Treaty/Directive Shopping and Abuse of EU Law

Abstract

The article focuses on anti-abuse legislation aimed at treaty/directive shopping where non-EU nationals seek to rely on intermediate companies established in Member States with favourable tax regimes in order to repatriate dividend, interest and royalty from the EU without levy of source state withholding taxes. It is concluded that the EU law concept of abuse constitutes an important benchmark in terms of defining situations in which Member States are legitimately allowed to deny access to treaty/directive benefits. Further analyses of the case law on abuse within both tax and non-tax areas of law, however, also indicate that treaty/directive shopping does not necessarily in all situations constitute abuse under EU law, and that Member States are therefore somewhat limited in terms of introducing effective anti-abuse legislation to prevent treaty/directive shopping. The difficulties in terms of preventing 'circumvention' of national tax legislation seem to be caused primarily by the fact that some Member States provide for beneficial tax regimes that allow for tax efficient repatriation from the EU. The only feasible and effective approach against treaty/ directive shopping therefore ultimately seems to be harmonization of the rules on non-resident taxation in the Member States.