Preventing Treaty Abuse

I. S. 328Introduction

Treaty abuse is one of the main sources of BEPS concerns. Both the OECD and the European Commission have proposed a series of measures to tackle treaty abuse. In BEPS Action 6 the OECD proposes to include the more general Principal Purpose Test (hereinafter: PPT) in income tax treaties, in addition to the specific Limitation on Benefits provision (hereinafter: LOB). The European legislator from its side has developed the GAAR concept in several instruments, with the proposed Anti-Tax Avoidance Directive as the most recent one.

It is recognized that the taxpayer has the right to minimize his tax burden by way of tax planning. However, there is an uncertain boundary between legitimate tax planning and unacceptable tax abuse. The PPT and GAARs try to counteract treaty abuse.

As the title suggests, this contribution aims to make a comparison between the PPT on the one hand and the European GAAR concept on the other. As will be set out here, there are several European GAARs. The author has chosen to focus on the GAAR of the Parent-Subsidiary Directive (hereinafter: PSD GAAR) and on the interpretation of abuse by the Court of Justice of the European Union (hereinafter: CJEU)...