Gunnar Baldvinsson: On the boundary between abuse and economic reality: A study on the prohibition of abuse of rights and statutory general anti-avoidance rules in EU tax law

Abstract

Tax avoidance or abuse poses challenges to the public interest and economic equality, prompting the need for legal measures to counter such activities. This thesis examines how the European Union addresses tax avoidance through the general principle of the prohibition of abuse of rights and statutory General Anti-Avoidance Rules (GAARs). It investigates the interpretation of these general anti-avoidance measures, focusing on the conditions under which abuse is identified and addressed. The thesis explores what activities constitute abuse and the procedural requirements that Member States must fulfil in their evaluation of such activities.  

The concept of abuse is analysed in the context of the freedoms of movement, the VAT Directive, the Merger Directive, the Parent-Subsidiary Directive, the Interest-Royalty Directive, and the Anti-Tax Avoidance Directive. Engaging with different views in the academic literature, the thesis suggests that textual differences in general anti-avoidance measures often result from inconsistencies rather than substantive divergences. The conditions of abuse are identified through an analysis of the case law of the Court of Justice of the European Union. Hence, a comprehensive framework is created, which can be used to understand how the concept of abuse should be applied in the field of EU tax law, offering insights for those seeking to understand the European Union’s approach to tax avoidance.  

It is concluded that there exist three types of material conditions that have to be fulfilled for an activity to be considered abuse within the realm of EU tax law. First, the activity constitutes a deviation from the economic reality in light of the objectives of the rules that are being circumvented. Second, the deviation lacks a commercial reason. Third, the unjustified deviation is linked to the attainment of a tax advantage or benefit that falls under the scope of the general anti-avoidance measure at issue. Further, the thesis explains how the Member States´ leeway is limited concerning defining abuse by using predetermined criteria and shifting the burden of proof concerning abuse over to taxpayers.