The Spanish GAAR includes two doctrines: the conflict and the sham doctrines.
Under the conflict doctrine, the Spanish Tax Authorities can challenge inappropriate transactions that lack a sound business reason and are aimed at achieving a tax benefit only. Under the sham doctrine, the Spanish Tax Authorities may re-characterize a transaction by disregarding the sham arrangements and taking into account instead the deal that the taxpayer actually really wanted to enter into.
The Spanish Tax Authorities look at what is happening in the market on a regular basis and then issue internal instructions to tax auditors explaining certain transactions they consider may constitute tax avoidance and setting out the grounds on which they could be challenged. The Spanish Tax Authorities also publish a list of the sectors and types of transactions they will be focusing on in a given period.
This gives some guidance to the way the GAAR will be applied.
However, despite this, the GAAR has undoubtedly created uncertainty and may also have influenced the views of overseas investors. For example, at the end of the 1990s, the Spanish holding company regime was very popular and was being actively promoted by the Spanish authorities but its implementation under certain fact patterns is now being attacked under the GAAR to the extent that the US Chamber of Commerce is trying to lobby the Spanish Tax Authorities to stop the tax audits of US investors.
A key learning point from the Spanish system is that, if unchecked, the actions of the tax authorities implementing a GAAR can have a negative impact on a country’s attractiveness to overseas investors.