EU case law

Abstract

Chapter 6 aims to reach our destination on the journey through the tax jurisprudence on the concept of BO by deeply diving into EU case law. One of the important questions which is answered in the analysis of the EU tax jurisprudence on the concept of BO is whether the CJEU's interpretative guidance in its judgments on the Danish BO cases may revert the well-established trend of diverging understandings of that concept in international case law. Or whether it perhaps contributes to the diverging understanding of the concept of BO, further intertwining it with the concept of abuse. This chapter gives the affirmative answer to the latter question. So far, courts in several EU MSs, including Belgium, France, Italy, the Netherlands, Spain, Denmark and Poland have already referred, to a greater or smaller extent, to the CJEU's judgments in the Danish BO cases for the purposes of adjudicating cases on alleged abusive directive shopping. One court from EFTA - the Swiss Federal Supreme Court (Tribunal fédéral) - referred to these CJEU judgments while dealing with a potential abuse of the Swiss-EU agreement, which partially provides equivalent benefits to these under the Parent-Subsidiary Directive (PSD) and the Interest & Royalites Directive (IRD). Chapter reveals the notoriety of the CJEU's judgments on the Danish BO cases - constitute a landmark case on tax avoidance in direct taxation, which is caused more by its controversial and dubious methodology than its importance and impact on the practice of tax authorities and courts of EU Member states (MSs) and beyond. This case law represents a reversed interpretation with the aim of preventing abusive directive shopping by non-EU investors. A way to achieve that aim evidently played a secondary role. The CJEU apparently used a broad economic and antiabusive interpretation of the concept of BO to construct a bridge to the general principle of the prohibition on an abuse of rights under EU law in legal, and the factual peculiarities of the Danish BO cases. Although the entanglement of the concept of BO with the concept of an abuse of rights under the IRD and the PSD appears to be just a by-product of bridging the CJEU's reasoning on that concept with the mentioned general principle of EU law, it has already largely misguided many tax authorities and some courts of EU MSs and from Switzerland in their endeavours to identify and prevent abusive directive and treaty shopping. In particular, they have begun, or have intensified their existing approach, to apply the concept of BO in a broad antiabusive manner in lieu of a general anti-avoidance rule (GAAR) or a principal purposes test (PPT), sometimes even if that concept is neither included in domestic provisions implementing the PSD and the IRD nor in tax treaties. What is worse, some of them feel obliged to deny WHT relief under these directives and tax treaties despite the lack of a relevant antiabusive statutory legal basis for doing so. This stems from the identification of the concept of BO with the concept of abuse, and with an implicit reading of the former concept from the mentioned provisions that provide relief from withholding tax (WHT). By incorrectly following the CJEU's reasoning, some courts have also shifted the burden of proof of abuse from tax authorities to taxpayers and apply the concept of BO in an antiabusive way retrospectively. It is, therefore, no exaggeration to say that the CJEU in the Danish BO case gave fuel to the tax authorities and some courts to apply the concept of BO contrary to the EU primary and secondary law, i.e. disproportionally restricting fundamental freedoms and undermining the purposes of the IRD and the PSD.