Anti-Tax Avoidance Directive Research Articles

Exit Taxation: From an Internal Market Barrier to a Tax Avoidance Prevention Tool

Article 5 of the Anti-Tax Avoidance Directive (ATAD) seems at first glance to be a codification of the exit taxation case law developed by the Court of Justice of the European Union, mainly in the landmark judgments in the cases National Grid Indus (C-371/10, 29 November 2011) and DMC (C-164/12, 23 January 2014). And yet this provision constitutes a major development within EU tax law, which is illustrated by the fact that the deadline for transposition falls one year later than the one applicable to the other provisions of the ATAD. The main reason is without doubt the shift from case law regarding the question whether and under which conditions Member States may impose exit taxes on unrealized capital gains, to a directive prescribing that the Member States have to subject such unrealized capital gains to exit taxation (although it is not determined how the capital gains should be taxed and how the applicable tax rate should be determined). Additionally, the exit taxation provision includes a ‘step-up’ for tax purposes in order to avoid double taxation of the unrealized capital gains on the assets that are transferred across the border. This contribution analyses the structure of the exit taxation provision of the ATAD in the light of the existing case law in this domain.

The General Anti-Abuse Rule of the Anti-Tax Avoidance Directive: An Analysis Against the Wider Perspective of the European Court of Justice’s Case Law on Abuse of EU Law

A general anti-tax avoidance rule (GAAR) has been adopted as part of the Anti-Tax Avoidance Directive of 12 July 2016 (ATAD). This article first sets out the concept of abuse of (tax) law and its role within the European Union legal order, based on the jurisprudence of the European Court of Justice (section 2). Subsequently, it establishes a recent trend towards mandatory GAAR codification. The traditional approach whereby secondary EU laws merely authorizes national GAARs to combat abusive practices is replaced by an obligation for Member States to eliminate abusive tax practices (section 3). The mandatory GAAR that was included in the amended Parent-Subsidiary Directive of 2015 seems to have set a precedent which the ATAD has extrapolated to the corporate income taxation of the Member States. Finally, section 4 provides a critical analysis of the scope, requirements and legal consequences of the ATAD GAAR, whereby questions and concerns are raised showing that, despite its remarkably swift adoption, interpretation and implementation of the new provision are far from self-evident.

Tax Avoidance through Controlled Foreign Companies under European Union Law with Specific Reference to Poland

AbstractThis article demonstrates that tax avoidance via controlled foreign companies (CFCs) established in the most favourable tax environments among EU Member States such as Ireland, Luxembourg, the Netherlands, and Cyprus, remains a considerable problem. Not only does it affect taxpaying residents in the Member States but, indirectly, all taxpayers regardless of their EU affiliation, US multinational enterprises (MNEs), for example. Focusing on the use Polish taxpayers make of CFCs, this study undertakes a detailed legal analysis of the problem of tax avoidance under EU law by examining empirical data and EU law on tax avoidance. The choice of this topic is largely justified by the exponential rise in tax avoidance schemes through CFCs involving Polish taxpayers since the country’s accession to the EU. The legal analysis brings to light a series of weaknesses in the current EU law that make it possible for both EU and non-EU taxpayers to avoid taxation. As a solution to this problem, the author suggests that CFC rules should be designed so as to tax only “tax avoidance income” from CFCs. This would ensure their compliance with EU law as well as an effective prevention of tax avoidance via CFCs within the framework of EU law. Interestingly, the solution follows from the author’s interpretation of the concept of “wholly artificial arrangements” in favour of the internal market rather than from Action 3 of Base Erosion and Profit Shifting (BEPS) project or Anti-Tax Avoidance Directive as adopted by the Council on 12 July 2016.

International Tax Avoidance – Introduction

Abstract Tax avoidance and evasion is a hot topic. On the evasion (illegal activity by individuals) front, the various leaks culminating in the Panama Papers have once again revealed the scope of evasion by the global elite. Gabriel Zucman conservatively estimated the annual revenue loss at $200 billion. On the tax avoidance (legal activity by corporations) front, the OECD BEPS project has estimated the scope of avoidance by multinationals at between $100 and $240 billion per year. By comparison, total US corporate tax revenues are about $400 billion per year. The articles in this volume reflect various aspects of these troubling phenomena (from the perspective of citizens who pay their tax bills and bear the burden of budget cuts by governments starved of revenues). Yuri Biondi writes from an accounting perspective about the firm as an Enterprise Entity and the tax avoidance conundrum. Matthias Thiemann and Tim Buettner discuss the political economy of the OECD BEPS project. David Quentin discusses tax avoidance in transnational supply chains of multinationals. Blazej Kuzniacki analyzes tax avoidance in EU law, which has been the focus of a lot of activity recently (e. g., the proposed Anti-Tax Avoidance Directive by the EU Commission). Amir Pichhadze and myself discuss the idea of statutory General Anti-Abuse Rule (GAAR) in the US and Canadian contexts.

ATAD 2: Anti-Tax Avoidance Directive

This article addresses the European Commission’s 25 October 2016 proposal for a Council Directive to address hybrid mismatches with third countries. In addition to discussing the initial proposal of the Commission, the author explains the pitfalls of the proposed Directive and the concerns and positions of selected Member States. Further, comments are made on the work being undertaken by the Council, together with the Member States and with the support of the OECD, to strengthen the Commission’s proposal.

The EU Anti-Tax Avoidance Directive and the Base Erosion and Profit Shifting (BEPS) Action Plan: Necessity and Adequacy of the Measures at EU level

The article scrutinizes the recently adopted Directive 2016/1164/EU (also known as the Anti-Tax Avoidance Directive) in the light of BEPS Actions 2, 3 and 4. For this particular purpose, after a brief overview of the general policy objectives of the Directive, the analysis is focused on the measures of the Directive that refers explicitly to the content of these actions, namely the interest limitation rule in Article 4, the Controlled Foreign Company (CFC) rules in Articles 7 and 8 and the anti-hybrid mismatch rule in Article 9. In respect to each of these provisions, the article illustrates to which extent they are consistent with the corresponding provisions in the BEPS Action Plan and whether they comply with the initial objects and scope of the Directive. Finally, it is assessed their compatibility with the EU primary law and the jurisprudence of the European Court of Justice.

The Reasonableness Test of the Principal Purpose Test Rule in OECD BEPS Action 6 (Tax Treaty Abuse) versus the EU Principle of Legal Certainty and the EU Abuse of Law Case Law

The OECD BEPS Action 6 report contains a principal purpose test rule (PPT rule) for the purpose of combating abuse of tax treaties. This PPT rule is also included in the OECD Multilateral Instrument.The PPT rule is (amongst others) applicable when ‘it is reasonable to conclude’ that a benefit (granted by a tax treaty) was one of the principal purposes of any arrangement/transaction. This requirement contains two elements: the reasonableness test and the principal purpose test.In literature it is observed that (i) the reasonableness test of the PPT rule could be contrary to the European Union’s principle of legal certainty; (ii) that the OECD PPT rule gives the tax authorities too much discretion and, therefore, is not in line with EU law and (iii) there is doubt whether the OECD PPT rule contains a genuine economic activity test and therefore is in contravention of the abuse of law case law of the CJEU.In this contribution, I defend that none of the above-mentioned reasons the OECD PPT rule is contrary to EU law. The only potential problem I see is that the OECD PPT rule is broader (no artificiality required) compared to the GAARs in Anti-Tax Avoidance Directive and the Parent–Subsidiary Directive.

The Impact of the ATAD on Domestic Systems: A Comparative Survey

This article provides an analysis of the Anti-Tax Avoidance Directive (2016/1164) of 12 July 2016. Following a discussion of the Directive’s main features (the interest limitation, exit taxation, general anti-avoidance, CFC and hybrid mismatch rules), a survey is provided of the impact of the Directive on the tax systems of various Member States. It concludes with a comparative analysis and reflections on the manner in which the Directive will be transposed by the Member States.

Free Movement of Capital: The European Union Anti-Tax Avoidance Package and Brexit

In this article, the meaning and scope of free movement of capital under Article 63 of the Treaty on the Functioning of the European Union is (re) assessed, taking Brexit as an example. The scenario assumed herein is that Brexit will be extreme. Within this scenario, the United Kingdom (UK) can be handled as the USA or Brazil, for example. In the bilateral relationship between the UK and the European Union (EU) Member States, there will be no legal obligations for the UK deriving from either primary or secondary law, whereas the EU Member States are still forbidden to restrict capital movements from and to the UK. The CFC Rule in the Anti Tax Avoidance Directive, the EU standard on exchange of information, EU Good Governance Clauses, and their application in the Brexit extreme scenario are also discussed.

Shortcomings in the European Union Merger Directive: Lessons for Future Harmonization

The European Union (EU) has recently demonstrated with the Anti-Tax Avoidance Directive (ATAD) that it can deliver harmonized measures in areas where controversies exist. With even further-reaching measures, such as the common consolidated corporate tax base (CCCTB) and the Financial Transaction Tax (FTT), (re)gaining momentum it is sensible to learn from the experiences with previous harmonization measures. One of them is the EU Merger Directive. This article will address five broad shortcomings that have been identified in this directive and conclusions will be drawn from them. The lessons to be learned from the EU Merger Directive – and those would apply to any future harmonization measure – are, amongst others, that the objective of the measure has to be defined razor sharp, that minimum harmonization measures may still lead to distortions among the Member States, and that it should be crystal clear on which foundations certain demarcations are made.

Taxation of Controlled Foreign Companies in Context of the OECD/G20 Project on Base Erosion and Profit Shifting as well as the EU Proposal for the Anti-Tax Avoidance Directive – An Interim Nordic Assessment

Abstract Recently, the controlled foreign company (CFC) rules have gained increased attention; as such, rules play an important role in the ongoing efforts of the OECD/G20 and the European Commission with respect to addressing base erosion and profit shifting (BEPS). In this context, the article revisits the CFC regimes of the Nordic countries in order to assess whether these regimes are in line with the recommendations from the OECD/G20 and to determine whether Sweden, Finland, and Denmark, as EU member states, will have to make amendments if the commission’s proposal for an Anti-Tax Avoidance Directive is adopted in its current form. It is concluded that the Nordic CFC regimes in many ways already are in line with the recommendations as well as the directive, but also that certain amendments have to be made.

Anti-Tax Avoidance Directive (2016/1164): New EU Policy Horizons

This article discusses the genesis of the Anti-Tax Avoidance Directive (2016/1164), its scope and main provisions, as well as some perspectives on future policy making.

EU Anti-Tax Avoidance Package: Impacts on Financial Institutions

The EU Anti-Tax Avoidance Package, and in particular the EU Anti-Tax Avoidance Directive, will have wide-ranging impacts on the financing and tax affairs of financial institutions. This Directive was formally adopted at the ECOFIN meeting on 21 June 2016, with implementation expected to be effective by 1 January 2019.

The Business Views on Base Erosion and Profit Shifting and Its Implementation in the Group of Twenty and European Union

To decrease uncertainty and the risk of juridical double taxation, base erosion and profit shifting (BEPS) must be implemented and administered in a uniform way globally. Unfortunately, the European Union (EU) countries have embarked on a diverting path, with additional measures taken and with their own interpretation of some BEPS action points. The Directive (Anti-Tax Avoidance Directive) is furthermore a minimum standard for individual countries to be adjusted as individual Member States see fit. In the United States, on the other hand, there is considerable hesitation to introduce measures not already enacted earlier. Many countries in Asia have adopted a wait and see approach. The new and clarified rules of how to split taxable profit between countries will also be used in administrative procedures like state aid investigations in the EU. The Organisation for Economic Cooperation and Development (OECD), at request of Group of Twenty (G20), is aiming for uniformity but faces a tremendous challenge. An increase in tax disputes between countries is to be expected.

The Impact of European Union Law on the Possibilities of European Union Member States to Adapt International Tax Rules to the Business Models of Multinational Enterprises

European Union (EU) law has played a key role in enforcing the EU base erosion and profit shifting (BEPS) agenda, while also introducing limits to the application thereof. The European Commission (EC) sees a clear link between aggressive tax planning and competition law. Against this background, EU State aid law has been employed to challenge the business models of multinational enterprises. At present there are a number of opened cases, where a decision either by the EC or the General Court of the EU is pending. These cases deal with the application of EU State aid law on inter alia tax regimes (e.g. exemption of interest and royalty payments), transfer pricing, and the misapplication of law. The approach the EC is taking in those cases, especially in matters of competence, raises a number of questions, which can only be addressed in a definitive manner by the EU Courts. Similar issues may arise in the field of positive harmonization through the recently adopted Anti-Tax Avoidance Directive (ATAD). For instance, given that a general anti-abuse rule has been included in Article 6 ATAD and has therefore become EU law, the EC and the EU Courts are competent to decide whether it should be applied in certain situations, and whether non-application thereof may amount to unlawful State aid. However, EU free movement law should be respected by Member States when implementing anti-BEPs measures. Accordingly, so far, the limitation on benefits clause contained in double tax treaties has been challenged by the EC, while the compatibility of the anti-avoidance rules against hybrid mismatches with EU free movement law is questionable.

Interest Limitation under the Adopted Anti-Tax Avoidance Directive and Proportionality

This article scrutinizes the compatibility of the interest limitation rule the European Union (EU) legislature included in its anti-tax avoidance directive adopted on 12 July 2016 with the proportionality principle. Under its settled case law concerning domestic interest limitation rules restricting a fundamental freedom for purposes of combating tax avoidance practices, the European Court of Justice (ECJ) holds that such measures do not comply with the principle of proportionality if they, amongst others, either do not provide the taxpayer with an opportunity to substantiate the commercial reasons for not entering into an arm’s length loan arrangement, or restrict the deductibility of more interest than an arm’s length interest. As the rule does neither adhere to the counterevidence rule nor to the arm’s length principle, it is questionable whether its status as secondary EU law suffices for purposes of disregarding the aforementioned limitations set by the ECJ. Amongst others, the author takes the view that on the basis of ECJ case law, the interest limitation rule may be considered incompatible with the proportionality principle.

Article 4 of the EU Anti Tax Avoidance Directive in Light of the Questionable Constitutionality of the German “Interest Barrier” Rule

In this note, the authors discuss the decision of the Federal Fiscal Court in I R 20/15 (14 October 2015), in light of the proposed EU Anti Tax Avoidance Directive.

The Switch-Over Provision in the Proposal for an Anti-tax Avoidance Directive and Its Compatibility with the EU Treaty Freedoms

In this article, the author discusses the switch-over provision for shareholders of low-taxed entities in third countries in the proposal for an Anti-tax Avoidance Directive. She discusses some policy aspects and subsequently assesses whether the measure is in accordance with the EU Treaty Freedoms.

EU Commission Releases Draft Directive on BEPS: A Critical Analysis from a Luxembourg Perspective

On 28 January 2016, the European Commission presented its Anti Tax Avoidance Package, one of the core pillars of which is a Draft EU Anti Tax Avoidance Directive or “Anti-BEPS” Directive. The Draft Directive proposes anti-tax avoidance rules in six specific areas, which are intended to be implemented by each EU Member State. This article provides an overview of the proposed provisions and analyses how they may impact Luxembourg tax law.