SHAM TRANSACTIONS AND TAX AVOIDANCE

The word “sham” is used in a popular sense to describe purported tax abuses, especially in the context of tax haven activity of wealthy individuals and multinational corporations. In many countries, the courts have developed a judicial doctrine of sham that may overturn fake or disguised transactions that avoid tax. In this chapter, Miranda Stewart explains the origin and development of the judicial doctrine of sham and its application to tax avoidance schemes in a variety of jurisdictions. The chapter explores the relationship between the judicial doctrine of sham and statutory general anti-avoidance rules that are becoming increasingly widespread. Finally, the chapter considers the usefulness of the judicial doctrine of sham for countering tax avoidance schemes in future.