GAAR of the Anti-Tax Avoidance Directive : Interpretation and Effects on the Finnish GAAR of VML 28

General anti-abuse rules (GAARs) are seen as effective tools in the battle against tax avoidance and aggressive tax planning exercised by multinational enterprises (MNEs). The open-ended design of GAARs allows tax authorities to keep up with the ever changing landscape of international tax planning. As MNEs engage eminently in cross-border activities and make use of the differences in tax systems of different jurisdictions efficient tools are called for both in the international and in the EU context. In the global scene the OECD has been the initiator in the fight against base erosion and profit shifting with the BEPS action Plan. Accordingly, EU has answered to this increasing international pressure with several legislative initiatives, the most recent of which is the Anti Tax Avoidance Package including the Anti Tax Avoidance Directive (ATA Directive), which also entails a formulation of an EU wide GAAR in the Article 6 (ATAD GAAR). The new ATAD GAAR represents an unprecedented approach in the field of European direct tax law since it creates a detailed anti-abuse provision with the objective of harmonizing the national general anti-abuse rules. The tension from the Community law on national legal systems is twofold: on the one hand, it constitutes the requirement of positive action for the Member States. A Member State lacking a GAAR will be required to stipulate one in order to comply with the Community law. However, the Community law does not only require member states for action, but also sets limits for the national legislation i.e. requires the Member States to refrain from restrictive legislation. The ATAD GAAR is a manifestation of the anti-abuse doctrine formed in the case law of the European Court of Justice. It reflects the three tests that are also included in the anti-abuse provision of the Parent Subsidiary Directive, namely the main purpose test, the conflict with object and purpose test and the artificiality test. On the one hand the rule is necessary to allow Member States to protect their tax bases against the most creative and novel tax planning structures that are not yet addressed through specific provisions. On the other hand, however, the GAAR poses concerns regarding the principles of legality and legal certainty, as it stretches the competence of courts and tax administrations in interpretation of tax avoidance cases. In the EU context also the requirements caused by the Union primary law, namely the fundamental freedoms protecting the smooth functioning of the internal market have to be taken into account. The Finnish tax system already entails a GAAR that applies both to domestic and cross-border situations (VML 28). The compatibility of the Finnish rule with the ATAD GAAR is not evident. As the two rules differ both in their wording as well as in their scope of application, the compatibility of the Finnish rule as well as the interpretation doctrine concerning its application need to be systematically analyzed. As the ATA Directive stipulates only the minimum level of protection that the domestic rules have to attain, the Finnish rule can be stricter from the perspective of the taxpayers. However, the Union primary law sets the upper limit for the application of the rule. For the VML 28 to be compatible with the requirements caused by the Union law, the constituting elements of the ATAD GAAR need to be reflected in the application of the VML 28.