Browsing by Subject "substance"

Summary The inspiration for this study is the Danish cases (N Luxembourg 1 and others (C 115/16, C-118/16, C‑119/16 and C-299/16) and T Danmark, C 116/16 and Y Denmark Aps) on which the European Court of Justice gave its decisions in February 2019. The cases concerned profit shifting from EU and the application of the Interest and Royalties Directive or the Parent-Subsidiary Directive and the denial of directive benefits where the ultimate beneficiary of a multi-layered corporate structure was outside of the EU. The decisions have stirred considerable debate and there is considerable uncertainty about the application of the abuse of law principle in relation to beneficial owner rules and the general anti-abuse rule introduced by the EU Anti-Tax Abuse Directive. Within this context of EU and OECD actions against tax avoidance and aggressive tax planning, the primary focus of this study will be in the complex interrelationships between the abuse of law principle, beneficial ownership and substance requirements imposed especially on holding companies. This study will discuss the different interpretations of these concepts in EU law in directive shopping situations. There has been extensive academic debate on beneficial ownership and abuse of law separately, but the aim of this study is to gather different perceptions together and reflect upon them in the light of the ECJ case law. The ECJ has in its case law invoked abuse of law as an independent unwritten principle, derived from the legal traditions of Member States. The ECJ’s interpretation of abuse of law concept in direct taxation can be summarized as follows: anti-abuse provisions must exclusively target wholly artificial arrangements which do not reflect economic reality, the purpose of which is to unduly obtain a tax advantage. However, the Danish cases appear to have brought about a change in how the ECJ interprets the abuse of law principle. The ECJ confirmed the general principle status of abuse of law and thereby rendered it applicable even without an applicable domestic provision. In addition, the ECJ formulated the criteria for abuse in a way compatible with the wording of the ATAD GAAR by stating that a transaction may be considered as artificial if it does not reflect economic reality and its principal objective or one of its principal objectives is to obtain a tax advantage running counter to the aim or purpose of the applicable tax law. In a sense, the ECJ “tested” the application of the ATAD GAAR, albeit prematurely. The Danish cases are highly significant because they provide guidance, or at least interpretive nspiration, on beneficial ownership and the abuse of law principle. The ECJ appears to be gathering the different conceptions of the abuse of law principle under the definition provided in the ATAD GAAR and reinterpreting earlier cases as stemming from one legal principle, applies the principle of abuse of law to all directives and, consequently, blurs the difference between applying the principle to harmonized and non-harmonized matters.