Anti-tax Avoidance Research Articles

The Relationship between Taxation, Accounting and Legal Forms

Abstract Legal frameworks have an enormous influence on the concrete choice of legal form, especially in (multinational) groups of companies. For example, tax regulations and accounting standards directly influence the legal enterprise’s structure, including the shareholding structures. However, the tax burden must not be understood as a static or a fixed quantity determined in advance. This is because the design or choice of companies’ legal form can also be used as a tool to gain competitive advantages and optimise the tax burden or after-tax profit. Accordingly, the tax-optimising choice of legal form can be used as an instrument for tax planning and internal financing (reduction of tax payments and optimisation of the group tax rate). Therefore, for groups of companies and multinationals, the question that arises is how and within what limits can they make effective use of the cross-border tax rate differential, particularly through structuring their legal form. However, using cross-border tax advantages may be prevented by the controlled foreign corporation (CFC) taxation, called the Anti Tax Avoidance Directive (ATAD), which was introduced in all EU member states from 1 January 2019 onwards due to European law: Art. 7, 8 of Directive 2016/1164 to combat tax avoidance practices. In multinational companies, there is a tension between the tax-optimising choice of legal form, including the structuring of shareholdings, and CFC taxation. It is important to identify the CFC taxation requirements according to ATAD or the respective member state of residence and to avoid these requirements when structuring individual circumstances or investments. An important finding here is that the factual prerequisites for CFC taxation under ATAD are not aligned with the accounting rules, especially controlling interest and control participation. Finally, from an overall perspective, tax-optimised corporate groups’ structure or the legal architecture is not a static variable but an evolving system composed of tax-optimised sub-systems or subgroup structures. This connection between the choice of legal form, shareholding structure and the legal system, tax planning, and tax optimisation in multinational companies is analysed and evaluated based on the Austrian CFC taxation (Sec. 10a CITA) and the German CFC taxation (Sec. 7 FTTA). Furthermore, the implications for companies and society, and the legislator, are highlighted. The article also deals with the relationship between law and tax planning.

The Development of the Doctrine of Abuse of Law and the Danish Cases: Time to Shift the Focus from Non-Genuine Arrangements to Single (Abusive) Transactions?

The article first retraces the history of the standards adopted under the EU abuse of law doctrine to identify abusive conduct executed by the taxpayer. Then, the authors progress from the differences between the rules contained in the Anti-Tax Avoidance Directive (ATAD) and the findings of the CJEU in the Danish Cases, which constitute the last steps of that history, and elaborate on some proposals in order to update the former in light of the judges’ findings. They propose shifting the focus from non-genuine arrangements to single (potentially abusive) transactions, also taking into consideration the criteria relied upon in transfer pricing and controlled foreign company (CFC) legislation to ascertain whether economic substance is present. abuse of law, ATAD, Danish Cases, GAAR, arrangement, transaction, fundamental freedoms, genuinity, artificiality, transfer pricing.

Poland’s Implementation of EU GAAR Compromises Constitutional and EU Principles

One of the most potent legal instruments for preventing tax avoidance is Article 6 (general anti-avoidance rule, EU GAAR) of the Anti-Tax Avoidance Directive (ATAD). This article analyses Poland’s very restrictive implementation of EU GAAR to demonstrate that the implementation, although permissible under Article 3 ATAD, has led to the protection of the Polish tax base at the cost of constitutional and EU principles. The main purpose of this article is to reveal the incompatibility of the Polish GAAR with the constitutional and EU principles of legal certainty and proportionality and to draw consequences from it. Furthermore, the article aims to show that the EU should have taken a different approach to the EU standard for abuse of tax law. GAAR, ATAD, tax avoidance, Poland, constitution, EU primary law, CJEU, proportionality, certainty, repressive.

AURES Holdings a.s. (C-405/18) at the Intersection of Cross-Border Loss Relief, Corporate Exit Taxation and Dual Residency Mismatches

This contribution examines the decision of the Court of Justice of the European Union (CJEU) of 27 February 2020 in Case C-405/18 AURES Holdings a.s. on the application of the Marks & Spencer final losses doctrine to dual resident companies that transfer their treaty residence (place of effective management) to another Member State. The CJEU applied a two-step comparability analysis based on Timac Agro and Bevola to exclude current not-subject-to-tax emigration losses (not linked to the ability-to-pay of the immigrated company) from its preferred approach to always take final losses into account somewhere in the internal market. The immigration state was not forced to apply its taxing powers asymmetrically over emigration losses to prevent a conflict with the principle of fiscal territoriality in exit tax cases and international tax practice against base erosion and profit shifting (BEPS). If the immigration state still sovereignly decides to take these losses into account pursuant to a bilateral tax treaty, Article 9(b) of the Anti-Tax Avoidance Directive (ATAD) on dual residency mismatches prevents dual loss utilization. ATAD, Aures, Bevola, comparability, conversion, exit tax, hybrid mismatch, final losses, POEM, Timac Agro.

Real Responses to Anti-Tax Avoidance: Evidence from the UK Worldwide Debt Cap

We analyze how multinational firms reallocate real operations and debt across their affiliates in response to anti-tax avoidance policies. The UK introduced a worldwide debt cap in 2010, generating a quasi-natural experiment that limited interest deductibility for a group of multinational firms. We find that multinationals affected by the reform reduced the amount of debt held in the UK and increased debt held abroad. Affected multinationals reallocated a share of their real operations away from the UK. Our findings provide causal evidence for tax-motivated debt and real activity reallocation within multinationals and show how multinationals can circumvent tax avoidance regulations.

Przeciwdziałanie unikaniu opodatkowania

Klauzula przeciw unikaniu opodatkowania narusza zasady ustrojowe, które stanowią o respektowaniu przez prawodawcę zasady demokratycznego państwa prawnego (art. 2 Konstytucji). Neguje, i to w sposób oczywisty, jaskrawy, treść zasady zaufania do państwa i stanowionego przez nie prawa podatkowego. Oznacza to, że klauzula stoi w sprzeczności z art. 2 Konstytucji w zw. z art. 31 ust. 3 Konstytucji. Tym samym, został złamany konstytucyjny nakaz, który zobowiązuje prawodawcę do precyzyjnego, tj. jednoznacznego w treści, zakresu i przesłanek dopuszczalnej ingerencji w prawa podmiotowe podatnika. Arbitralne wkroczenie w wolności gwarantowane Konstytucją, w tym wolności gospodarcze, jest tym bardziej niebezpieczne dla podatnika, że przyjęte w klauzuli unormowania proceduralne, które mają chronić podatnika przed nadużyciem stosowania klauzuli, są tylko pozorne i mają charakter złudy prawnej. A to narusza zasadę wzajemnej lojalności w relacjach państwo–podatnik. Klauzula ma kwalifikowane wady, albowiem: a) nie zapewnia bezpieczeństwa prawnego podatnikowi, b) nie respektuje zasady określoności przepisów prawa podatkowego, c) nie respektuje zasady wzajemnej lojalności w relacjach państwo a podatnik, d) narusza także zasadę zaufania do państwa i stanowionego przez nie prawa podatkowego. Z winy prawodawcy konstrukcja prawna klauzuli jest niejasna, nieprecyzyjna, wieloznaczna, a to stwarza niepewność, co do praw i obowiązków podatnika, a zatem stwarza podstawy do arbitralnych rozstrzygnięć organów podatkowych, albowiem swoboda luzu decyzyjnego organu podatkowego jest nadmierna.

EU Members States legislation harmonization relating to controlled foreign companies in the area of anti-tax avoidance

The article is dedicated to the general aspects and peculiarities of the EU Member States legislation harmonization aimed at preventing avoidance of taxation by multinational companies through foreign entities or permanent establishments controlled by parent companies themselves or together with their associated enterprises. On the reasonable basis, the special emphasis was placed on the act of secondary legislation playing the key role in this important area, namely, Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market with regard to the controlled foreign companies rules. This Directive came into force on 1January 2019 and became an integral part of EU Anti-Tax Avoidance Package. Harmonization at the regional European level is being provided and, consequently, in-depth researched in the context of OECD/G-20 global Action Plan on Base Erosion and Profit Shifting. From methodological point of view, OECD Final Report on Action 3 BEPS was accepted as the analytical prism allowed the quintessence of constitutive rules of above mentioned EU Anti-Tax Avoidance Directive to be discovered properly. Accordingly, the comparative analysis was conducted through the lens of provisions of vast majority of aforesaid Final Report’s building blocks, more specifically, Rules for defining a CFC, Definition of CFC Income, Rules for computing income as well as CFC exemptions and threshold requirements, in particular, relating tax rate exemption, anti-avoidance requirement, de minimis threshold. Focusing attention on different important aspect related to CFC Income, it’s discovered special considerations of non-distributed income inclusion in the Member State taxpayer’s tax base of certain categories of passive income (interest, royalties, dividends, income from financial leasing, banking, invoicing companies, etc.) or arising from non-genuine arrangements with correlation, respectively, to entity and transaction approaches. Without limiting the foregoing, it’s discovered some argumentative issues considering European researchers as weaknesses of ATAD. It’s offered an illustration cause and effect relationship between non-recognition of passive income to be attributed to controlling parties and CFC’s substantive economic activity as far as there is reason to believe that it refuses to honor case law of the Court of Justice. Key words: controlled foreign company, passive income, substantive economic activity, non-genuine arrangement.

Implementation of the EU Anti-Tax Avoidance Directive Regarding Hybrid Mismatches in Romania

This article provides an overview of the main provisions of the EU Anti-Tax Avoidance Directive (2017/952) (ATAD 2) as transposed into Romanian tax law. It highlights key areas of attention and the potential impact of such transposition on existing structures.

Criteria for the Application of Anti-Abuse Provisions to Holding Companies under ECJ Case Law: Their Significance in Interpreting and Applying ATAD Provisions

In this article, the author evaluates the significance of the existing ECJ case law in respect of the interpretation and application of the EU Anti-Tax Avoidance Directive (2016/1164) provisions to holding companies.

Commission

This overview highlights the Commission’s (i) launch of public consultations on energy taxation and a carbon border adjustment mechanism; (ii) proposal for a special VAT identification number for businesses in Northern Ireland; (iii) extension of VAT and customs duties reliefs for imports of medical equipment; and (iv) first implementation report on the EU Anti-Tax Avoidance Directive (2016/1164).

MULTINATIONAL TAX AVOIDANCE AND ANTI-AVOIDANCE ENFORCEMENT: FIRM-LEVEL EVIDENCE FROM DEVELOPING ASEAN COUNTRIES

We use firm-level data from ASEAN5 to examine the significance of tax-motivated profit shifting by multinational enterprises and to analyze how anti-avoidance measures mitigate the profit shifting. We show that (1) tax-motivated profit shifting is statistically and economically significant, especially for manufacturing firms, (2) auditing and transfer-pricing scrutiny is more effective in reducing profit shifting than documentation requirement alone and (3) tax-motivated profit shifting is prominent for large firms, while anti-tax avoidance measures result in the absence of profit shifting detected from small manufacturing firms. The findings have important implications for developing countries with weak governance but dependent on MNEs.

An Overview of Transfer Pricing in Extractive Industries in Tanzania

The extraction of natural resources such as minerals and petroleum is expected to create a stream of tax revenues to the government. However, Multi-national Corporations (MNCs) in the extractive industry devise several techniques to avoid paying taxes in countries where they operate. One of the techniques adopted by MNCs to avoid tax is transfer mispricing. This article examines the legal mechanisms in Tanzania applied to deal with transfer pricing issues in the extractive sector. In its analysis, the article starts by providing a general overview of the concept of transfer pricing and how it may result into abusive transfer pricing. Then, the article examines the transfer pricing regime applicable to both Mainland Tanzania and Zanzibar. Finally, the article identifies the pitfalls in the Tanzanian transfer pricing regime and recommends the appropriate remedial measures. Keywords: transfer pricing, extractive industry, arm’s length, anti-tax avoidance

Dysfunctionality from the Sovereignty Conflict in the ATAD GAAR

AbstractDeriving from the internal structure of Article 6 of the EU Anti-Tax Avoidance Directive, the abuse of tax law is overcome in two stages—elimination and requalification. While the elimination stage (addressinghow not to tax) is harmonized by the EU for the purpose of fighting against aggressive tax planning, the requalification stage (addressinghow to tax then) remains under the sovereignty of Member States. Applying such a two-level mechanism becomes problematic if there is a mismatch between these two stages so that the harmonized GAAR requires elimination of an arrangement, but the domestic law does not provide an alternative basis for taxation of it. This raises a question of whether Article 6 of the ATAD requires the Member States to impose new taxable objects regardless of the literal interpretation of Article 6(3) which recognizes the full sovereignty of Member States to decide what to tax. By applying interpretation methods used by the CJEU in its case-law—i.e., literal, contextual, teleological and comparative—the author argues that the answer to this question is “no”. This is supported by all the interpretations under the above method, while the dysfunctionality of these two stages could be overcome by treating the economic reality test as an objective test regardless of the notion of “commercial reasons” used in Article 6(2).

Klauzula ogólna przeciwdziałająca unikaniu opodatkowania zawarta w dyrektywie ATAD: ustalenia na podstawie literatury włoskiej

Celem niniejszego opracowania jest usystematyzowane zaprezentowanie czytelnikom z całego świata niektórych głównych punktów włoskiej debaty w sprawie GAAR. Artykuł zawiera przede wszystkim ogólny zarys „włoskiego spojrzenia” na GAAR, którą w Europie wdrożono dyrektywą w sprawie przeciwdziałania unikaniu opodatkowania (ATAD). Włochy wprowadziły już własną GAAR w 2015 r., w związku z czym uznano, iż nie ma konieczności zmieniania jej w świetle przepisów ATAD, co sprowokowało burzliwą dyskusję na temat kompatybilności tych dwóch przyjętych norm.

Zbiegający się globalny standard przeciwdziałania nadużyciom prawa podatkowego: Czy GAAR (ATAD) i PPT (MLI) powinny być stosowane w podobny sposób?

Potrzeba znalezienia środków z podatków na finansowanie funkcjonowania państw oraz coraz większa nieufność polityków i opinii publicznej wobec schematów optymalizacji podatkowej przedsiębiorstw wielonarodowych (multinational enterprises, MNE) i najbardziej majętnych osób fizycznych (high-net worth individuals, HNWI) wywołały bezprecedensowy entuzjazm polityczny dotyczący przeciwdziałania międzynarodowemu unikaniu opodatkowania. Ten entuzjazm przerodził się w mandat polityczny udzielony OECD przez G20 w 2012 r. Wśród mnogości propozycji środków prawnych przeciwdziałających unikaniu opodatkowania opracowanych przez OECD w ramach projektu BEPS, za kluczowe należy uznać: test jednego z głównych celów (principal purposes test, PPT) z MLI i ogólną klauzulę przeciwdziałania unikaniu opodatkowania (general anti-avoidance rule, GAAR) z unijnej dyrektywy przeciwdziałającej praktykom unikania opodatkowania (anti-tax avoidance directive, ATAD). Celem niniejszego artykułu jest znalezienie odpowiedzi na główne (tytułowe) pytanie badawcze: Czy GAAR (ATAD) i PPT (MLI) powinny być stosowane w podobny sposób? Hipotezą pozytywnie zweryfikowaną w ramach niniejszego opracowania jest to, że: im bardziej zbiegające się (koherentne) będzie stosowanie GAAR i PPT, tym mniej praktyk unikania opodatkowania i sporów wynikających z tego zjawiska będzie występować między podatnikami i organami podatkowymi. Istnieje jednak poważne zastrzeżenie: GAAR i PPT powinny być stosowane zgodnie z ogólną zasadą przeciwdziałania nadużyciom (general anti-abuse principle, GAAP) wynikającą z orzecznictwa Trybunału Sprawiedliwości Unii Europejskiej (TSUE), a nie zgodnie z PPT zaprojektowanym przez OECD. Tylko takie podejście do stosowania GAAR i PPT może zapewnić właściwą równowagę między interesami fiskalnymi różnych państw a swobodami gospodarczymi podatników. Konstatacja ta wynika z analizy treści i struktury GAAR i PPT, celów polityki podatkowej wyrażonych w preambułach do MLI i ATAD, orzecznictwa Trybunału Sprawiedliwości Unii Europejskiej (TSUE), Komentarza OECD do Modelu Konwencji OECD oraz literatury.

Corporate Tax Changes

This note discusses changes to the Corporate Income Tax Act that introduce new tax rules for transfers between a division of an enterprise in the country and another division of the same enterprise located outside the country relating to implementation of the EU Anti-Tax Avoidance Directive (2016/1164) and amendments relating to implementation of EU Directive (2017/952) as regards hybrid mismatches with third countries.

Reform of the German Controlled Foreign Company Rules

This article provides an overview of the reform of the German controlled foreign company rules, which, inter alia, is aimed at implementing the CFC regime of the EU Anti-Tax Avoidance Directive (2016/1164).

Intertemporal issues related to anti-tax avoidance clause on the example of the resolutions of the Council for Anti-Tax Avoidance of 18 December 2019

The article discusses the line of the Council for the Prevention of Tax Avoidance in terms of intertemporal issues of the anti-tax avoidance clause and decisions of the creation moment of the tax benefit. The considerations refer to the Council resolutions No. 3/2019-5/2019 of 18 December 2019 and constitute the part of the first opinions of this institution regarding the application of the art. 119a of the Tax Ordinance Act.

Double Taxation Resulting from the ATAD: Is There Relief?

Pursuant to the preamble of the Anti-Tax Avoidance Directive (ATAD), its primary purpose is to combat abusive practices in the EU and ensure that tax is paid where profits are generated without undermining the functioning of the internal market through double taxation (ATAD, recitals 1 and 5). Regardless of the aim of avoiding the creation of a double tax burden on taxpayers, the ATAD does not obligate Member States to effectively eliminate the aforesaid burden. It is, therefore, a taxpayer’s responsibility to identify the correct source of law for providing relief from double taxation. This article focuses on the double taxation that is caused by the implementation of the ATAD and identifies the correct source of law, if possible, to provide relief for such double taxation. As the potential sources of law, the OECD MC (OECD Model Tax Convention on Income and on Capital 2017 (Full Version) (OECD Publishing 2019)), and European Union legislation have been analysed. The scope of this article is limited to the rule on interest deduction limitation and controlled foreign company (CFC) rules as provided in the ATAD. ATAD, anti-tax avoidance directive, interest deduction limitation rule, CFC rules, double taxation, European Union, OECD, economic double taxation, juridical double taxation

Comparative Analysis of the General Anti-Abuse Rule of the Anti-Tax Avoidance Directive: An Effective Tool to Tackle Tax Avoidance?

The primary aim of this article is to question whether the general anti-abuse rule (GAAR) of Anti-Tax Avoidance Directive (ATAD) is an effective tool to tackle tax avoidance. By using a comparative technique as a method, other directives that include a GAAR will be analysed as a companion to the ATAD to identify whether there is a common understanding of the concept of abuse of tax laws within the EU legal order. Then the general consequences of the application of the GAAR of the ATAD will be exposed. The difficulties which could be encountered in the application procedure will be explained around some potential scenarios, based on simple models developed by the author. Tax Avoidance, Abusive Tax Practices, Artificial/Genuine Arrangement(s), Main Purpose(s) Test, Tax Advantage, General Anti-abuse Rule(s) (GAARs), Anti-Tax Avoidance Directive (ATAD), Interest-Royalties Directive, Merger Directive, Parent- Subsidiary Directive.