidance Rules by explaining the narrow scope within which it must operate.

This decision, being one of the few in this space, is expected to significantly shape the evolution of the General Anti-Avoidance Rules jurisprudence. It is of particular importance in the context of India, which shares the common-law background and the respect for tax treaties, with Canada, in the background of which this decision has been rendered. This article attempts to dissect the decision into a cross-section of propositions, each of which are in themselves axiomatic in tax jurisprudence to inter alia contextualise the evolution of Indian General Anti-Avoidance Rules.

The analysis is carried out in the following scheme;

1. Introduction
2. Dispute before Canadian Supreme Court
3. Decision of the Canadian Supreme Court
(A) Revenue cannot insert additional substantive conditions for a person to qualify as ‘resident’ under the Tax Treaty.
(B) Notwithstanding compelling legal arguments, policy reasons or otherwise, Revenue cannot claim additional taxing rights under Tax Treaty for Source Country.
4. Refining tax law and policy: Learnings from the decision
(A) Reflections on certain axiomatic principles of tax law.
(B) Objectives of GAAR law, its interface and limitations in a tax treaty scenario.
(C) Demystifying ‘liable to tax’.
(D) Comparative approach in interpretation of tax treaties.
(E) GAAR cannot be applied to indirectly rewrite the provisions of tax treaties.
(F) Tax treaties represent a bargain between two countries; which may involve non-tax considerations. Hence, tax treaties should be assigned a textual meaning and should be interpreted distinctively from domestic tax law.
(G) Treaty Shopping is permissible.
(H) Relevance of Commentaries to OECD Model Convention in tax treaty interpretation.
5. Take-aways: Shaping the Indian GAAR
(A) On the conceptual tenets of GAAR law.
(B) Transposing the learnings from the decision in the Indian GAAR framework.
6. Conclusion

Keywords: GAAR, General Anti Avoidance Rules, Tax Treaties, Interpretation, Income Tax, International Tax

JEL Classification: H25, K34