GAARs and Judicial Anti-Avoidance in Germany, the UK and the EU

S. 1A. Introduction

1. Background

Taxation is at the core of the sovereignty of a country. Money provided by taxation has been used by governments throughout history to carry out many functions. Taxes may be used to cover a state’s own financial needs or they may be spent to build and maintain infrastructure, to enforce the law and public order, to protect property or to pay off the state’s debt. Taxes are also an important tool for the redistribution of wealth. As such, taxes may be passed on in the form of subsidies or they may be used to fund welfare and public services.

When a state is levying taxes, it will inevitably interfere with the rights of its taxpayers. For this to be justifiable, a tax system has to take into account many factors. A well designed tax code should be neutral, i.e. it should avoid distortions of the market. Additional factors that need to be considered in the design of a tax code concern matters of administrative efficiency (i.e. the cost-yield ratio for a tax) and the principle of legal certainty. Eventually, a tax code also has to ensure that equal taxpayers are equally affected. This is because one core aspect of taxation is related to the fact that the tax ...