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Browsing by Subject "GAAR"

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  • Wikström, Ida-Maria (2020)
    On 28 January 2016, the Commission presented its proposal for the Anti-Tax Avoidance Directive (ATAD) as part of the Anti-Tax Avoidance Package. The ATAD was regulated in order to coordinate the implementation of the anti-BEPS measures effectively and swiftly at the EU level. One legislative measure introduced in the ATAD was a general anti-abuse rule (GAAR) in Article 6 ATAD (ATAD GAAR) and it has had to be applied starting from 1 January 2019. In addition, as result of the BEPS Project, OECD introduced on 24 November 2016 the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), in order for countries to more easily modify their Covered Tax Agreements (CTAs). Also, the MLI introduced a GAAR, the Principal Purpose Test (PPT) in Article 7. Finland signed the MLI on 7 June 2017 and it entered into force in Finland on 1 June 2019. Now after the entry into force of the PPT and the ATAD GAAR there is regulation of tax evasion at many levels of law, and for the time being, it forms a partially unstructured combination of different GAARs. The PPT has been heavily criticised for its undefined scope and even though the PPT is considered to reduce aggressive tax planning this came with the cost of increased tax uncertainty. This uncertainty may lead to different interpretations between states adopting the MLI and the PPT and it is not entirely clear whether the PPT is compliant with European Union (EU) law. Hence, the study addresses when the PPT is applicable and what the legal consequences of applying the PPT are. EU law goes hand in hand with the study as EU law has to prevail over treaty law when in conflict. Firstly, the study provides that the PPT consist of subjective and objective element. However, it is not currently certain which arrangements and transactions chosen by the taxpayer would be in the scope of the PPT applying. This is because it is unclear whether the PPT applies only to wholly artificial arrangements or not. Thus, it still remains as an open question whether the conditions for applying the PPT are compliant with EU law and what the conditions for applying the PPT actually are. Secondly, the study provides that when looking at the wording of the PPT it seems like the legal consequences of applying it would be limited. However, considering the PPT in the field of the EU primary law and secondary law it seems like the PPT would need to be applied with unlimited legal effects in situations where EU law is applicable. Even if Article 3 of the ATAD was considered to allow stricter rules (such as the PPT), such stricter rules would need to be compliant with the fundamental freedoms of the EU. Moreover, the study provides that the PPT has problems to fulfil the requirement of legal certainty. Consequently, by adopting the PPT, Member States have international obligations that may give rise to conflicts with their EU obligations. The situation right now is that a vague GAAR exists, which leads to applying the PPT based on the practitioner’s legal instinct and not based on a clear legal rule. If the PPT is applied with limited legal effects this would most likely be non-compliant with EU law.