Limits to Tax Planning

S. 571 1. Introduction

This paper looks at the anti-abuse and anti-avoidance provisions in the Merger, the Parent-Subsidiary and the Interest and Royalty Directives. Directives set conditions under which taxpayers may enjoy the benefits granted under the directives. However, if a certain legal construct only or mainly follows the formal requirements to take advantage of a directive while being against the objectives of the respective directive, the Member States have to, or at least can, take measures to ensure the directives are applied in a correct manner. This can be done by implementing the anti-abuse provisions in the directives and/or by specific provisions in the domestic law. Thus, the abuse concept is more or less different in every country, but has in common that the bona fide principle is violated by the taxpayer.

It is not easy to draw the line between abuse, evasion and fraud on the one side and avoidance and tax planning on the other side. Oliver Wendell Holmes described the difference between avoidance and evasion as follows: “When the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himsel...