Despite UK and US efforts to legislate against and regulate tax avoidance schemes, international schemes that use at least two tax systems can resist unilateral elimination. TAIFs involve the financing or refinancing of, for example, a UK group’s foreign operations, and rely on one or more double tax treaties. Classic examples of TAIFs include dual-resident ‘double dips’, cross-border ‘repos’ and ‘hybrid debt’. Amendments to the US/UK Treaty; changes in domestic law and greater co-operation between the UK and the US have led to the closure of ‘hybrid’ TAIFs, ‘reverse hybrid’ TAIFs, some ‘double dips’, some ‘repos’ and some third country ‘pref stock’ ‘double dips’ during the last 15 years.
The US is developing regulations to further limit ‘repos’ and ‘double dips’. The UK, US and Joint International Tax Shelter Information Centre (JITSIC) are now examining deferred subscription agreements, which were created to replace ‘reverse hybrids.’ The UK and US now have systems in place to eliminate abusive TAIFs quickly and effectively. In March 2004, the UK announced legislation requiring all scheme promoters to register a scheme with the Inland Revenue when first offering it to a company. Not all TAIFs are abusive, and it is unlikely they will all be closed down. Those that survive will grow out of a rational commercial position and will not be treaty-dependent.
