Online Financial Influencers

This is a huge topic with many angles but I summarize it as follows – if it’s too good to be true…it’s probably a scam.  Done.

Unlike some, I don’t blame the uncredentialed influencers giving bad tax advice (of course, they preface it by saying that it is not meant to be advice when by law, they do give advice).  In my mind the consumer should shoulder at least part of the blame.  You should have known that you have zero recourse if you take advice from someone unlicensed and hiding out in unregulated jurisdictions.  

Anyway, let’s talk a bit about the law.  Generally speaking, arrangements and structures made primarily for tax benefits will not stand up to scrutiny by competent tax authorities especially those in developed economies.


OECD – The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental organisation with 38 member countries.  Basically a grouping of the wealthiest countries in the world that meet to coordinate policy.  It is credited with introducing the concept of the principal purpose test or PPT.  The PPT became popular in 2015, but it is not a new concept as it is based on the “guiding principle” (see OECD Model Tax Convention (2003), commentary on Article 1, Paragraph 9.5) that the—

“… benefits of a double taxation convention should not be available where a main purpose for entering into certain transactions or arrangements was to secure a more favourable tax position and obtaining that more favourable treatment in these circumstances would be contrary to the object and purpose of the relevant provisions.”

In this context, the OECD Model Tax Convention (2017), in its commentary on Article 1, Paragraph 61, notes that the PPT codifies the guiding principle. 


The EU – The European Union has ATAD or the Anti Tax Avoidance Directive.  The Anti-Tax Avoidance Directive contains five legally-binding anti-abuse measures, which all Member States should apply against common forms of aggressive tax planning.  

One of the measures is the general anti-abuse rules (“G.A.A.R.”), which contain a P.P.T. G.A.A.R. designed to counteract aggressive tax planning when other rules don’t apply, thereby preventing companies from utilizing loopholes to bypass the tax laws.  G.A.A.R. is contained in Article 6 of A.T.A.D. and reads as follows:

  1. For the purposes of calculating the corporate tax liability, a Member State shall ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part.
  2. For the purposes of paragraph 1, an arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.
  3. Where arrangements or a series thereof are ignored in accordance with paragraph 1, the tax liability shall be calculated in accordance with national law.

As is readily apparent, G.A.A.R. is a one-way street in favor of authorities, as no standard is provided by which a genuine arrangement is distinguished from a non-genuine arrangement nor a valid commercial reason reflecting economic reality is distinguished from an invalid commercial reason.


The USA –  In the US, tax avoidance is the principal purpose of a transaction if it “exceeds in importance any other purpose” (Regs. Sec. 1.269-3(a)). Some courts have interpreted the statute to require that the tax-avoidance purpose exceed all other purposes combined, not just any other single purpose (see U.S. Shelter Corp., 13 Cl. Ct. 606 (1987); Bobsee Corp., 411 F.2d 231 (5th Cir. 1969)). Valid legitimate business purposes for forming new corporations include limiting of liability, obtaining increased borrowing power, and simplifying reporting requirements. Tax planning may be a purpose as well, as long as evading or avoiding federal income tax does not exceed in importance any other purpose.

The current international tax environment is certainly becoming more demanding for both individuals and corporations.  Not only in terms of meeting economic substance tests but also in terms of meeting business and commercial conditions.  To those that place their faith in the hands of uncredentialed teams hiding in unregulated jurisdictions?  Good luck….

Tax planning is moral. Tax avoidance is immoral. Tax evasion is illegal and objectionable.

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