General Anti-Avoidance Rules in EU Law (EU Report IFA Congress 2018)

While the EU Treaties do not contain a general anti-abuse rule, the Court of Justice of the European Union (ECJ) uses the concept of abuse of law when interpreting the EU Treaties in multiple substantive areas of law, including direct taxation. Current EU mechanisms for protection against abusive practices have that case law as a common root. This Report therefore starts by evaluating the emergence of the concept of abuse in the case law of the ECJ with regard to the fundamental freedoms. In this respect, the Court has accepted that discriminatory anti-avoidance rules can be justified by overriding reasons in the general interest but only where such rule specifically relates to wholly artificial arrangements aimed at circumventing the application of the legislation of the Member State concerned. Moreover, general and special anti-abuse provisions are enshrined in secondary EU law instruments. This concerns the general anti-avoidance rule for the area of corporate taxation, which was introduced by the Anti-Tax Avoidance Directive (ATAD) and will be effective from 1 January 2019, and the more specific rules in the Parent-Subsidiary Directive (PSD), the Merger Directive (MD) and the Interest-Royalty Directive (IRD). This Report explains the scope of these provisions, their interpretation and application, and their relationship with primary EU law, tax treaties and national law. Finally, this Report provides a brief outlook on the impact of EU law on domestic tax systems in this field, stressing that general anti-abuse measures might create tensions with fundamental taxpayers’ rights, such as the right to legal certainty and the freedom to arrange one’s economic affairs.