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Comparative studies - peer-reviewed Studi Tributari Europei. Vol.9 (2019)
https://doi.org/l0.6092/issn.2036-3583/10682 ISSN2036-3583
The prohibition of abuse of rights in European Tax Law:
sacrificing the internal market for the fight against base
erosion and profit shifting?
Edoardo Traversa*
Submitted: March 20, 2020 - Accepted: May 5, 2020 - Published: July 21, 2020
Abstract
The EU principle of prohibition of abuse of rights applied to taxation reflects the need to consider
the financial interests ofthe 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 ofjustice, 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.
Keywords: EU tax Law; abuse of rights; BEPS; tax harmonization.
TABLE OF CONTENTS: 1. Introduction 2. The prohibition of abuse in EU law: origin and constitutive
elements 3. Functions of abuse in EU tax law 4. Compatibility of BEPS-inspired general anti-
avoidance rule in tax treaties, BEPS with EU law 5. Conclusions
1. Introduction
The EU principle of prohibition of abuse of rights aims at striking a balance between the taxpay-
ers' rights to free movement and the need to safeguard the effectiveness of the Member States' tax
systems in the context of an internal market where taxation remains largely unharmonized. The
unrestricted circulation of taxpayers may indeed entail significant financial consequences for the
Member States, whether due to cross-border tax evasion (illegal) or tax avoidance (legal). The (le-
gal) cross-border shifting of income and income-generating assets represents an overall loss of tax
revenues for EU Member States, which, although difficult to estimate with precision, amounted
in 2015 to several dozens of billions of euros.1 This profit shifting may be the result of displace-
ment of genuine economic activities from one Member States to another (for example, moving a
car manufacturing factory from Germany to Hungary or from France to Romania), but it mainly
occurs through the setting-up of legal tax planning structures, which entail only -if any- minimal
* Universit6 Catholique de Louvain (Belgium); M edoardo.traversa@uclouvain.be
1. See for example European Commission, Study on structures ofaggressive tax planningand indicators, Taxation Papers,
Working Paper No. 61 - 2015; OECD, Measuring and monitoring BEPS, Action 11 - 2015 final report, 5 October 2015.
Copyright @2019 Studi Tributari Europei I-1
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