According to the IRS, the definition of ATAT is “An abusive tax avoidance transaction includes the organization or sale of any plan or arrangement promoting false or fraudulent tax statements or gross valuation misstatements, aiding or assisting in the preparation or presentation of a return or other document to obtain tax benefits not allowed by law, and actions to impede the proper administration of Internal Revenue laws. This general definition includes both tax shelters as defined in various sections of the IRC and other types of abusive tax promotions. These strategies may be organized and marketed, often through the internet. The definition is not merely limited to activities that reduce tax liability but may also include transactions that conceal assets and/or income from Collection.”
That, to me, is a lot of words that could be simply states as “any transaction that lacks a legitimate business purpose other than avoidance of paying to income and other taxes”. Let’s see if we can find a hypothetical example. Let’s assume that a group of business people who are citizens and tax residents of Country “A”, and Country “A” does not tax income earned outside the country until it is brought back into Country “A”. So if an internet business is established by residents of Country “A” but in a country that does not impose income tax (Country “B”), the profits of the business are not taxed anywhere but somehow the money needs to go back into the pockets of the stakeholders of the business but they don’t want to pay tax to country “A” or anyone for that matter. So if the business on Country “B” remits the profits to the stakeholders who live in Country “A” it gets taxed. But let’s assume that Country “A” has a treaty with Country “C” that exempts from income tax any dividends paid from a company formed in Country “C” to a stakeholder of that country who lives in Country “A”. So they set up a blocker that is owned by the original Country “A” stakeholders and that entity now owns the entity in Country “B”. So far that sounds like just sound tax planning.
But what if the money use to invest in the internet company comes from different people in different countries. As it is an internet company who knows who does what and bills for a variety of “services” are received from around the world and that money is paid to them via some international payment company similar to a global form of PayPal. Not you have hundreds of payments going around the world into different bank accounts in different countries and in different currencies (including crypto currencies).
To me none of the above transactions are actually legitimate business purpose transactions and only structured for the purpose of earning profits without paying tax and distributing those profits in a manner in which they are not taxed. That, in my mind is Abusive Tax Avoidance.