Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-20 - Excise tax rules › GENERAL RULE: TAX AVOIDANCE › Section 458-20-280 - Introduction

Current through Register Vol. 24-14, July 15, 2024
This rule is organized into eight parts, as
				  follows:
* Purpose and general scope
* Transactions or arrangements specifically
				  identified as potential tax avoidance
* Relevant factors in transactions deemed unfair tax
				  avoidance
* Economic positions of participants
* Substantial nontax reasons for entering into an
				  arrangement
* Results of unfair tax avoidance
				  transactions
* Tax periods affected
* Penalty provisions
Other rules. There are three auxiliary rules that
				  address the following three types of arrangements.
* WAC
				  458-20-28001 Construction joint
				  ventures and similar arrangements described in
				  RCW
				  82.32.655(3)(a);
* WAC
				  458-20-28002 Disguised income
				  arrangements described in
				  RCW
				  82.32.655(3)(b);
				  and
* WAC
				  458-20-28003 Sales and use tax
				  avoidance arrangements described in
				  RCW
				  82.32.655(3)(c).
(1)
Purpose and general
				scope.
Chapter 23, Laws of 2010 1st sp. sess., enacted as
				RCW
				82.32.655 and
				82.32.660, as well as amended
				RCW
				82.32.090, to address unfair tax avoidance.
				Although taxpayers have the right to enter into arrangements or transactions
				that have lower tax consequences, the legislature recognized that certain
				arrangements and transactions are contrary to the intent of the taxation
				statutes. The legislation and this rule address certain identified arrangements
				and transactions that unfairly avoid taxes and prescribe specific remedial
				actions to be taken by the department in such cases. The legislation and this
				rule do not affect or apply to any other remedies available to the department
				by statute or common law, as these remedies are expressly preserved by the
				legislation.
(a)
Rule examples.
This rule includes a number of examples that identify a set of facts and then
				state a conclusion. The examples should be used only as a general guide. The
				department will evaluate each case on its particular facts and circumstances
				and apply both this rule and other statutory and common law authority. An
				example that concludes an arrangement or transaction is not unfair tax
				avoidance under this rule does not mean that the taxpayer is entitled to any
				particular tax treatment or that the arrangement or transaction is approved by
				the department under other authority. It may still be disregarded or
				disapproved by the department under other statutory or common law authority.
In addition, each fact pattern in each example is
				  self-contained (i.e., "stands on its own") unless otherwise indicated by
				  reference to another example. Examples concluding that sales tax applies to the
				  transaction assume that no exclusions or exemptions apply, and the sale is
				  sourced to Washington.
(b)
Definitions.
(i) "Potential tax
				avoidance" and "identified transaction" both refer to an arrangement or
				transaction that has the potential to be unfair tax avoidance because it meets
				the elements of an arrangement or transaction described in subsection (2) of
				this rule.
(ii) "Unfair tax
				avoidance" means an arrangement or transaction that meets the elements of an
				arrangement or transaction described in subsection (2) of this rule, and that
				is also determined under all the facts and circumstances to be unfair tax
				avoidance based on the factors identified in subsection (3) of this
				rule.
(iii) "Affiliated" means
				under common control.
(iv) "Common
				control" means two or more entities controlled by the same person or
				entity.
(v) "Control" means the
				possession, directly or indirectly, of more than fifty percent of the power to
				direct or cause the direction of the management and policies of an entity,
				whether through the ownership of voting shares, by contract, or otherwise. A
				person's power to cause the direction of management and policies includes power
				that is held by:
(A)Persons related to the
				taxpayer; and
(B) Persons with whom
				the taxpayer acts in concert to direct the management or policies of the
				entity.
(vi) "Related"
				includes:
(A) An entity's parent, owner,
				subsidiary, or affiliate under common control;
(B)An individual person's spouse,
				grandparent, parent, sibling, child, or grandchild; and
(C)In the case of a trust, the trust or a
				related person as defined in (A) or (B) of this subsection that:
(I)Has a beneficial interest in the
				trust;
(II)Has control over the
				trust or trust property; or
(III)
				Is the settlor and has retained significant control over the trust.
(vii)
				"Moving" or "moves" is any act or series of acts to ensure that income is
				received by a person who is not taxable in Washington on that income; and that
				the taxpayer or a related person receives substantially all the benefit of the
				income. Such acts may include without limitation: An assignment, transfer,
				lease, or license of income-producing assets; the sale of property or services
				at less than could be obtained in an arm's length transaction; and capital
				contributions and distributions from a capital account.
(viii) "Specific written instructions" means
				tax reporting instructions that specifically address an arrangement or
				transaction and specifically identify the taxpayer to whom the instructions
				apply. Specific written instructions may be provided as part of an audit, tax
				assessment, determination, closing agreement, or in response to a binding
				ruling request.
Specific written instructions will not be construed as
				  revoked by operation of this rule or its statutory authority, but the
				  department may revoke specific written instructions by written notice to the
				  taxpayer.
(ix) "Person" or
				"company" has the same meaning as provided in
				RCW
				82.04.030.