1. Seminário sobre Regulamentação da Norma Geral Antielisiva
Anti­avoidance rules in the domestic tax law
of European countries and in EU tax law
Kees van Raad
Professor of international tax law, Leiden University
Chairman International Tax Center Leiden
Of counsel Loyens & Loeff
Member Global Law Faculty New York University (NYU), USA
Permanent visiting professor Peking University (PKU) Law School, China
Chairman European Association of Tax Law Professors
10 10 04
Seminário sobre Regulamentação da Norma Geral Antielisiva
Different legal spheres
of anti­avoidance rules in taxation
O domestic law rules
O tax treaty based rules
O EU tax law rules

2. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
focus :
O general focus
O cross­border focus
basis :
O statute
O court
approach :
O broad
O specific
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & broad approach
Nature and scope of these rules differ considerably from country
to country. Rather imprecise science. Examples of such rules :
O sham / legally ineffective transactions
O substance over form
O abuse of law / fraus legis
O recharacterization of facts
O or simply : general anti­avoidance rule (GAAR)

3. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & broad approach
sham or legally ineffective transactions
O simple & universally applies
O more a non­tax law concept than a tax law concept
O determination of the true nature of what parties did:
­­ they simulated that they entered into a transaction, where
in reality have not entered into any transaction at all, or
­­ they have entered into a different transaction from what
they make appear
.
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & broad approach
substance over form
O legal character of transactions is not challenged, but
O the taxation follows the economic substance of the transaction
rather that its legal character
O used by many countries.

4. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & broad approach
abuse of law or fraus legis
O substitution a given valid legal construction by a different legal
structure that gives rise to the tax liability that would
otherwise be avoided by the legal structure.
O used mainly by civil law countries
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & broad approach
recharacterization of facts
O substitution of the existing facts by different facts that give rise
to a tax liability that would otherwise be avoided by the legal
consequences of the original facts

5. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & broad approach
general anti­avoidance rule (GAAR)
common elements required for their application often are:
O a transaction or set of transactions that is solely or
predominantly aimed at tax avoidance, and
O if the transaction(s) is/are given effect the object and purpose
of the applicable tax law would be violated
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a general focus & specific approach
Choice and effect of these rules differ considerably from country
to country. Examples of such rules :
O imputed income : e.g.
­­ imputed employment income if employee controls
employer­company
­­ imputed dividend income from controlled company
­­ imputed income from investment assets
e.g. NL: deemed 4% return, taxed at flat 30% rate

6. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a cross­border focus :
Choice and effect of these rules differ considerably. Examples of
types of avoidance addressed by such rules :
O transfer of residence
O use of base companies
O tax base erosion
O manipulated favorable income character
O tax arbitrage involving hybrid entities or hybrid instruments
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a cross­border focus :
transfer of residence (emigration)
O continued residence in exit country (individuals, companies)
O deemed realization of capital gains:
­­ all assets
­­ specific assets: pension rights, substantial interest
shares

7. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a cross­border focus :
use of base companies
>> CFC rules
Seminário sobre Regulamentação da Norma Geral Antielisiva
CFC rules
method
O non­deferral of foreign income :
> look­through (transparency): attribution of foreign income
to domestic parent
> deemed dividend distribution to domestic parent
O reduced double taxation relief for income from foreign
subsidiaries and branches :
> instead of exemption: foreign tax credit, or
> instead of foreign tax credit: nothing

8. Seminário sobre Regulamentação da Norma Geral Antielisiva
CFC rules
scope
O listing countries
> difficulty: comprehensive research & upkeep, development
of effective criterion, naming friendly countries
O tainted income
> usually: passive, low tax rate (or: low tax burden)
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a cross­border focus :
tax base erosion
O rules against thin­capitalization
O earning­stripping rules
O limit on deduction of interest
>> sometimes in form of `interest box´

9. Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a cross­border focus :
manipulated favorable income character
O deemed change(­back) of character:
>> (favorable) capital gain treatment replaced by (less
favorable) ordinary dividend treatment (or vice versa) in
cases where the shareholder after disposal of the shares
keeps an economic interest in the company
O under thin­cap rules: disallowed interest is taxed to recipient as
dividend
Seminário sobre Regulamentação da Norma Geral Antielisiva
Domestic anti­avoidance rules
with a cross­border focus :
tax arbitrage involving hybrid entities or
hybrid instruments
O counteracting by accepting the foreign country’s characterization
of the given entity of financial

10. Seminário sobre Regulamentação da Norma Geral Antielisiva
EU tax law rules
so far no true EU taxation but harmonization of the domestic tax law rules
of EU Member States through:
O (actively) directives: binding guidelines how to structure :
> particular types of taxes (e.g. VAT; in future perhaps CIT­basis in
certain instances) and
> tax treatment of certain cross­border events (P­S dividend
payments, mergers, intra­group interest/royalty payments, interest
from savings): harmonized tax rules;
>> EU Member States must change their law in order to bring it in line
with the rules laid down in te directives (implementation)
O (passively) ECJ: interpretation of the EU Treaty’s fundamental
freedom rules on cross­border active and passive investment
Seminário sobre Regulamentação da Norma Geral Antielisiva
EU tax law rules
Anti­avoidance/abuse issues have arisen in two areas:
O Where harmonized tax rules do not contain rules against particular
types of abuse by taxpayers, may countries apply their domestic anti­
abuse rules to deny to taxpayers benefits to which they are entitled under
the harmonized rules ?
>> ECJ in Halifax (C­255/02) :
Allowing a credit [regarding these transactions] would be contrary to the
principle of fiscal neutrality and, therefore, contrary to the purpose of
those rules. In order to determine real substance and significance of the
transactions the national court may take account of the purely
artificial nature of those transactions and the links of a legal, economic
and/or personal nature between the operators involved in the scheme for
reduction of the tax burden.

11. Seminário sobre Regulamentação da Norma Geral Antielisiva
EU tax law rules
Second area:
O Most of the Directives harmonizing particular tax regimes include
anti­abuse rules that the EU Member States may invoke to deny the
application to a taxpayer of benefits provided in their domestic law as
implementations of the Directive.
Examples:
> Parent­Subsidiary Directive:
Art. 1(2). This Directive shall not preclude the application of
domestic or agreement­based provisions required for the
prevention of fraud or abuse.
Seminário sobre Regulamentação da Norma Geral Antielisiva
EU tax law rules
> Merger Directive:
Art. 11(1). A Member State may refuse to apply or withdraw
the benefit of all or any part of the provisions of Titles II, III, IV and
IVb where it appears that the merger, division, partial division,
transfer of assets, exchange of shares or transfer of the registered
office of an SE or an SCE:
(a) has as its principal objective or as one of its
principal objectives tax evasion or tax avoidance; the fact that
one of the operations referred to in Article 1 is not carried out for
valid commercial reasons such as the restructuring or
rationalisation of the activities of the companies participating in the
operation may constitute a presumption that the operation has tax
evasion or tax avoidance as its principal objective or as one of its
principal objectives;