The prohibition of abuse of rights in European Tax Law: sacrificing the internal market for the fight against base erosion and profit shifting?

Abstract

The EU principle of prohibition of abuse of rights applied to taxation reflects the need to consider the financial interests of the Member States in an internal market where taxation remains largely unharmonized. Therefore, the circulation of taxpayers across tax systems may entail significant financial consequences for them, as for the Member States concerned. Although the origin of abuse is to be found in the case-law of the Court of justice, it is now codified in the legislative instruments, in particular in the EU Anti-tax avoidance directive of 2016. This directive, which entered into force in 2019, obliges Member States to adopt a general anti-abuse provision. This means a de facto harmonization of the concept of abuse for corporate taxation but which at the same time creates significant implementation difficulties for EU institutions, Member States and taxpayers. The directive also harmonizes specific anti-avoidance mechanisms in order to prevent base erosion and profit shifting between Member States and towards third countries and to ensure that “profits are taxed [on the territory] where value is created”. The contribution aims at analyzing the evolution of the concept of abuse of rights as applied to taxation in the European Union, also in the light of the OECD BEPS strategy.