1. Substance-over-form as an interpretation canon Chi Chung May 12, 2016

2. The Vienna Convention on the law of treaties Two articles regard the form of law (or legal obligations): Article 26: Pacta sunt servanda Article 27: Internal law and observance of treaties Two articles regard the proper interpretation of the contents of law (or legal obligations): Article 31: General rule of interpretation Article 32: Supplementary means of interpretation

3. Articles 26 and 27 of the Vienna Convention on the law of treaties Article 26 Every treaty in force is binding upon the parties to it and must be performed by them in good faith. Article 27 A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. This rule is without prejudice to article 46.

4. Article 31 of the Vienna Convention on the law of treaties 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

5. Article 31 of the Vienna Convention on the law of treaties 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any agreement which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

6. Article 31 of the Vienna Convention on the law of treaties 3. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties 4. A special meaning shall be given to a term if it is established that the parties so intended.

7. Article 32 of the Vienna Convention on the law of treaties Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable.

8. Comments by a IFA general reporter (Zimmer, 2002) Based on the principle of freedom of contract, the point of departure generally is that the taxpayer is free to arrange his affairs as he wishes in order to save taxes. Based on the principle of legal security, he should also be able to trust that the transactions which he has legally entered into will be respected by the tax authorities and the courts. However, the strict adherence to legal form may increase legal certainty but may on the other hand frustrate equality and efficiency in taxation.

9. Comments by a IFA general reporter (Zimmer, 2002) Thus, general tax anti-avoidance rules are a necessary part of modern income tax systems. The challenge is to find the balance between the regard for legal security on the one hand and equity and efficiency in taxation on the other.

10. Canadian experience (van Weeghel, 2010) The GAAR applies to transactions that misuse or abuse a treaty and, where necessary, overrides treaties. The taxpayer in the Antle case tried to avoid Canadian tax on the alienation of shares by disposing of these shares tax free to a Barbados trust crated for the benefit of his spouse. The trust then sold the property and claimed that the gain was not taxable pursuant to the Barbados- Canada tax treaty.

11. Canadian experience (van Weeghel, 2010) The court found that the trust had not been legally created and the shares not transferred, but also ruled that even if that were different, the transactions could not be given their intended tax consequences pursuant to the GAAR. The court found that the object, spirit and purpose of the domestic provision were to tax the gain when the property would leave the marital unit and then considered that the spirit and purpose of the Barbados- Canada tax treaty did not conflict with the domestic provision.

12. Chinese Taipei In tax cases in Chinese Taipei, the courts may disregard actual transactions but not on the basis of the private law sham theory. Chinese Taipei has a statutory GAAR, enacted on April 28, 2009. It codifies the substance-over-form doctrine longst anding in Chinese Taipei. The interpretation of all tax-related law has to take into a ccount statutory texts, legislative purposes, and economi c substance. The tax authority bears the burden of proof for all statutory requirements for the assessment of a par ticular tax.

13. Chinese Taipei The courts of Chinese Taipei uses the GAAR, not the tax- purpose sham theory. The GAAR of Chinese Taipei states that the interpretation of all tax-related law has to take into account statutory texts, legislative purposes, and economic substance. Subjective intent for tax avoidance, business purpose, and/or activities other than tax avoidance, artificiality, and abnormality are not elements of the GAAR of Chinese Taipei.

14. Chinese Taipei The GAAR of the Chinese Taipei applies to treaty cases. As it codifies the substance-over-form doctrine longstanding in Chinese Taipei, it may apply even where the applicable treaty entered into effect before the statutory GAAR. As the GAAR of Chinese Taipei may be considered a matter of statutory interpretation (interpretation of tax-related law), a taxpayer may propose to rely on such a principle to disregard the actual transactions he or she undertook. The taxpayer has to communicate such a proposal to the tax authority. The tax authority of Chinese Taiwan is obliged to follow the letters of the tax statutes, but is also obliged to ensure that tax statutes are applied fairly and without grave consequences unintended by the legislature.