Search

International Taxation has a new GAAR: the “Principal Purpose Test” as laid down in Art.29(9) OECD Model Tax Convention (2017) and Art.7 Multilateral Instrument. While this new provision emphasises the relevance of the “purpose” of an arrangement or transaction, it does not refer explicitly to a “commercial purpose” or the “economic reality” of the taxpayer’s activities. This article shows that – irrespective of the wording of the GAAR – business purpose and economic reality play a major role for the application of the GAAR. This is due to the fact that a tax-driven arrangement or transaction is only disregarded if the tax benefit in question is not justified in light of the underlying purpose of the relevant tax provision. As the purpose both of a tax treaty in general and of the specific provisions at hand is informed by the willingness of the treaty partners to foster genuine cross-border commercial activities, the “Principal Purpose Test” introduces the notions of commercial purpose and economic reality through the backdoor.

The European Union is in the process to establish “public country-by-country reporting” as a new and wide reaching obligation for multinationals to disclose tax-relevant numbers to a global audience, going beyond the OECD consensus which combined cross-border exchange of reports with confidential treatment by tax authorities. From a legal and institutional point of view the main issue is the correct legal basis for the new directive under the European treaties. Is this a matter of accounting law – which would allow legislation by a qualified majority of Member States under Art.50 TFEU – or is this a matter of tax law – which would require unanimity under Art.115 TFEU? The article shows how the treatment of these issues has been driven rather by political than by legal concerns including a deliberate modification of the directive’s preamble in order to secure a majority vote under Art.50 TFEU.

European Law plays a major role in the implementation of the BEPS Action Plan by Member States of the European Union. How does this influence the interpretation of primary and secondary EU law? On the one hand, recent secondary legislation like the Anti-Tax-Avoidance Directives explicitly aims at a full and coherent introduction of BEPS outcome into European law. But this goal has to be aligned with the liberating forces of the Internal Market which inform the legal basis for directives under Art.115 TFEU. Going further, in some recent judgments, the European Court of Justice has shown a tendency to interpret also long-standing concepts of primary EU law (like the notion of abuse of law) and existing directives (like the Parent Subsidiary Directive or the Interest Royalty Directive) in the light of the BEPS Action Plan. This is hard to defend from a methodological point of view and out of sync with the fundamental policies adopted by the European Treaties.

In two recent cases “T Danmark” and “N Luxembourg 1” the European Court of Justice delivered landmark judgments on the impact of the concept of “abuse of law” in the area of taxation. In these judgments the Court promoted the recurrent notion that “European law cannot be relied up-on for abusive or fraudulent ends” to the rank of a “general principle” of European law in matters of direct taxation. This has a profound effect on the legal framework for taxpayers and tax authorities as such a “general principle” has the power to override both secondary EU law and national tax legislation. According to the Court, it has to be applied irrespective of conflicting provisions in EU tax directives and without any explicit basis under domestic tax law. This article, which has been written to celebrate Professor Judith Freedman on the occasion of her retirement at Oxford University, challenges the findings of the Court, which create confusion and uncertainty both from a methodological and a constitutional perspective. This article proposes to recognize a concept of “abuse of law” at the level of secondary EU law, thus leaving the hierarchy of norms under European law and the interaction between EU law and national legislation intact.

This introductory text is meant to give students of tax law around the world an overview of how EU law impacts domestic taxation. While the main focus of this text concerns the interaction between the fundamental freedoms of the Internal Market and national tax legislation, other areas like the current state of European tax legislation (directives) and the role of state aid law in the field of taxation are covered as well. It is based on courses given at NYU Law School (2009) Columbia Law School (2014), University of Pennsylvania School of Law (2015), UBC Allard School of Law (2016) and Munich University Law School (2015, 2016 and 2019). The author is grateful to Caroline Heber who – given her expertise - has written Part XIV on VAT and indirect taxation.

This paper is a draft chapter of a forthcoming book on the taxation of international business profit by the authors of this paper, to be published by Oxford University Press. The group has been meeting regularly for five years, to identify and discuss the key problems of the existing international tax system, and to develop potential options for reform. The book will study two proposals for reform in depth. One is the destination based cash flow tax – a draft chapter on this proposal has already been released. The second proposal – for a form of residual profit allocation - is presented here. We refer to the proposal set out in this paper as a Residual Profit Allocation by Income, or RPA-I. The RPA-I allocates the right to tax routine profit to the country where functions and activities take place. It allocates the right to tax residual profit to the market, or destination, country where sales are made to third parties. We argue that the RPA-I has attractive properties – while it is far from perfect, it matches well the criteria by which we aim to evaluate proposals for tax reform: economic efficiency, fairness, robustness to avoidance, ease of implementation, and incentive compatibility.

Much work has been done by international organizations, tax scholars around the world and business experts on the future shape of the taxation of the digitalized economy. Starting from the assumption that any “ring-fencing” of the digitalized economy should be avoided, it is far from easy to develop a framework in the context of the corporate income tax to capture profits derived by cross-border digital transactions in an orderly way. General notions like “economic allegiance”, the “benefit principle” or “digital presence” are unhelpful when it comes to sharing the pie between production countries and destination countries. Empowering the market countries can follow two different trajectories: a set of rules based on the notion of “digital presence” which simply looks to the demand side of the market, or a set of rules based on the notion of “digital investment” as a proxy for a productive source of income set-up by the taxpayer in regard of the market. While these pathways should be explored in the next couple of years, any search for a “quick fix” might not only be distortive and inefficient, it might also stand in the way of a new international consensus built around a new set of overall tax principles. Temporary measures might easily translate into permanent measures. Anybody who attempts to introduce specific tax treatment for the digitalized economy should be as transparent as possible with regard to the ten major policy questions outlined in this article.

This article compares the reach of and criteria for application of four negative integration mechanisms in direct tax matters: the State aid rules (Arts. 107 and 108 TFEU), the free movement rights (Arts. 28–37 and 45–65 TFEU), the non-binding Code of conduct to curb harmful tax competition, and the treaty rules for eliminating market distorting disparities (Arts. 116 and 117 TFEU). It presents a diagram for comparison of the criteria and for identification of areas of overlap. All four negative market integrators discussed apply criteria which are concerned with three main issues: (i) is there some sort of inequality or departure (discrimination; advantage; lower tax level; disparity)? (ii) Does it (significantly) affect intra-Union economic activity or conditions of competition? (iii) Can it be justified? The four integrators overlap to a certain extent, which is not surprising, given their common overarching goal of establishing a free internal market with a level playing field. Especially the ECJ’s selectivity and discrimination analysis and its justifiability analysis in fiscal State aid and fiscal treaty freedoms cases are very similar. The Code of Conduct even seems legally redundant, as its criteria may be subsumed under Articles 116 and 117 TFEU, but politically it appears to be expedient, even though the Commission is stretching its State aid powers to tackle tax rulings and smart tax competition.

The Commission State aid decisions on individual tax rulings have created legal uncertainty, which may have been one of their goals. This article comments on their political and policy merits and effects, it wonders whether EU law requires member States to have—and apply in a certain manner—specific transfer pricing rules, it discusses the creditability of the tax to be recovered from US groups in their home State, it comments on the possible implications of the Commission decision on the Belgian excess profits scheme (is smart tax competition State aid? Is not curbing BEPS State aid?), it wonders whether the CCTB may have become politically feasible, and it wonders why the Commission does not seem to investigate tax breaks extended by large member States.

State aid discipline under Art.107, 108 TFEU has established itself as a major constraint to the tax sovereignty of national legislators. By analyzing a great number of CJEU judgments delivered during the last five years, this article lays out both the conceptual and the political issues which arise when tax benefits are subject to control under European competition law. This affects the concepts of “advantage”, “selectivity” and “discrimination” as well as special cases like “negative state aid”, “indirect selectivity” or “de-facto selectivity”. The author proposes to apply Art.107 par.1 TFEU only if a tax provision deviates beneficially from a “normal” or “benchmark” treatment and rejects the trend to interpret Art.107 par.1 TFEU as a general ban on discrimination. Moreover, this article pleads for a limited reading of “selectivity” which is only given when a tax advantage confers a financial benefit on certain branches of the economy or certain individualized enterprises.

GSI Scientific Report 2014 - GSI Report 2015-1

This article presents an analysis of the ECJ case law on the interaction between the fundamental freedoms and national tax systems. It pleads for a strict application of a unilateral neutrality principle based on non-discrimination and rejects those strands of the judicature which apply an overall perspective to the taxation of cross-border events by two (or more) involved states. The article criticizes the emerging trend in the ECJ’s jurisprudence to stress the territorial demarcation of Member States’ taxing rights and supports a sophisticated application of the concept of "coherence" in order to reconcile the requirements of neutrality with the territorial limitations of taxing power.

International audience; The work presented in this paper aims to model a railway infrastructure composed of tracks, switches and signal lights to verify certain safety properties related to the exploitation of this infrastructure. The modeling will be done using statecharts formalism. The verification approach of the safety properties will be carried out by simulating the operation of the infrastructure. This approach is based on a reachability analysis of dangerous states related to the operation of the infrastructure. The reachability analysis of dangerous states allows to detecting a near accident. Finally, the Statechart model is used to simulate a scenario of a near accident between two trains.

International audience; During the past decades, the scientific community has provided different frameworks for classifying uncertainty and its sources. The most common distinction -or at least, the one that is widely accepted in the reliability and risk analysis community- is the distinction between aleatory and epistemic uncertainty. The former is considered irreducible because it is due to the natural variability of random phenomena. The latter is attributed to the lack of knowledge, thus, it is reducible as long as we are able to gather more information. In this paper, we propose a discussion about this distinction from an historical point of view and we introduce some alternative theories to deal with uncertainty.