Countering unacceptable tax avoidance through general anti-avoidance rule in EU tax law

Abstract

One of the greatest challenges modern states are faced with is finding a way to tackle unacceptable tax avoidance, especially aggressive tax planning schemes and the use of the so-called tax heavens. In this process, many states adopt a general anti-avoidance rule that allows for tax administration to deny tax benefits realized through the use of abusive tax arrangements, which are in accordance with the letters of the law but circumvent its purpose. At the EU level, Article 6 of the Directive 2016/1164 (Anti-Tax-Avoidance Directive, ATAD), laying down rules against tax avoidance practices that directly affect the functioning of the internal market, contains the general anti-avoidance rule (GAAR). This paper aims to analyze the ATAD's GAAR and related case law of the European Court of Justice in tax avoidance cases in the context of abuse of EU law. In the first section, the author defines tax avoidance and tax evasion in order to clearly distinguish the two terms, and explains the need for the GAAR. The second part presents the elements of the GAAR and the consequences of its application. The third section addresses the issue of legal certainty in applying the GAAR. As one of the prerequisites for tackling the unacceptable tax avoidance and aggressive tax planning is enhanced cooperation of tax administrations and greater transparency of tax information, the author analyzes the 2011 Directive on administrative cooperation in tax matters (DAC) and its numerous amendments. Finally, we present perspectives on the harmonization of direct taxes and depict a potential global solution to reform the outdated international corporate tax system, with action on the reallocation of taxing rights and minimum effective taxation.

Keywords

• tax avoidance
• tax evasion
• general anti-avoidance rule (gaar)
• automatic exchange of tax information
• harmonization of direct taxes
• befit
• globe