Anti-Tax Avoidance Directive Research Articles

Intra-Group Financing: Analysis of the Coexistence of the Arm’s Length Principle with the General Anti-Abuse Rules

The deduction of interest expenses for corporate tax purposes has attracted the attention of tax policymakers and multinational enterprises owing to concerns about base erosion and profit shifting. Prior to the transposition by Member States of the Anti-Tax Avoidance Directive that established a minimum standard, national rules to limit the tax deduction of interest expenses and anti-abuse rules to tackle perceived aggressive tax planning lacked uniformity and consistency at EU level. This resulted in legal disputes, especially in cross-border intra-group financing cases when transfer pricing based on the arm’s length principle is also applied. The Court of Justice of the European Union has set general guidelines and an interpretative framework. However, the opinion of the Advocate General in the X BV case (C-585/22), suggesting a departure from the Lexel case (C-484/19), raises significant concerns. In the authors’ opinion, this approach could lead to an overreaching application of the GAAR even to arrangements subject to the arm’s length principle that, based on economic rationality and substance, is intended to treat in the same way cross-border intra-group and third-party structures and transactions.

Interpretation and Application of General Anti-Avoidance Rules after BEPS and ATAD: Nordic Perspectives

This paper compares general measures against tax avoidance and the design of general anti-avoidance rules (GAARs) in Denmark, Finland, Norway, and Sweden. It focuses on aspects such as tax benefits, tax purposes, economic substance, and breaches of legislative purpose. The paper also examines potential compliance issues between national GAARs, tax treaties, and the European Union’s Anti-Tax Avoidance Directive (ATAD). The analysis highlights variations in how the national GAARs apply economic substance considerations and the level of pragmatism allowed when assessing conflicts with the purpose of the circumvented legislation. Additionally, it shows that differences in the wording of the GAARs, such as requirements related to tax purposes, do not necessarily result in practical differences due to other GAAR elements reducing or nullifying them. For similar reasons, the authors conclude that compliance issues between the national GAARs and the ATAD GAAR’s requirements are unlikely, despite some differences in wording. Whilst focusing on the Nordic region, the paper offers insights relevant to broader international contexts, as the diverse approaches, distinctions, and issues identified mirror tax developments worldwide.

Pillar Two and BEFIT: Shocks and Opportunities for the EU Internal Market

The OECD BEPS Project has had a profound influence on EU tax policy. It is increasingly shaping the internal market and national corporate tax law. Following implementation of the Anti-Tax Avoidance Directive (2016/1164) and the Minimum Taxation Directive (2022/2523) (both stemming from the OECD’s Pillar Two set of rules), the European Commission recently brought forward, inter alia, the Proposal for a BEFIT Directive. Against the background of the harmonization competences granted to the Union in the Treaty on the Functioning of the European Union (2007), this article highlights Pillar Two, as well as the BEFIT proposal, and provides an outlook on tax accounting in general.

Share Sales under the German Controlled Foreign Company Taxation Regime – Areas of Concern and Legislative Solutions

In this note, the authors examine the implications of the German Anti-Tax Avoidance Directive Implementation Act and the new German Foreign Tax Act Application Decree for the treatment of strategic share sales under the German controlled foreign company taxation regime. The authors show that the approach taken by German lawmakers is far from perfect, and further amendments to the German controlled foreign company rules may be needed. To this end, possible legislative solutions are presented.

Article 6 of the Anti Tax Avoidance Directive – Living a Life on Its Own?

Art. 6 of the Anti Tax Avoidance Directive (ATAD) includes a minimum harmonization standard for so-called General Anti Abuse Rules (GAARs) in the field of corporate income taxation. A significant number of Member States has not enacted the provision but referred to their domestic law already fulfilling the demands of the directive. While this is possible, it could point towards a lack of awareness of what ramifications Art. 6 ATAD has on Member States’ tax systems. Against this background, the article aims to shed light on the life Art. 6 ATAD has, as part of EU law, begun to live on its own. In doing so, we will reflect on five dimensions: (i) the impact of the Philip Morris line of case law on Member States’ ability to go beyond the minimum standard included in Art. 6 ATAD, (ii) the relation between Art. 6 ATAD and the EU’s general anti-abuse principle, (iii) the impact of the EU fundamental rights protection on the application of the national implementation of Art. 6 ATAD, as well as (iv) the interpretational insights to be won from other secondary EU and (v) state aid provisions. ATAD, GAAR, abuse, tax avoidance, principle, implementation, interpretation, fundamental rights, unshell, state aid

Critical Review Of The Atad Implementation: The Implementation of the ATAD in Finland

In this article, the authors provide an assessment of the Finnish implementation of the European Union (EU) Anti–Tax Avoidance Directives (ATAD I and II) in consideration of the EU primary law and secondary law requirements. It is focused on examining the conformity between the Finnish implementation rules and the fundamental freedoms arising out of the Treaty on the Functioning of the European Union (TFEU). Although Finland already had an extensive anti-avoidance framework in place before implementing the ATAD I and ATAD II, Finland had to make some adjustments in almost all areas covered by the Directives. What is perhaps most interesting is that the Finnish general anti-abuse rule (GAAR) in section 28 of the Act on Assessment Procedure has retained the exact same textual form that it had decades previously. The essential question is as follows: Has the actual content of the general clause changed based on ATAD Article 6 and, if affirmative, in what way? Anti-Tax Avoidance Directive (ATAD), Base Erosion and Profit Shifting (BEPS), tax avoidance, anti-avoidance, controlled foreign company (CFC), exit taxation, general anti-abuse rule or general anti-avoidance rule (GAAR), hybrid mismatches, interest limitation rule, EU law, implementation

The Implementation in Sweden of the General Anti-Avoidance Rule of the Anti-Tax Avoidance Directive

Abstract According to the Swedish government, the Swedish general anti-avoidance rule that was already in place when the Anti-Tax Avoidance Directive was adopted sufficiently implements the general anti-avoidance rule of the Anti-Tax Avoidance Directive. The implementation strategy chosen raises questions of European Union (EU) law compatibility, as there are clearly differences between them. It also raises questions concerning the extent to which EU law will affect the interpretation of the Swedish general anti-avoidance rule in the future. The purpose of this article is to discuss these questions.

Targeted Measures Against Intra-Group Debt Financing: What Needs and Design Options in Light of the ATAD, Transfer Pricing Rules, and Pillar 2?

This article explores the need for interest limitation rules targeting intra-group debt financing, together with certain design options. It is concluded that most issues related to intra-group debt financing are already covered by the anti-tax avoidance directive (ATAD), transfer pricing rules and the Pillar 2 reform. Only the debt/equity balance is not addressed by these rules. Therefore, thin capitalization rules appear to be the most motivated type of targeted rule, if such rules are to be adopted. Other types of targeted rules, such as those taking into account the level of taxation of the recipient or the intention to avoid tax are hardly justified in cases covered by the Pillar 2 reform. In addition, thin capitalization rules can be designed in a manner that does not distinguish between domestic and cross-border situations, hence raising fewer issues of compatibility with the EU fundamental freedoms than other types of targeted rules that rely on the difference in taxation between domestic and cross-border loan transactions. Interest limitation, thin capitalization, ATAD, transfer pricing, GloBE, Pillar 2, BEPS, EU law

Spain Amends Interest Limitation Rules in Compliance with the EU Anti-Tax Avoidance Directive (2016/1164)

In this note, the authors discuss Law 13/2023, which transposes the EU Anti-Tax Avoidance Directive (2016/1164), in particular the general interest limitation rules for corporate income tax purposes.

Spanish CFC Rules Stray from the EU Anti-Tax Avoidance Directive (2016/1164)

This article discusses the main aspects of the Spanish CFC rules, which, following their recent amendment in connection with the transposition of the EU Anti-Tax Avoidance Directive, may give rise to problems of compatibility with EU law from two angles: (i) compliance with the ATAD transposition obligations; and (ii) respect for the fundamental freedoms of the European Union.

Earnings Stripping Rules and Limitation of Interest Deductibility Based on the ATAD

This note comments on the recent amendment to the Slovak Income Tax Act implementing, inter alia, a new interest deductibility limitation rule in respect of corporate taxpayers. This is the final provision mandated by the EU Anti-Tax Avoidance Directive (2016/1164) to be implemented in the Slovak Republic.

Substance carve-out and function-risk analysis in the ATAD’s CFC rule as two sides of the same coin: Strengths and limits of a uniform concept of abuse

When the European Union lawmakers introduce two implementation options for a mandatory anti-abuse rule – as they have done under the controlled foreign company (CFC) rule of the Anti-Tax Avoidance Directive (ATAD) – there is a real risk that these provisions will be attributed materially different abuse tests. This could call into question the assumption of a uniform EU concept of abuse materializing in the general principle of prohibition of abuse, and sow the seeds for additional forms of undesirable tax planning strategies. This article shows that the abuse tests of both implementation options of the ATAD’s CFC rule prescribe an identical abuse test and that beyond the limits of the harmonization effect, a single concept of abuse applies to all CFC situations as long as the scope of EU corporate tax law is affected. Anti-Tax Avoidance Directive, controlled foreign company rule, uniform concept of abuse

Article: DAC6: Some (potential) Incompatibility Profiles with Article 6 ATAD

From a comparative analysis of Article 6 Anti Tax Avoidance Directive (ATAD) and the Directive Administrative Cooperation (DAC)6, it would seem that the disclosure requirements of the latter are in accordance with the concept of tax avoidance (or ‘abuse of rights’) introduced by the general clause of Article 6 ATAD. Nevertheless, notwithstanding the consistency of the DAC6 with the general anti-abuse clause of the ATAD, at least two types of uncertainties appear to arise. The first concerns the consistency of the directive mentioned previously with the ultimate purpose of the anti-avoidance regulations (which is to exclusively prevent and counteract avoidance conduct). The second involves the compatibility of the disclosure requirements imposed by the directive with the general anti-abuse clauses currently in force in some European legal systems (for all, reference will be made to the Italian experience). The comparison outlined above would appear to demonstrate that the reporting obligations established by the DAC6 are overly broad and that they do not adequately take account of the ‘non-tax reasons’ that may justify the cross-border mechanism even for a transaction from which tax advantages may arise at the same time. ATAD, General Anti Avoidance Rule (GAAR), DAC-6, exchange of information, tax avoidance, Article 10-bis

Article: Economic Substance for Holding Companies in the Post- BEPS World and after Recent ECJ Case-Law: An Analysis of Developments in Europe

Over the last decade, following the Base Erosion and Profit Shifting project (BEPS), the international tax framework has been in constant change. Some of those changes, such as the introduction of the Principal Purpose Test (PPT) in the Organization for Economic Co-operation and Development (OECD) Model Convention and the Anti-Tax Avoidance Directive (ATAD I and II) in the European Union (EU) aim at denying benefits to corporate structures and transactions put in place by Multinational Corporations (MNEs) whenever those are deemed to be abusive. Recent European Court of Justice (ECJ) judgments arguably further modified the international tax framework. One of the most important elements – following those developments – commonly analysed to assess abuse is ‘economic substance’. This article focuses on the analysis of substance requirements particularly for holding companies, which typically are less robust than those of companies generating active income. After analysing the definition and object of a holding company, the author explores the current views of the OECD and the EU on this topic, including ECJ jurisprudence, to assess to what extent those have converged. The article compares different instruments and concepts, as well as their underlying principles, aiming at applying them to specific cases of cross-border holding structures. Holding companies, substance, anti-tax avoidance directive (ATAD), principle purpose test (PPT), abuse of rights, tax treaty abuse, principal purpose test (PPT), general anti-avoidance rule (GAAR), beneficial ownership

Critical Remarks On the Implementation of the Anti-Tax Avoidance Directive in The Bulgarian Legislation

The aim of the current paper is to outline some challenges regarding the implementation of the Anti-Tax Avoidance Directive (ATAD) in the Bulgarian legislation. For this purpose, specific aspects of the ATAD’s legal nature will also be examined in general. In this regard, the main applied methods used are the historical, the comparative and the logical. The author would like to draw attention to the relationship between the secondary European (EU) tax law and the relevant domestic provisions as key factors for the national tax policy regarding the tax avoidance from direct taxes’ perspective. The summary of the findings will help to estimate the efficiency of the new rules and the necessary steps for their further improvement. It will also outline the future trends on this issue.

Intellectual Property Income as “Per Se” Passive Income: A Comparative Analysis of Controlled Foreign Company Rules in the European Union before and after the Implementation of the Anti-Tax Avoidance Directive (2016/1164)

This article analyses the treatment of intellectual property income under EU controlled foreign company rules before and after the implementation of the Anti-Tax Avoidance Directive (2016/1164). It addresses the lack of common, operationalizable criteria to realize equality for digital businesses, and provides reform options, including the consideration of the OECD’s Pillar Two.

Under Which Conditions Would the ATAD’s GAAR Benefit from Automatic Decision-Making in Terms of Legal Certainty and Efficiency?

In this article, the author scrutinized the limitations on tax administrations when it comes to enhancing legal certainty and efficiency via automatica decision-making (ADM) models until the Anti-Tax Avoidance Directive and general anti-avoidance rules. A lack of clarity and certainty is identified under the Anti-Tax Avoidance Directive's general anti-avoidance rule framework. To curb this issue, the Court of Justice of the European Union's case lae is a vital source for enhancing integrability with any ADM model. Taxpayers' rights are found to be limited by transparency breaches and data misuse under ADM, mainly in respect of black-box models. An ideal hybrid approach is identified for artificial intelligence, via machine learning and traditional computer mechanisms, since it uses sufficiently less data and requires only a good model understanding. Based on a practical simulation approach, facts and patterns are extracted from case law. If certain conditions are met, findings show that, departing from the Anti-Tax Avoidance Directive's general anti-abuse rule tests, the motive and artificiality test are more prone to automatization than the defeat-of-object-of-purpose test. All of them benefit from the case law of the Court of Justice of the European Union on automated scenarios. Thus, the application of enhanced ADM model issues may be addressed by including human beings in the loop.

Italian Revenue Agency Provides New CFC Guidance

Although Italy revised its CFC legislation in 2018 (Legislative Decree 142) in order to implement the EU Anti-Tax Avoidance Directive (2006/1164), it was not until December 2021 that it provided guidance on implementation in Circular letter 18/E. This article addresses the most significant aspects of the Circular, in particular in light of comments received during the public consultation that preceded its release.

Critical Review Of The Atad Implementation: Addressing Base Erosion and Profit Shifting: The Implementation of the ATAD in Germany

Germany has been an active supporter of the Base Erosion and Profit Shifting (BEPS) Project from its initiation and has also whole-heartedly supported the implementation of core BEPS recommendations in Europe through the anti-tax avoidance directive (ATAD). However, the subsequent domestic implementation process took longer than expected. It was only in June 2021 that the last remaining pieces of the ATAD were transposed into German tax law. This article explains Germany’s perspective on the ATAD more generally and describes which parts of domestic tax law have been amended in order to ensure conformity with the directive. ATAD implementation in Germany, CFC, interest deduction limitation, GAAR, exit taxation, hybrid mismatches

Critical Review Of The ATAD Implementation: The Implementation of the ATAD in Greece

This article examines the implementation of the anti-tax avoidance directive (ATAD) in Greece. It reviews the additions to and the amendments that had to be made in Greek law resulting from the implementation of the ATAD. It does so in an analytical and critical manner by exploring all of the ATAD provisions, examining the way that they were implemented into Greek law, and how they differentiate from the previous rules (if they existed at all). It examines the compatibility of the said provisions, as they have been transposed in Greece, with EU law and their compatibility with the Greek Constitution, especially in relation to the interest limitation rule, the exit tax, and the general anti-abuse rule (GAAR) ATAD, anti-avoidance, CFC, exit taxation, GAAR, hybrid mismatches, implementation, interest limitation rule.