Birthday Special: ATAD & its General Anti-Abuse Rule

Exactly one year ago, on 12 July 2016, the Anti-Tax Avoidance Directive was adopted. After having been proposed by the Commission only six months earlier, the Council reached unanimity on the proposal at record speed.

One of the new rules that was agreed upon is a general anti-abuse rule (GAAR) (Article 6). This provision applies a novel approach in combatting tax avoidance. A year after its introduction it’s time to assess the provision against the CJ’s case law of abuse and point to an important recent development in the fight against abusive direct tax practices.

[This post contains a short summary of an article which was recently published in EC Tax Review.]

Enacting an anti-abuse provision in a direct tax Directive is no novelty as such – all EU Directives concerning direct taxation (i.e. the Interest-Royalty Directive, the Merger Directive and the Parent-Subsidiary Directive) contain measures allowing Member States to counter abuse of their provisions.

However, the adoption of the ATAD GAAR confirms the recent trend towards mandatory GAAR codification. The traditional approach whereby secondary EU tax law merely authorizes the Member States to combat abusive practices through national GAARs is replaced by an obligation for Member States to eliminate abusive tax practices. The adoption of the GAAR of the Parent-Subsidiary Directive (PSD) (2015) seems to have set a precedent which is now continued with the ATAD GAAR which is formulated in terms that are quite similar to that of the PSD. In fact, the wording of the initially proposed text of the GAAR was amended in the course of the ATAD negotiations to be brought in line with the PSD GAAR (except for the scope of the ATAD GAAR, which is (logically) broader with the result that the GAAR itself is, by definition, also broader). However, Article 6 of the ATAD is said to have been mostly settled as from the start of the negotiations and did not bring much controversy to the political table.

Furthermore, a critical analysis of the scope, conditions of application and legal consequences of the ATAD GAAR shows that, despite its remarkably swift adoption, interpretation and implementation of the new provision are far from self-evident. The GAAR is not as obvious and that its consequences are not as clear-cut as it might be expected at first sight. Especially the fact that the ATAD transposes the EU law concept of abuse into domestic law is not to be underestimated. Member States that did not have a GAAR in their domestic laws until now will be forced to enact an ECJ-developed concept, the impact of which is likely to go beyond cross-border transactions and may encroach on the Member States’ sovereignty in merely internal tax matters.

Further reading: L. De Broe & D. Beckers, “The General Anti-Abuse Rule of the Anti-Tax Avoidance Directive: An Analysis against the Wider Perspective of the ECJ’s Case Law on Abuse of EU law”, EC Tax Review, 2017/3, 133-144.

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