EU experience in administering GAARs

Statutory General Anti-Avoidance Rules (GAARs) respond through the enactment of their primary and secondary tests. As well, they are delimited by the tax system they serve. Limitations to the scope of action of a GAAR can also be found outside their wording. For instance, they exist in the meaning to be given to the terminology used in the provision, and remain deeply connected with the connotation of abuse of law. Having a clear conscience of the elements in the GAAR and considering that the provision serves for the purposes of a given tax system enables the interpreter to determine how to use it in practical experiences. An example of the former, is provided by the GAARs to be used by member states of the European Union (EU). Where every country is entitled to use domestic, supranational and international anti-tax abuse provisions. Understanding the context in which each GAAR is embedded will provide the interpreter with instructions on how to administer it. Bear in mind that anti-abuse measures can be implemented simultaneously if required. In doing so member states shall respect the international and supranational commitments. This is to say that every country within the EU is enabled to develop domestic GAARs and SAARs, which cannot contravene EU Community laws or international ones. In order to reduce the possible conflicts that may arise when interpreting anti-abuse provisions conjointly, the EU Commission and EU Court of Justice (ECJ) have worked to consolidate a common objective when combating fraud and tax evasion. Concretely this chapter deals with the administration of GAARs to be adopted by member states of the EU considering that legislative and judicial efforts have been made to include GAARs within secondary legislation2 and adopting the principle of prohibition of abuse of law. Likewise, attention will be given to the adoption of the Principal Purpose Test (PPT) 3 as one of the most extensively used GAAR in the international sphere, after being included in the Multilateral Instrument (MLI)4 and 2017 model tax convention of the Organization for Cooperation and Economic Development (OECD). The international GAAR will be briefly studied in order to address the commentaries provided by the OECD in regard to the possible conflicts arising from enacting domestic anti-abuse measures jointly with the PPT. The paper comprises six sections: the first one deals with general comments about the administration of a GAAR. Following, the importance to be given to the tax advantage that is being guarded by the GAAR will be explained. Afterwards, remarks about the PPT and its conflicting status with other anti-avoidance provisions shall be made. Subsequently, the evolution of the principle of prohibition of abuse of law in the EU will be laid out, moving on to explain the particularities of the GAARs introduced in secondary EU law. Finally, remarks will be made in regard to the administration of GAARs to be used by EU member states.