Abuse of law in European tax law: an overview and some recent trends in the direct and indirect tax case law of the ECJ — part 2 Текст научной статьи по специальности «Философия, этика, религиоведение»

АКТУАЛЬНАЯ ТЕМА

УДК 34.03:336.22 (4)

НАРУШЕНИЕ ЕВРОПЕЙСКОГО НАЛОГОВОГО ЗАКОНОДАТЕЛЬСТВА: ОБЗОР И ПОСЛЕДНИЕ ТЕНДЕНЦИИ В ПРЕЦЕДЕНТНОМ ПРАВЕ ЕВРОПЕЙСКОГО СУДА В ОТНОШЕНИИ ПРЯМЫХ И КОСВЕННЫХ НАЛОГОВ (ЧАСТЬ 2)

ДЭННИС М. ВЕБЕР

Доктор права, профессор кафедры Европейского корпоративного налогового права Амстердамского университета, директор Амстердамского центра налогового права, Амстердам, Нидерланды E-mail: Dennis.weber@loyensloejf.com

АННОТАЦИЯ

В статье рассматривается право государств - членов ЕС бороться с нарушениями законодательства, которое определяется в прецедентном праве Европейского Суда как баланс между соблюдением принципа правовой определенности, правом выбора наиболее благоприятного налогового режима и правом государств бороться с уклонением от уплаты налогов. Во 2-й части статьи, в числе прочего, подробно разбирается, насколько конкретными должны быть положения, направленные на борьбу с уходом от налогообложения, содержание бремени доказывания, выбор налоговой юрисдикции, а также последствия нарушения.

Ключевые слова: нарушение; уклонение от уплаты налогов; искусственные структуры; общий принцип права в ЕС; выбор налоговой юрисдикции.

ABUSE OF LAW IN EUROPEAN TAX LAW: AN OVERVIEW

AND SOME RECENT TRENDS IN THE DIRECT

AND INDIRECT TAX CASE LAW OF THE ECJ - PART 2

DENNIS M. WEBER

PhD (law), Professor, Chair European Corporate Tax Law, University of Amsterdam; Director, Amsterdam Centre for Tax law (ACTL), Amsterdam, Holland E-mail: Dennis.weber@loyensloejf.com

ABSTRACT

This paper examines the right of the EU Member States to combat abuse, as defined in the case law of the European Court, in particular, the balance between enforcement of the principle of legal certainty, the right to choose the most favourable fiscal route and the right of states to combat tax avoidance. Part 2 analyses, inter alia, how specific an anti-abuse provisions should be, the burden of proof, tax jurisdiction shopping and the consequences of abuse.

Keywords: abuse; tax avoidance; artificial structures; general principle of EU-law; tax jurisdiction shopping.

(beginning in the the previous volume)

4. Different levels of abuse — different formulations of the Court of Justice

Together with Wattel [1, p. 212], I am of the opinion that abuse takes place in general at two levels: i) at EU level; and ii) at national level.

In the case of abuse at EU level, endeavours are made to make direct use of the EU rules (by, for example, invoking a certain exemption in a Directive) which in fact is not intended for that person. Such a form of abuse often occurs in situations in which the law has been made uniform or has been harmonised (consider, for example, VAT).

By abuse at national level, endeavours are made to avoid certain national legislation (for example, the non-deductibility of interest), by invoking Union law (for example, the right of establishment). Such a form of abuse occurs, for example, in non-harmonised areas such as direct taxation, where taxpayers devise all kinds of structures in order to avoid the non-deductibility of interest.

In the course of time, the Court has developed two different formulations in the case law on the basis of which abuse can be combated. The first formulation can be found, amongst others, in ECJ 14 December 2000, case C-110/99 (EmslandStarke). In this, the Court considers that for the question if there is abuse, an objective test and a subjective test must be satisfied. The Court maintains this formulation each time there is an issue of abuse at EU level1. In the second formulation, the Court does not refer directly to the objective and the subjective tests, but considers more in general that the Member States may impede abuse. The Court maintains this more general formulation of abuse in the case there is abuse at national level. One example is ECJ 9 March 1999, case C-212/97 (Centros), ECR 1999, p. I-14592. Also in cases concerning direct taxation in which the Member States invoke the combating of tax

1 See, for example, for the capital tax: ECJ 7 June 2007, case C-178/05 (Commission/Greece), ECR I-4185.

2 The Court considered in para. 24: "It is true that according to the case-law of the Court a Member State is entitled to take measures designed to prevent certain of its nationals from attempting, undercover of the rights created by the Treaty, improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law".

avoidance as justification for the free movement, the Court refers, not directly to the objective and subjective tests, but mentions more in general the combating of "wholly artificial arrangements".

With this difference in formulation, the question arises if the Court draws a distinction between combating of abuse at EU level and at national level. In my view, this should make no difference because the core question persists of whether the Community law allows the presumed combating of abuse, independent of the question of whether the abuse takes place at EU level or at national level [1, p. 212].

For that matter, we see that the Court refers more and more to cases from various areas of law3 and accordingly, in this manner, it is already active in bringing the case law more on one line. It is recommended, however, that the Court be more consistent in the formulation of what can be considered abuse [1, p. 212; 2, p. 439]. Hereby, an alignment as close as possible with the objective and subjects tests from Emsland-Starke has my preference, and we see from the doctrine and in the views of the AGs that this description is considered a general guideline4.

5. How specific should an anti-abuse provision be?

5.1. Sufficiently specific to combat abuse situations only

Restrictive national rules which are applicable "to every situation" (in other words, measures which do not take into account specific circumstances that indicate abuse) "for whatever reason" (thus without taking account of the subjective intention to abuse) are, according to the Court, too general in order to serve to combat abuse. Their restrictive effect can then also not be justified with the argument that tax avoidance must be combated. Emigration levies at the emigration of a natural person (the Lasteyrie case), levying of capital tax when relocating the corporate seat (an issue in ECJ 7 June 2007, case C-178/05 (Com-missie/Griekenland), ECR I-4185), the refusal of an interest deduction because the shareholder is

3 For example: In a VAT case to a direct tax case. See: ECJ 22 May 2008, C-162/07 (Ampliscientifica), para. 28 or vice versa: ECJ 5 July 2007 (Ko-foed).

4 See AG Stix-Hackl in point 95 of her Opinion in ECJ3 October 2006, case

C-452/04 (Fidium Finanz); AG Maduro, in his Opinion in case C-311/06 (CNDI), point 38 et seq. and AG Geelhoed in point 96 et seq. of his Opinion in ECJ 23 September 2003, case C-109/01 (Akrich), ECR I-9607.

established abroad (the Lankhorst-Hohorst case, which concerned the interest deduction restriction under German thin capitalisation rules) or an anti-abuse provision which is applicable to every cross border lease of assets (CJ 4 December 2008, C-330/07 (Jobra), H&I 2009/1.6. (comments by Dourado), are examples of measures which are too general in order to justify this restrictive effect with the argument that tax avoidance is being combated. It is clear from the case law that anti-abuse measures which are only applicable in an individual case (so case by case; such as the doctrine of fraus legis) are, in principle, permitted under Union law (see: Centros, para. 25). In line with this case law, we see that in the Glaxo Wellcome case, AG Bot5 required that an anti-abuse provision must be tailored to the abuse to be combated. He disliked the fact that the anti-abuse rule in that case was applicable to all the sales transactions with shares, whereas the abuse could only take place in a group (thus between affiliated bodies). The anti-abuse provision must restrict itself only to transactions within a group if it is to be proportionate, according to the AG. The CJ agreed with its AG on this point.

5.2. The lessons from Cadbury Schweppes and Test Claimants in the Thin Cap Group Litigation

5.2.1. The legal presumption of abuse in both cases

It is difficult to indicate how broad (or how strict) anti-abuse rules must be if they are to be in accordance with Union law. ECJ 12 September 2006, case C-196/04 (Cadbury Schweppes) is a well-known and good example of a case from which lessons can be learned as to how the CJ deals with this problem. In this case, the British Controlled Foreign Companies ('CFC') legislation was at issue. In short, this legislation made it possible to levy corporation tax in the United Kingdom on profits that were attained by subsidiaries established outside the United Kingdom, the shares of which were held by British holding companies. The profits of such foreign subsidiaries were attributed to the parent company that was established in the United Kingdom and taxed with corporation tax (whereby the foreign corporation tax was set-off). The CFC legislation

5 CJ 17 September 2009, case C-182/08, Glaxo Wellcome, opinion point 167.

is applicable in the event the foreign subsidiary is subject to a "lower level of taxation" elsewhere as compared to the British level of levy. There is a "lower level" if the foreign tax paid amounts to less than 75 % of the British tax which would have been due on the profit of the subsidiary. This rule is of particular interest for companies which are developing financial activities. There are exceptions to this CFC legislation. One of these exceptions is the "motive test": the taxpayer must demonstrate that a lowering of the British tax was not (one of) the principle reason (s) to create the foreign subsidiary and furthermore that the effected lowering of British tax was not the consequence of a "re-routing" of profits. In Cadbury Schweppes, the profit of two subsidiaries established in Ireland was attributed to the parent company established in the United Kingdom, Cadbury Schweppes PLC. The two Irish subsidiaries performed group financing activities and in Ireland, made use of what is called the International Financial Services Centre (IFSC) regime whereby only 10 % Irish corporation tax was paid (the rate in the United Kingdom was 33 %). The Court ruled that the CFC legislation restricted the free movement of establishment, because the CFC legislation was never applicable to domestic companies, nor was it applicable if the company was established in a Member State where the profit was not taxed at a rate that was lower than 75 % of the British rate. The question subsequently was if the restriction was justified because this was specifically targeted at the combating of wholly artificial constructions. The Court then examined what the objective of the right of establishment was6 and recalled that an establishment implied "the actual pursuit of an economic activity through a fixed establishment in that State for an indefinite period". Subsequently, the Court considered:

"It follows that, in order for a restriction on the freedom of establishment to be justified on the ground of prevention of abusive practices, the

6 "That objective is to allow a national of a Member State to set up a secondary establishment in another Member State to carry on his activities there and thus assist economic and social interpenetration within the Community in the sphere of activities as self-employed persons (see Case 2/74 Reyners [1974] ECR 631, paragraph 21). To that end, freedom of establishment is intended to allow a Community national to participate, on a stable and continuing basis, in the economic life of a Member State other than his State of origin and to profit therefrom", see the ECJ in para. 53.

specific objective of such a restriction must be to prevent conduct involving the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory".

The Court then went on to examine whether the British CFC legislation could be justified by the combating of wholly artificial arrangements and if this restriction was proportional. In this framework, the Court considered first that the CFC legislation was appropriate to attain this objective. Here the court considered:

"That legislation covers situations in which a resident company has created a CFC which is subject, in the Member State in which it is established, to a level of taxation which is less than three quarters of the amount of tax which would have been paid in the United Kingdom if the profits of that CFC had been taxed in that Member State" (para 58).

"By providing for the inclusion of the profits of a CFC subject to very favourable tax regime in the tax base of the resident company, the legislation on CFCs makes it possible to thwart practices which have no purpose other than to escape the tax normally due on the profits generated by activities carried on in national territory. As the French, Finnish and Swedish Governments stated, such legislation is therefore suitable to achieve the objective for which it was adopted" (para. 59).

With respect to the necessity of the CFC legislation, the Court found first that there were a number of exceptions to the CFC legislation but considered that the CFC legislation could only be justified if it were only applicable in the case of an "artificial arrangement" and the taxpayer was given the opportunity to provide evidence to the argument that the subjective and objective conditions from Emsland-Starke and Halifax had not been satisfied on the basis of "objective factors which are ascertainable by third parties with regard, in particular, to the extent to which the CFC physically exists in terms of premises, staff and equipment". It appears from Cadbury Schweppes that the Court is prepared in principle to allow more general measures such as the CFC legislation (such legislation prompts the presumption

that in these situations, there is a matter of abuse), under the condition that the taxpayer is given the opportunity to prove that in his situation, there had been no question of abuse.

We see the same in ECJ 13 March 2007, case C-524/04 (Test Claimants in the Thin Cap Group Litigation). In this case, British thin capitalisation rules were up for discussion whereby interest paid within a group under certain conditions could not be deducted (the deductible interest was then re-qualified to a non-deductible profit distribution). According to the Court, the rules constituted a restriction on the right of establishment because they were only applicable if the lender was established abroad. The Court subsequently recalled that such a restriction could be justified in case:

"the specific objective of such a restriction must be to prevent conduct involving the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory" (para. 74).

The Court first established that the British thin capitalisation rules were appropriate to attain this objective:

"As the United Kingdom Government observes, national legislation such as the legislation at issue in the main proceedings is targeted at the practice of thin capitalisation, under which a group of companies will seek to reduce the taxation of profits made by one of its subsidiaries by electing to fund that subsidiary by way of loan capital, rather than equity capital, thereby allowing that subsidiary to transfer profits to a parent company in the form of interest which is deductible in the calculation of its taxable profits, and not in the form of non-deductible dividends. Where the parent company is resident in a State in which the rate of tax is lower than that which applies in the State in which its subsidiary is resident, the tax liability may thus be transferred to a State which has a lower tax rate" (para. 76).

The Court then examined whether these were also necessary. Hereby, the Court considered that the statutory rule with regard to thin capitalisation could be justified:

"where it provides that interest paid by a resident subsidiary to a non-resident parent company

is to be treated as a distribution only if, and in so far as, it exceeds what those companies would have agreed upon on an arm's-length basis, that is to say, the commercial terms which those parties would have accepted if they had not formed part of the same group of companies".

The Court went on to consider:

"The fact that a resident company has been granted a loan by a non-resident company on terms which do not correspond to those which would have been agreed upon at arm's length constitutes, for the Member State in which the borrowing company is resident, an objective element which can be independently verified in order to determine whether the transaction in question represents, in whole or in part, a purely artificial arrangement, the essential purpose of which is to circumvent the tax legislation of that Member State. In that regard, the question is whether, had there been an arm's-length relationship between the companies concerned, the loan would not have been granted or would have been granted for a different amount or at a different rate of interest".

The CJ, therefore, allows an at arm's length test if there is a general presumption that abuse is present. The CJ then set, on the basis of the principle of proportionality, two conditions:

1) "on each occasion on which the existence of such an arrangement cannot be ruled out, the taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that arrangement";

2) "that, where the consideration of those elements leads to the conclusion that the transaction in question represents a purely artificial arrangement without any underlying commercial justification, the re-characterisation of interest paid as a distribution is limited to the proportion of that interest which exceeds what would have been agreed had the relationship between the parties or between those parties and a third party been one at arm's length".

5.2.2. The lessons from these judgments considered further

It appears from Cadbury Schweppes and Test Claimants in the Thin Cap Group Litigation that three requirements are set for an anti-abuse rule which operates with a legal presumption of abuse:

1. An objective element which can be independently verified by a third party in order to determine whether the transaction in question represents, in whole or in part, a purely artificial arrangement, which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory (legal presumption of abuse based on the objective abuse test);

2. The taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that arrangement (proof to the contrary of the taxpayer based on the subjective abuse test);

3. Where the consideration of those elements leads to the conclusion that the transaction in question represents a purely artificial arrangement without any underlying commercial justification, the re-characterisation is limited to abuse situations (proportional combating of abuse).

The first requirement which the Court sets for the legal presumption of abuse is, in essence, that the anti-abuse measure must be structured such that there is a concrete indication of abuse, only on the basis of a suchlike rule may the burden of proof that there is no question of abuse in his concrete situation be placed on the taxpayer. It becomes clear that the general criteria are not permitted (see paragraph 5.1.). The general indication that the Court gives is that there must be a rule which is based on an "objective criterion, verifiable by a third party, being applied to test for the existence of a wholly artificial arrangement" (see para. 81 Thin Cap LGO and para. 56 in SIAT). On this, I first wish to remark that it is not clear why the objective criterion must be verifiable by a third party. This requirement first arose in Cadbury Schweppes in 2006 (but then in the framework of the proof to the contrary rule for the taxpayer), but in light of the confidentiality applicable in many Member States with regard to information about the tax position of a taxpayer, it fails to be seen why a third party must verify the objective criterion7. The Court

71 remark that with the wording "verifiable by a third party", I assume that

the Court does not refer to the fact that the anti-abuse provision must be open to judicial review; see: CJ 17 July 1997, C-28/95 (Leur-Bloem), para. 41. I believe that is a correct requirement.

was probably inspired by another case in 2006, namely, Eurofood, in which the Court ruled that "the centre of main interests" from art. 3, para. 1 of the Insolvency Proceedings Regulation "must be identified by reference to criteria that are both objective and ascertainable by third parties". In Eurofood, the requirement of verifiability by a third party is logical because a third party (the creditors) had an interest in knowing where the centre of main interests of the debtor was situated8. This is different in tax cases. As far as I am concerned, the Court could leave out the requirement that a third party must be able to verify the objective element.

Thus the only relevant condition is that a legal abuse presumption must contain an "objective element" in "order to determine whether the transaction in question represents, in whole or in part, a purely artificial arrangement, which does not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory". We have seen above in Thin cap GLO that an at arm's length test was applied to the amount of a loan and the interest on it was considered by the Court as a suchlike objective element. In my view, that is correct, given that in deviation from the at arm's length test, there can indeed be a "rerouting" of domestic profits to a lower taxed jurisdiction. In Cadbury Schweppes, the Court considered as objective element, being subject "to [a] very favourable tax regime". This is approved by the Court as a relevant criterion given that the UK CFC legislation "makes it possible to thwart practices which have no purpose other than to escape the tax normally due on the profits generated by activities carried on in national territory" (para. 59). This too appears to be a correct decision to me. The being subject to a very favourable tax regime appears to me to be a first indication that tax avoidance could be present. It must be noted, however, that due to the judgment of the Court in the I deal with this further in paragraph 5.3 below.

The second requirement is that an anti-abuse rule must always give the taxpayer the opportunity, without being subject to undue administrative

8 This is why the Proceedings Regulation also requires the verifiability, see consideration 13 to the preamble of this Regulation.

constraints, to provide evidence of any commercial justification. In essence, this opportunity to provide proof to the contrary is that the taxpayer will have to demonstrate that in his situation, there was no question of a wholly artificial arrangement, but that the transactions reflected an "economic reality". For an understanding of an economic reality, I refer to paragraph 2.1.7 (see Bulletin of the Financial University, no. 2). The third requirement entails that the anti-abuse measure must combat the tax avoidance proportionally. For a discussion of this requirement, I refer to paragraph 7.

5.3. SIAT-case: more advantageous tax regime test: case-by-case approach rejected; Black list permitted

One recent case in which the CJ found a national anti-abuse measure to be too general is the SIAT case9. This case concerned a Belgian deduction limitation, which excluded the deduction of payment for performances or services if they were paid to a non-resident company, where the non-resident company was not subject, in the Member State of establishment, to tax on income or was subject, as regards the relevant income, to a tax regime which is appreciably more advantageous than the applicable regime in Belgium. In such a situation, the payments were not deductible unless the taxpayer proves that such payments relate to genuine and proper transactions and do not exceed the normal limits, whereas, under the general domestic rule, such payments are to be regarded as deductible business expenses if they are necessary for acquiring or retaining taxable income and if the taxpayer demonstrates the authenticity and amount of those expenses.

The CJ considered this rule a restriction on the free movement of services. With regard to the justification grounds, the Court observed, "It must therefore be held that legislation such as that at issue in the main proceedings is suitable for attaining the objectives of preventing tax evasion and avoidance and of preserving both the effectiveness of fiscal supervision and the balanced allocation between Member States of the power to impose taxes, all of which — as is apparent from the foregoing — are closely linked in the

9 CJ 5 July 2012, C-318/10, (SIAT), H&I 2012/11.2 (comments by De Broe and Gernay).

case before the referring court" (para. 48). The Court then examined whether that legislation goes beyond what is necessary in order to attain those objectives. In this proportionality test, the Court follows the strict line it has set under the anti-abuse case law. Of particular importance is that it "it is clear from the case-law of the Court that, where legislation is predicated on an assessment of objective and verifiable elements for the purposes of determining whether a transaction represents a wholly artificial arrangement entered into solely for tax reasons, it may be regarded as not going beyond what is necessary to prevent abusive practices, if, on each occasion on which the existence of such an arrangement cannot be ruled out, that legislation gives the taxpayer an opportunity, without subjecting him to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that arrangement" (para. 50). Herewith, the Court referred to Test Claimants in the Thin Cap Group Litigation, paragraph 82. Thus far, it would seem that nothing new has emerged, old case law is reiterated. The court then went on to test whether the Belgian rule satisfied the above requirements. Here, the CJ considered the following (para. 54 t/m 59):

"However, as has been indicated in paragraph 25 above, the special rule may be applied where payments are made to providers who, by virtue of the legislation of the Member State in which they are established, are not subject there to a tax on income or are subject there, for the relevant income, to a tax regime which is appreciably more advantageous than the applicable regime in Belgium" (para. 54).

"Accordingly, as the Advocate General noted in point 71 of his Opinion, the special rule requires the Belgian taxpayer to provide, as a matter of course, proof that all the services are genuine and proper and that all related payments are normal, without the tax authority being required to provide even prima facie evidence of tax evasion or avoidance" (para. 55).

"The special rule can be brought to bear without any objective criterion, verifiable by a third party, being applied to test for the existence of a wholly artificial arrangement which does not reflect economic reality and which has been made with the aim of escaping the tax normally due on

the profits generated by activities carried out in the national territory, since account is taken only of the level of tax imposed on the service provider in the Member State in which that provider is established" (para. 56).

"It must be stated that, as has been noted in paragraph 27 above, a rule framed in such terms does not make it possible, at the outset, to determine its scope with sufficient precision and its applicability remains a matter of uncertainty" (para. 57).

"Such a rule does not, therefore, meet the requirements of the principle of legal certainty, in accordance with which rules of law must be clear, precise and predictable as regards their effects, in particular where they may have unfavourable consequences for individuals and undertakings (see, to that effect, Case C-17/03 VEMW and Others [2005] ECR I-4983, paragraph 80, and Joined Cases C-72/10 and C-77/10 Costa and Ci-fone [2012] ECR I-0000, paragraph 74)" As it is, a rule which does not meet the requirements of the principle of legal certainty cannot be considered to be proportionate to the objectives pursued". (para. 58).

In para. 57, the Court referred to para. 27 of the judgment. The CJ considered in paras 26 to 28:

"As the Belgian Government acknowledges, in the absence of a statutory definition, or administrative instructions as to what is to be understood by 'a tax regime which is appreciably more advantageous than the applicable regime in Belgium', the assessment concerning the applicability of the special rule is carried out on a case-by-case basis by the tax authority, under the supervision of the national courts" (para. 26).

"In those circumstances, the scope of that special rule is not delimited with sufficient precision at the outset and, in a situation where the service provider is established in a Member State other than the Kingdom of Belgium and is subject there to a tax regime which is more advantageous than the applicable regime in Belgium, there is uncertainty as to whether the foreign regime will be considered to be a 'regime which is appreciably more advantageous' and whether, as a result, the special rule will apply" (para. 27).

"Accordingly, that special rule — which lays down stricter conditions for being allowed to

deduct business expenses than those laid down in the general rule and the scope of which has not been delimited with precision beforehand — is liable both to dissuade Belgian taxpayers from exercising their right to the freedom to provide services and from making use of the services of providers established in another Member State and to dissuade those providers from offering their services to recipients established in Belgium (see, to that effect, Case C-422/01 Skandia and Ramstedt [2003] ECR I-6817, paragraph 28 and the case-law cited)" (para. 28).

Relevant is that in SIAT, the Court rejects a general anti-abuse rule which reverses the burden of proof for the deduction of expenses (places it on the taxpayer) in the case the payments to the recipients fall under "a tax regime which is appreciably more advantageous than the applicable regime in Belgium" on the basis of the fact that the measure is too general and is contrary to the principle of legal certainty.

That the measure is too general is substantiated by the Court with the remark that "the special rule requires the Belgian taxpayer to provide, as a matter of course, proof that all the services are genuine and proper and that all related payments are normal, without the tax authority being required to provide even prima facie evidence of tax evasion or avoidance" (italics author). I do not subscribe to this. I am of the opinion that when a taxpayer makes use of an appreciably more advantageous regime, this is a first sign of the proof that abuse is present, and that the burden of proof to the contrary can be placed on the taxpayer. I also point out that the Belgian rule is only applicable if there is an appreciably more advantageous foreign regime. This will only be the case in exceptional situations and thus, not in every situation.

I also do not agree that the more advantageous regime test is not an "objective criterion" such as is claimed by the CJ in para. 56. According to the CJ, there is no question of this "since account is taken only of the level of tax imposed on the service provider in the Member State in which that provider is established". In my view, that is incorrect. The Belgian rule provides namely for a comparison between the foreign tax burden and the Belgian tax burden. If the foreign regime is appreciably more advantageous than

the applicable regime in Belgium, the Belgian provision is applicable. In addition, it must be acknowledged that for the question of whether there is tax avoidance, the CJ itself states that this is "escaping the tax normally due on the profits" (paragraph 2.1.7.1, see Bulletin of the Financial University, no. 2), the Belgian rule focuses precisely on this, but the Court does label this as a non-objective criterion. I concede that the Belgian rule is more proportional when it is only applicable if there is a dependency relationship between the payer and the recipient of the payment (thus only in group situations). If the court had ruled that the "appreciably more advantageous foreign regime" test was not permitted because it is not restricted to group situations, I could have been satisfied with the judgment. The problem is, however, that the Court is silent on the lack of a restriction of the rule on group situations10. What the Court then does is reject the "appreciably more advantageous foreign regime" test as it is contrary to the principle of legal certainty given that "a rule framed in such terms does not make it possible, at the outset, to determine its scope with sufficient precision and its applicability remains a matter of uncertainty" (para. 57). This because, "in the absence of statutory definition, or administrative instructions as to what is to be understood by 'a tax regime which is appreciably more advantageous than the applicable regime in Belgium', the assessment concerning the applicability of the special rule is carried out on a case-by-case basis by the tax authority, under the supervision of the national courts" (see: para. 26). On this ground, the Court is of the opinion that "that special rule is not delimited with sufficient precision" (para. 27). I have difficulty with this opinion. Given that the "appreciably more advantageous foreign regime" test cannot be sufficiently determined beforehand because it can only be established on a case-by-case approach does not, in my view, render it contrary to the principle of legal certainty. Not being able to determine the scope of a term such as "tax avoidance" is simply inherent to this term and the "appreciably more advantageous foreign regime" test is an integral part of his given that the Court itself makes the requirement that "escaping the

1 The AG does make some remarks on this; see para. 72 of his Opinion.

tax normally due on the profits" is a condition for the existence of tax avoidance. Furthermore, the Court did accept an at arm's length test in Test Claimants in the Thin Cap Group Litigation. An at arm's length test also creates the necessary uncertainty beforehand and will have to be conducted on a case-by-case basis, thus, there is no relevant difference. That the Court has a problem with the legal certainty in anti-abuse provisions when these can only be applied case-by-case is remarkable given that it is the Court itself that requires that abuse must, in principle, be combated case-by-case (cf. Centros, para. 25)11.

The opinion of the CJ in SIAT is also remarkable given that the CFC rule such as was under discussion in Cadbury Schweppes contains a test comparable to the rule in SIAT. The CFC rule in Cadbury Schweppes was applicable if there was a "lower level of taxation" in another Member State, here this was when "the tax paid by the CFC is less than three quarters of the amount of tax which would have been paid in the United Kingdom on the taxable profits as they would have been calculated for the purposes of taxation in that Member State. That the UK CFC legislation was applicable "to [a] very favourable tax regime" was approved by the Court in Cadbury Schweppes given that it "makes it possible to thwart practices which have no purpose other than to escape the tax normally due on the profits generated by activities carried on in national territory" (see para. 59; see also paragraph 5.2 above).

Admittedly, the CFC legislation in Cadbury Schweppes was only applicable to an dependency relationship (50 % shareholding), the UK rule indicates more precisely when there is a "lower level of taxation" (foreign taxation is less than 75 % of the tax which would be levied on the profit in the UK), and the UK has a "white-list" of jurisdictions which do not fall under the CFC regulation, however, also under the UK CFC rules, it must be determined on the basis of a case-by-case approach who falls under the CFC rules, and that was exactly what the Court objected to in SIAT. The necessary legal uncertainty also remains

under the UK rules in Cadbury: first, the foreign tax on the foreign profit must be determined and, in addition, that profit must be recalculated according to UK standards and abandoned to the English rate12. Another case that can be mentioned is Haribo13. In this case, there was an exemption which was not applicable if "the foreign corporation is not in fact subject abroad, directly or indirectly, to any tax comparable to Austrian corporation tax". Again, here is a test comparable to that in SIAT. The preliminary questions in this case concerned the fact whether it is contrary to European Union Law that the evidence in order to be eligible for an exemption in practice cannot be provided by the shareholder, or can be provided only with great difficulty. The CJ, however, does not consider this a problem: "Information demanded by the national tax authority from the company receiving dividends that relates to the tax that has actually been charged on the profits of the company distributing dividends in the State in which the latter is resident is an intrinsic part of the very operation of the imputation method and cannot be regarded as an excessive administrative burden". The rules in Haribo, thus, create great legal uncertainty, even legal impossibility, but that is permitted by the Court.

The relationship between Cadbury Schweppes and Haribo versus the judgment in SIAT is not clear to me. This is regrettable given that a "low-taxation test" appears very often in the national legislation of the Member States. It would thus have been a welcome clarification if the AG and the CJ had dealt with this in further detail. In SIAT, the CJ would appear to rule that a presumption of abuse based on an "appreciably more advantageous foreign regime" test as such is contrary to the principle of legal certainty because this cannot be determined in advance and can only be given substance in a case-by-case approach. It is not clear how this judgment bears relation to other judgments (Cadbury Schweppes/Haribo/ Thin Cap Group LGO), in which provisions were approved which ultimately also led to a case-by-case test. As I have indicated above, I am of the opinion that an "appreciably more advantageous

11 Reference can also be made to ECJ 12 May 1998, C-367/96, Kefalas, ECR [1998] p. I-2843, in which the Court allowed a very broad anti-abuse provision which read: "the exercise of a right is prohibited where it manifestly exceeds the bounds of good faith, morality or the economic or social purpose of that right".

12 See on the relation between SIAT and Cadbury also: I.M. de Groot, Heeft SIAT gevolgen voor art. 10a Wet Vpb 1969?, NTFR, 2012/2690.

13 CJ 10 February 2011, Cases C-436/08 and C-437/08 (Haribo), H&I 2011/10.1 (comments by Wattel).

foreign regime" test as such is not contrary to the principle of legal certainty. I also hope that in future judgments, the court will rule that an "appreciably more advantageous foreign regime" test in itself is allowed, but only if applied in an anti-abuse measure to which there are also other requirements (only applicable to a group, only in certain suspect transactions; or in the case of easily moveable activities (capital)). This would establish a more proportional anti-abuse provision, which holds a more specific legal presumption. Unfortunately, in SIAT, the Court is silent on this. The Court probably only allows an "appreciably more advantageous foreign regime" test if it is substantiated further, such as in Cadbury Schweppes (foreign taxation is less than 75 % of the tax which would have been levied on the profit in the UK) given that this creates more certainty. It could also be so that the Court is stricter and does approve (and only approves) (black) lists which indicate in advance when there is a matter of a suspect regime. AG Cruz Villalon also suggested this in his Opinion in SIAT (see point 73). In Cadbury Schweppes, there was a "low-taxation test", in combination with a white list, but at the testing of whether the UK CFC regime was proportional, the court was silent on the white list14. Nevertheless, black lists create legal certainty, but on the other hand are much more general and sketchy than a case-by-case test. If for the combating of tax avoidance the CJ should approve in general black lists of jurisdictions which could be considered, let's say, "undesirable", this would be contrary to the case law of the Court which rejects these general anti-abuse provisions because they are not proportional (see paragraph 5). It would be remarkable if the Court should take that route. If the CJ should allow black lists, then in my view, it must be tested whether the criteria on which these black lists are based are not too general.

5.4. Burden of proof

Along with the question of how specific may an anti-abuse provision be, comes the question of how to divide up the burden of proof that abuse is present. The CJ ruled in Emsland-Stärke that proof for both the subjective and for the objective abuse test "must be adduced in accordance

14 AG Leger did mention the white list as one of the circumstances on which he assesses the proportionality of the measure; see point 132 of his Opinion in Cadbury Schweppes.

with the rules of national law, provided that the effectiveness of Community law is not thereby undermined" (para. 54). The CJ thus leaves the division of the burden of proof for the greater part to the national court.

It must be realised that in practice, the objective and the subjective tests in fact often imply a division of the burden of proof. It will have to be in the hands of the Member State (in this case the tax authorities) to demonstrate that the objective test has been satisfied; if this has been satisfied, then it would appear that there is a suspicion of abuse which can be refuted by the interested party by demonstrating that he had a non-fiscal reason for his transaction [1, p. 215, 216]. We also see that in Cadbury Schweppes and Claimants in the Thin Cap Group Litigation (see further, also paragraph 5.2.), in which the CJ permits the legislature to consider certain situations as abuse but subsequently offering the taxpayer the opportunity to provide proof to the contrary. The CJ then also accepts that in such a situation, the burden of proof is placed on the taxpayer. In Cadbury Schweppes the CJ remarked on this, that Cadbury Schweppes which, according to the Court, is "best placed for that purpose" and "must be given an opportunity to produce evidence that the CFC is actually established and that its activities are genuine". The Court then pointed out that the Member State can obtain relevant information by invoking the Mutual Assistance Directive or a tax treaty (paras. 70 and 71). We assume that if the taxpayer produces evidence and the tax authorities have doubts about this, it is up to the tax authorities to verify the evidence at issue by aid of the Mutual Assistance Directive or a tax treaty [3, p. 615].

5.5. More scope for the Member state to combat abuse under the VAT-Directive

It would appear from Cadbury Schweppes en Test Claimants in the Thin Cap Group Litigation that the Court is allowing more general anti-abuse measures, such as an at arm's length test as an anti-abuse measure, provided the taxpayer always has the opportunity to demonstrate that the transaction had taken place for commercial reasons. Also here, the at arm's length test prompts the suspicion of abuse, unless the taxpayer can demonstrate that he had no subjective intention of abuse. Although it would thus appear that the

Court always requires that an anti-abuse measure provides that a taxpayer can prove that in his situation there was no question of abuse [4], the Court is not always consistent in this. A example is ECJ 22 May 2008, case C-162/07 (Ampliscien-tifica). At issue in this case was whether prior to entering into a "fiscal unity" in the VAT the requirement could be made that a holding period of one to two years must be satisfied. After having referred to the case law concerning the prohibition on abuse of law (Halifax, Cadbury Schweppes, etc.), the Court considered that a rule "which requires economic operators to demonstrate, by means of a certain continuity in their activities and operations, that recourse to a mechanism to simplify VAT declarations and payments is not simply motivated by the intention to obtain a tax advantage, inter alia by entering a VAT debit or credit in the accounts of the parent company or body, which would have the effect, in the first case, of reducing its taxable income and, in the second, of securing it an immediate tax credit, but is the result of a more long-term economic decision, is not contrary to the principle prohibiting the abuse of rights". The Court also considered that the holding period respected the principle of proportionality. In this framework, the Court noted: "Conversely, if no time-limit had been imposed, the effect might have been to permit individual operations to be carried out justifying the ad hoc formation of legal structures. Such national legislation is likely to encourage abuse and evasion, the prevention of which is precisely one of the objectives pursued by Community law".

In this case, we see that the Court permits a holding period prior to entering into a fiscally favourable arrangement (fiscal unity), given that in doing so, it is ascertained that the arrangement is not abused exclusively for a tax advantage and legal ad hoc structures are avoided. It appears from the judgment that, according to the Court, the ad hoc setting up of legal structures can encourage abuse. In itself, that is not surprising, all the more so given the fact that in ECJ 17 July 1997, case C-28/95 (Leur-Bloem) the Court had already indicated that a merger for a structure for a limited period of time and not on a permanent basis may constitute evidence of tax avoidance (see para. 42). It is however striking that in Ampliscientifica, the Court did not require proof to the contrary for situations

in good faith. In Leur-Bloem, the Court considered, with respect to a (similar) holding period for a shares merger15: "it is nevertheless possible that a merger by exchange of shares with the aim of creating a specific structure for a limited period of time and not on a permanent basis may have valid commercial reasons"; the Court subsequently denied, with reference to the principle of proportionality, a general holding period. The Court is not consistent here: on the basis of the prohibition on abuse of law/the principle of proportionality, a general holding period for a shares merger is denied, but a more rigid 1 to 2-year holding period for the fiscal unity in VAT is in fact permitted [5, p. 74].

5.6. More scope for the Member state to combat abuse in relations with third states

In situations with third countries, the CJ gives the Member States more scope to combat abuse. A striking example is the less known case, Commission versus Portugal16. This case concerned the restrictive effect of having to appoint a tax representative in Portugal. The CJ first established that such a requirement was a restriction on the free movement of capital. As justification, Portugal invoked the effectiveness of fiscal supervision and the prevention of tax avoidance. The CJ rejected this argument with the standard considerations that "the prevention of tax evasion can be accepted as justification only if the legislation is aimed at wholly artificial arrangements the objective of which is to circumvent the tax laws, which precludes any general presumption of tax evasion. Consequently, a general presumption of tax avoidance or tax evasion cannot justify a fiscal measure which compromises the objectives of the Treaty". In doing so, the objective of the provision would be lost. Subsequently, the entirely different attitude of the CJ in the explanation of art. 40 EEA Agreement (free movement of capital between EU member States and the EFTA States) is striking. Here also it was established that there was a restriction on the free movement of capital, however, with regard to the justification ground concerning the effectiveness of fiscal supervision and the prevention of tax avoidance, the CJ

15 According to the then prevailing Netherlands legislation, an exchange of shares was only effected when undertakings were amalgamated "in the financial and economic sense for the long term in one entity".

16 CJ 5 May 2011, Case C-267/09, Commission/Portugal.

pointed to the fact that "the case-law concerning restrictions on the exercise of freedom of movement within the Union cannot be transposed in its entirety to movements of capital between Member States and non-member countries, since such movements take place in a different legal context" (para. 54). The CJ pointed out that with regard to EFTA States, Portugal could be lacking behind in information, because the EU Regulations that provide for mutual assistance were not applicable between the EU and the EFTA Stats. We see other examples of the same case law in Commission v. the Netherlands17, Commission v. Italy18, and Rimbaud19. Remarkable in this case law is that the CJ assumes a priori that the lack of information (and not being able to request information in a third State) is a problem in the combating of abuse20. At any rate, in situations with third countries, the CJ gives the Member State, in the case of lack of an instrument of international exchange of information, the right to combat abuse by means of general presumptions.

5.7. More scope for the Member States to exclude cross-border offsetting of losses and profits

As we have seen above, in most situations the Court demands that an anti-abuse measure provide that a taxpayer can prove that in his situation there was no question of abuse. In addition to the situations with third countries, (see above) an exception to this can be found in EU connection in cases of the Court which relate to cross-border offsetting of losses and profits [6, p. 273].

The start of this case law was ECJ13 December 2005, case C-446/03 (Marks & Spencer). This case concerned a UK rule concerning carry-over losses. Within a group, one group company was able, on the basis of this rule, to transfer its loss to another group company (thus, for example, from a subsidiary to a parent company). This loss transfer, however, was restricted to group companies which were established in the United Kingdom. The transfer of a loss suffered by a subsidiary established in another Member State to its parent

17 CJ 11 June 2009, case C-521/07, (Commission/Netherlands), H&I 2009/9.2 (comments by Wattel).

18 CJ 19 November 2009, C-540/07 (Commission/Italy), H&I 2010/2.6. (comments by Weber).

19 CJ 28 October 2010, case C-72/09 (Rimbaud), H&I 2011/1.2. (comments by Szudoczky).

20 See my remarks in H&I 2010/2.6. to CJ 19 November 2009, C-540/07

(Commission/Italy).

company established in the United Kingdom was not possible. The Court qualified this impossibility of cross-border loss carry-over a restriction on the right of establishment. The Member States moved three grounds to justify this restriction. In short, these grounds were: 1) the preservation of the allocation of the power to impose taxes between Member States, 2) the risk of frustrating double set-off of a loss suffered (the loss could be taken into account both in the Member State of the subsidiary and in the Member State of the parent company; so-called double dipping), and 3) averting the danger of tax avoidance.

The Court ruled that:

"In the light of those three justifications, taken together, it must be observed that restrictive provisions such as those at issue in the main proceedings pursue legitimate objectives which are compatible with the Treaty and constitute overriding reasons in the public interest and that they are apt to ensure the attainment of those objectives"21.

The Court was of the opinion that the entire exclusion of foreign losses in the United Kingdom was more far-reaching than necessary in order to enforce the objectives pursued. According to the Court, the United Kingdom would indeed sometimes take account of the foreign losses namely in the case the foreign subsidiary had exhausted its loss set-off options in its State of establishment (because set-off could no longer take place from, for example, profits previously made).

Noteworthy is that the Court combined the three reasons put forward ('taken together'). This attitude of the Court can probably be explained by the fact that the arguments which were put forward by the Member States, viewed independently, did not constitute a sufficiently compelling reason of general interest.

With regard to the danger of tax avoidance, the Court has always emphasised in other cases that there must be an issue of an "artificial arrangement" and that general measures cannot be justified on the basis that tax avoidance must be combated. Nevertheless, in this case, the Court deemed the combination of the three reasons previously referred to of sufficient weight to reach a final opinion that a compelling of general

21 Italics by the author.

interest was present. Presumably that this, however, was an opportune argument in order to come to the desired result in the Marks & Spencer case. The justification grounds such as these were accepted in the Marks & Spencer judgment must, in our opinion also then be applied in correlation and may not simply be substituted in other cases positions. This interpretation would seem to have been confirmed in ECJ 29 March 2007, case C-347/04 (Rewe Zentralfinanz) in which it is considered that the justification ground regarding "the preservation of the allocation of the power to impose taxes between Member States", was only accepted by the Court in correlation with the two other justification grounds such were at issue in Marks & Spencer.

Deviation is made from this, however, in ECJ 18 July 2007, case C-231/05 (Oy AA). The issue in this case was a rule which permitted deduction of taxable income if this had been transferred within a group to another group company (in this case from the subsidiary to the parent company). The parent company and the subsidiary, however, also had to be established in the same Member State. The Court ruled that this was a restriction on the right of establishment but that this rule was nevertheless justified on the basis of, considered together, "the need to safeguard the balanced allocation of the power to tax between the Member States and the need to prevent tax avoidance". The possibility of double set-off of loss did not arise, but nevertheless, the Court was prepared to justify the rule on the basis of the two justification grounds referred to. In Oy AA, the Court even stated clearly that the rule did not have the specific object of combating artificial constructions (and thus, it could not be justified on the basis of combating tax avoidance22) but, considered expressly that the rule could nevertheless be justified because otherwise, group companies would have the discretion to determine the Member State in which their profit would be taxed, and this would be to the detriment of the Member State of the subsidiary to levy tax on the profits from the activities performed on its territory. In Oy AA, just as in Marks & Spencer, it is clear that the Court sometimes deviates from its own case

22 See also CJ 21 January 2010, case C-311/08, SGI, H&I 2010/4.6 (comments by De Broe and Bammens), para. 66.

law and takes a more flexible attitude to come to the desired result.

In CJ 25 February 2010, case C-337/08 (X Holding), BNB 2010/166 (Opinion Kokott, note Meussen) there would appear to be a follow-up of Oy AA. In this case, the refusal of a cross border fiscal unity appeared to be justified otherwise the division of the power to levy tax would be endangered, given that otherwise a cross border fiscal unity can be freely entered into and broken; by entering into the cross border fiscal unity, the parent company would then be able to choose the Member State in which it wanted to deduct the losses of the foreign subsidiary.

What is striking in X Holding is that the CJ, just as in Oy AA, accepts a general exclusion in a situation in which it has not been established that there was actually a matter of ofsettable losses and in which a more proportional solution was conceivable. The CJ also, just as in Oy AA, remains silent on the requirements of exhaustion of loss possibilities from Marks & Spencer [7, p. 58].

We can only speculate on why the Court leaves more scope to the Member States to take restrictive measures in exactly those cases about cross-border offsetting of losses and profits. It has been suggested that this concerns the arguments which are put forward by the Member States in the relevant cases [8, p. 821]. It is also striking that in Oy AA the Court deemed the Finnish rule justified and also does not seem to require (such as in Marks & Spencer) that Finland should permit profit transfer if the loss possibilities are exhausted in the other Member State. The explanation is found in the fact that it would be very easy for group companies themselves to elect the Member State in which they would have to pay tax [8, p. 822]. Be that as it may, it is clear that in this type of case, the Court leaves the Member States broader possibilities to restrict the principle of free movement. All these cases concerned a situation in which the balanced allocation of the power to tax between the Member States was endangered. We would appear to draw the conclusion that where there is a balanced allocation problem, the Member States may take broader anti-abuse measures and the taxpayer does not always have to be given the opportunity to provide proof to the contrary. It must be noted, however, that the balance allocation is in danger

when Member States are deprived of the possibility "to exercise their tax jurisdiction in relation to the activities carried out in their territory". See, for example, paragraph 49 of Marks & Spencer. Such as attention is devoted in a number of places in this article (see, for instance, paragraph 2.1.7.1.a and paragraph 5.2) it is emphasised in the abuse case law of the CJ that this refers particularly situations "which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory" (para. 55 in Cadbury Schweppes; para. 40 in SIAT). This is the same as that provided by the balanced allocation justification and the CJ itself regularly draws a parallel between the abuse-justification and the balanced allocation justification (paragraph 2.1.7.1.a, see Bulletin of the Financial University, no. 2). It is however not clear when the CJ is satisfied with a somewhat broad anti-abuse provision or requires that the anti-abuse provision must only be focused on abuse and the taxpayer must also be offered the opportunity to provide proof to the contrary. It would seem clear that this is not conducive to the legal certainty if the Court cannot be clearer in this matter. I, however, recommend to the CJ not to draw a distinction between the anti-abuse justification and the balanced allocation case law. Given that the justification grounds are "closely linked" to each other (cf. para. 48 in SIAT), it would seem to me more obvious to bring the case law more in conformity with each other instead of making a sharp distinction.

6. Tax jurisdiction shopping

6.1. Introduction

On the basis of the objective abuse test (paragraph 2.1.1, see Bulletin of the Financial University, no. 2) abuse is only present when it is contrary to the scope and object of EU law (see, amongst others, ECJ12 May 1998, case C-367/96 (Kefalas), ECRI-2843. The object and scope of a certain rule in Community law will always be a variable. If we view the Common Market in general, it is important to envision with this Market, that the market mechanism functions in the same way as in a domestic market, such to promote the highest possible economic advantage. One of the bases of the internal market after all, is the free competition between private market parties and between the various legal systems. This fact implies that

production factors must be able to exercise the legal systems such as is most beneficial, with as a consequence, that legal systems which contain more onerous requirements may be avoided (in other words; here use is made of disparities). The consequence (evasion of national rules) that is interrelated with the making use of the advantages offered by the internal market, can also not be considered abuse. If the Member States wish to combat such "evasive conduct", they will have to harmonise the relevant rules.

6.2. EU free movement case law — using a more favourable legal system

The Centros case23 is very illustrative in this respect. Centros wanted to circumvent the Danish national rules on forming a company with respect to the paying-up of a minimum share capital, among other things. A limited established under the laws of the United Kingdom does not have to fulfil such a minimum paid-up share capital requirement. For this reason Centros' Danish-resident shareholders incorporated a UK-resident limited24 (which did not conduct any business activities in the United Kingdom). Next, Centros sought to register a branch of the limited in Denmark. The Danish authorities refused to do this because they thought that Centros, which had no business activities in the United Kingdom whatsoever, was in reality not a branch in Denmark, but rather a primary establishment that was being formed in order to avoid the Danish national legislation. The referring court as well was of the opinion that such circumstances could involve avoidance of the Danish national law. The national court thus asked the Court whether refusal of registration in the Commercial Register was permitted under the right of establishment.

After the Court had observed that the right of establishment is applicable where a (shell) company in one Member State establishes a branch in another Member State, it held that a Member State is permitted to take steps to prevent avoidance. The Court also pointed out that the national measures that Centros was trying to circumvent were rules regarding the formation of compa-nies25. The Court recalled, in this connection, the

23 Case C-212/97, Centros.

24 Located at the home of a friend of one of the shareholders.

25 And not rules concerning the carrying on of certain trades, professions

aim of the right of establishment:

"The provisions of the Treaty on freedom of establishment are intended specifically to enable companies formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community to pursue activities in other Member States through an agency, branch or subsidiary".

In these circumstances, there was no abuse of the right of establishment, according to the Court, because of

"the fact that a national of a Member State who wishes to set up a company chooses to form it in the Member State whose rules of company law seem to him the least restrictive and to set up branches in other Member States". The Court emphasized that: "The right to form a company in accordance with the law of a Member State and to set up branches in other Member States is inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty".

In the later Inspire Art decision26, the Court repeated these grounds literally27. The mere fact that a company is formed under English law, which contains fewer restrictions than, for example Danish law, does not mean that there is abuse. This follows implicitly also from the Akrich deci-sion28. In that case, Akrich (a national of a third country who was married to an EC national) exercised his right to reside in the EC. The granting of this right to reside has been made dependent on the national legislation and the Irish legislation was less rigid on this point than the legislation of the United Kingdom. Akrich and his partner made use of the more flexible Irish regime and the Court did not consider this to be abuse29.

Although Centros is a neat case, it concerns a specific set of facts. Centros involved the formation of a company which then exercised its secondary right of establishment within the Community. Exercise of the secondary right of establishment by a company that is formed under a Member State's law is a right under Commu-

or businesses.

26 Case C-167/01, Inspire Art, paras. 137-138.

27 See also Case C-171/02, Commission vs. Portugal, para. 56.

28 Case C-109/01, Akrich.

29 The Court is brief on this point. Compare the Opinion of Advocate

General Geelhoed, points 169-184.

nity law. It is thus clear that, as the Court stated, here there is a situation that is "inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty". This right is dependent on the national law (namely, one is a "company" within the meaning of Art. 48 EC if one is formed under national law). This means that a company formed under relatively flexible national rules may exercise its rights under Community law. It cannot be defended that this is in conflict with the object and scope of the provision, given that for the definition of "company", art. 48 EC itself refers to and national law, and the question if it is a company is thus dependent on (possibly flexible) national law.

In the later Akrich decision as well, in which the Court held that there was no abuse, a right laid down in Community law had been exercised that had been made dependent on the national law on residence. Here too the national law on residence was more flexible in the one Member State than in the other Member State30.

Worthy of note is that the Court held more generally in paragraph 96 of the Inspire Art decision that:

"The Court has also held that the fact that the company was formed in a particular Member State for the sole purpose of enjoying the benefit of more favourable legislation does not constitute avoidance even if that company conducts its activities entirely or mainly in that second State (Segers, paragraph 16, and Centros, paragraph 18)".

Here the Court appears to be more generally of the opinion that exercising the freedom of movement with the purpose of taking advantage of more favourable legislation (even when this is not linked to Community law) is not avoidance31. Following a discussion of Centros in his Opinion on the Akrich case, Advocate General Geelhoed also observed: "in other words, the installation of a worker in

30 See Advocate General Geelhoed in his Opinion in Akrich, point 180: "The installation of Mr and Mrs Akrich in Ireland must be viewed as a

use of EC law for a purpose not contemplated by the EC legislature but which is inherent in EC law. The EC legislature did not intend to create a right that can be used in order to evade national immigration laws but did create a right in favour of a national of a Member State to install himself in another Member State together with his spouse. Installation in that other Member State constitutes the key element of the freedom given by Community law to nationals of the Union" (italics DW).

31 Also striking, however, is the Court's reference to paragraph 16 of Segers and to paragraph 18 of Centros. Other than the Court would lead one to assume, these grounds had to do with a different issue.

another Member State in order to benefit from a more favourable legal system is by its nature not a misuse of Community law"32 (italics DW).

That this is indeed the case was made clear by the Court in the Barbier case33. The Court held: "As regards the Netherlands Government's argument that the fact that the objective of selling the financial ownership of that immovable property was to avoid or delay the payment of a transfer tax should deprive the heirs of protection under Community law, suffice it to recall that a Community national cannot be deprived of the right to rely on the provisions of the Treaty on the ground that he is profiting from tax advantages which are legally provided by the rules in force in a Member State other than his State of residence".

The judgment in the Barbier case was confirmed in ECJ 11 March 2004, case C-9/02 (De Lasteyrie). At issue in this judgment was a restrictive emigration levy which was imposed on a major shareholder. The justification given for this was that the emigration levy had to hinder the fiscal erosion of the tax base of the relevant Member State, particularly by preventing the taxpayer from benefitting from the difference between the tax systems of the various Member States. In this regard, the Court considered (para. 60):

"Therefore, a simple loss of receipts suffered by a Member State because a taxpayer has moved his tax residence to another Member State, where the tax system is different and may be more advantageous for him, cannot in itself justify a restriction on the right of establishment"34.

In ECJ 12 September 2006, case C-196/04 (Cadbury Schweppes) the question arose whether there was a question of abuse of the right of establishment if a company established in one Member State formed companies in another Member State and provided them with capital, with the sole object to benefit from a more favourable tax ruling than that applicable in the first mentioned Member State. With reference to Barbier, the Court considered:

"However, the fact that a Community national, whether a natural or a legal person, sought to profit from tax advantages in force in a Member

32 See Advocate General Geelhoed in his Opinion in Akrich, point 181.

33 Case C-364/01, Barbier, para. 71.

34 A similar opinion can be found in ECJ 11 December 2008, C-285/07,

A.T., H&I 2009/4.8 (comments by Douma), para. 34.

State other than his State of residence cannot in itself deprive him of the right to rely on the provisions of the Treaty".

6.2.1. Conclusion

From the case law of the Court as illustrated above in paragraph 6.2.— see cases Centros, Inspire Art, Barbier, De Lasteyrie and Cadbury Schweppes — it follows that making use of a (more) favourable legal system within the EU is in conformity with the objective of the internal market and that profiting from this in itself cannot be qualified as abuse as such. That this use also implies evading the legal system of another Member State might be called suspect from a national law angle, but in a European law sense is only the other side of the coin and a logical consequence of one of the bases of the internal market35. In other words: if a Community subject exercises the free movement and thus profits from a more favourable legal system, this does not constitute abuse36. The Member States will have to harmonise their legislation in this area if they wish to combat the making use of such differences between the various systems of national law. The case law of the Court in fact encourages the Member States by removing such disparities by harmonisation.

There is no question of improper tax avoidance on the basis of the single fact that an interested party opts for a (more favourable) tax system of another Member State. This means that, in principle, "tax jurisdiction shopping" is permitted. Tax treaty shopping would seem to be a special variant of this. Relocating the fiscal place of domicile or the source or origin of the income to another Member State by exercising the principle of free movement does not as such, constitute improper tax avoidance, provided the relocation is "realistic" (has "substance"; i. e., is not artificial). This is the reason why the Member States are not permitted to frustrate making use of a more

35 Compare in this framework also the EFTA Court in the joined cases E-8/94 and E-9/94 (Mattel/Lego), para. 48: "looked upon from a national perspective, this result might well be viewed as circumvention of national law. Seen in an EEA context it is, however, a logical and necessary consequence of the main principles of the Directive, i. e. the freedom to provide television broadcasting services".

36 With respect to the social security, reference can be made in this framework to ECJ 10 February 2000, case C-202/07 (Fitzwilliams), ECR p. I-883, in which the question arose of whether the making use of a cheaper system of social security constituted abuse. In his Opinion, AG Jacobs remarked that the realisation of this advantage was only a natural consequence of the domestic market, with reference to the remark of AG La Pergola in the Centros case.

favourable tax jurisdiction by levying additional tax to their own level (general compensating levies). A textbook example of this is ECJ 26 October 1999, case C-294/97 (Eurowings). Member States may only combat such use as abuse if there is an issue of a wholly artificial arrangement.

6.3. Divergence in the application of the VAT Directive

The RBS Deutschland case37 concerned a divergence in the application of the VAT Directive. The German RBS Deutschland Holdings GmbH (RBSD) bought motor vehicles from Vinci Fleet Services (VFS), which is established in the United Kingdom (UK). VFS bought the cars from car dealers who were established in te UK. Subsequently, VFS granted an option to RBSD, on the basis of which it could be desired of VFS that it bought the cars back. Finally, a leasing agreement was concluded for two years with RBSD lessor and Vinci (the parent company of VFS) as lessee of the cars. At termination of the leasing, Vinci was obliged to pay the residual value of the cars in full to RBSD. If (in line with the expectations of parties) RBSD sold the cars to a third party, Vinci would have a claim or a debt amounting to the difference between the sales price and the residual value of the cars. With regard to the lease amounts, RBSD did not charge VAT to Vinci, because VAT is not due on the leasings either in the UK or in Germany. The rental payments, received first by RBSD were not subject to VAT in the UK since, under UK law, the transactions carried out under those leasing agreements were treated as supplies of services and consequently the UK tax authorities regarded them as having been made in Germany, that is to say, where the supplier had its place of business. Nor were those payments subject to VAT in Germany since, under German law, the transactions in question were treated as supplies of goods and were therefore regarded as having been made in the United Kingdom, that is to say, the place of supply. Here, use is made of what the AG would call, making use of a "divergence in the application of the VAT-directive" en een "anomaly or derogation in the Community system of VAT".

At the repurchase of cars by VFS, VAT was charged. RBSD deducted in full the VAT that had

37 CJ 22 December 2010, C-277/09 (RBS Deutschland), H&I 2011/3.9 (comments by Lambion).

been charged to it by VFS at the purchase of the cars. The UK Tax Authorities refused to grant the refund, because VAT would not be charged at a later stage. The UK Court had referred questions to the CJ for a preliminary ruling one of which was whether an abuse of law was present.

AG Mazak summarised the problem as a divergence in the application of the VAT Directive which lay at the root of that case. Of importance is that the AG considered the problems more broadly and remarked (para 49 of his Opinion): "the problem of discrepancies with which we are confronted in the present case is in any event a more general issue in the context of intraCommunity transactions and is not limited to the case where a Member State actually misapplies the Sixth Directive. In addition to that case, there may be instances of a given transaction being treated by one Member State as subject to VAT while the same transaction would not give rise to a charge to VAT in another Member State". He also noted that this situation was a consequence of the fact that the VAT directives had not accomplished complete harmonisation and because the Community system of VAT expressly allows the Member States some latitude on certain matters with regard to implementation of the directive, for example, by providing for certain options in VAT of which Member States can avail themselves. He then examined whether the making use of the divergence in the application of the VAT Directive was contrary to the object and purport thereof. The AG first observed: "allowing deduction of input tax under Article 17 (3) (a) of the Sixth Directive in the absence of the payment of corresponding output tax is prima facie at odds with the system of VAT set up under the Sixth Directive, in particular the system of deduction, and with the principle of fiscal neutrality which that system enshrines' (para. 55). He acknowledged, however (para. 56 et seq. to his Opinion) that the VAT permitted a number of derogations and restrictions on the general deduction regulation and the principle of fiscal neutrality, and in addition, left scope for certain differences in tax treatment between the Member States. On this basis, he reached the opinion that the Community legislature had accepted that in exceptional circumstances, VAT could be deducted, whereas at a later state, no

VAT would be paid. "It would be for the legislature to remedy the legal situation at issue, which constitutes, no doubt, an anomaly or derogation in the Community system of VAT", according to the AG. Making use of this, therefore, does not constitute abuse which is not contrary to the object and purport of the VAT Directive.

These considerations of the AG are of great importance, and indicate that use can be made of qualification differences between the Member States, also in such areas as VAT. Although at first sight, the consequence of the qualification difference would appear to be contrary to the system of VAT and the principle of fiscal neutrality, on further consideration it appears to have been implicitly accepted by the Community legislature. Unfortunately, in the ultimate judgment, the Court has made no explicit mention of the question of the making use of the divergence in the application of the VAT Directive is contrary to the object and purport of the directive. Although the Court accepted explicitly the mismatch that arose from the qualification differences and hereby observed "Although it may seem inconsistent in some respects to hold that a taxable person may deduct input VAT without paying output VAT"; the Court remained silent on whether or not this would be contrary to the object and purport of the directive and limited itself merely to a textual explanation of the directive. With regard to the question on abuse, the Court ruled only that in the subject case, there was no question of the interested party having an intention to abuse, given that "the characteristics of the transactions at issue in the main proceedings and the nature of the relations between the companies that carried out those transactions contain nothing to suggest an artificial arrangement that does not reflect economic reality and the sole aim of which is to obtain a tax advantage". In all events, in RBS Deutschland, the Court would appear, without putting into words, to subscribe to the view of the AG. We hope that in another case, the CJ will get round to explicitly dealing with the question whether making use of such an anomaly in the VAT directive is contrary to the object and purport.

7. Consequence of abuse

The question is, what the consequence of abuse is. In Emsland-Stärke and Halifax, the Court made it clear "that a finding of abusive

practice must not lead to a penalty, for which a clear and unambiguous legal basis would be necessary, but rather to an obligation to repay, simply as a consequence of that finding" (para. 93, Halifax). In ECJ 13 March 2007, case C-524/04 (Test Claimants in the Thin Cap Group Litigation) the Court considered "that, where the consideration of those elements leads to the conclusion that the transaction in question represents a purely artificial arrangement without any underlying commercial justification, the re-characterisation of interest paid as a distribution is limited to the proportion of that interest which exceeds what would have been agreed had the relationship between the parties or between those parties and a third party been one at arm's length" (para. 83). Abuse, thus, may only be combated in so far as it is present and may not lead to sanctions.

The Court also considered in Halifax (para. 94): "It follows that transactions involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice".

In Weald leasing, this case law was confirmed and clarified (para. 51) that when "certain contractual terms of the leasing transactions at issue in the main proceedings and/or the intervention of Suas in those transactions constituted an abusive practice, that court would have to redefine those transactions disregarding the existence of Suas and/or by varying or disapplying those contractual terms". (italics author) It thus appears from Weald leasing that also certain parts of a series of transactions can be considered abuse and that the CJ is broad in the methods to remove the abuse: "disregarding", "re-define", "disapplying". One question that was raised in a case for the Netherlands Supreme Court was whether VAT deduction might be refused to a taxpayer who was involved in a tax avoiding construction, whereas it was not the taxpayer who had had the tax advantage (the tax advantage in this case was namely in the future and thus could not be dealt with in concrete terms at that moment)38. The Supreme Court ruled that

38 See: HR 10 February 2012, no. 08/05317 (Ziekenhuisconstructie), V-N 2012/12.23.

in the removal of abuse, it was not important which of the parties involved in the abuse of law had performed actions that had taken place in that framework nor who had profited (most) from the envisioned or acquired tax advantage. In my view, this is correct and in accordance with the case law of the CJ: as long as abuse can be removed, certain transactions within the tax saving construction may be redefined.

Be that as it may, the removal of abuse (the redefinition) is not so easy. The question is, namely, what had the taxpayer done had no abuse been present [1, p. 219; 9, p. 207]. It would seem that here, the CJ particularly has a task to place before the national court.

8. Summary

The principle of legal certainty is the underlying assumption in the combating of abuse.

Under the abuse of law doctrine, the CJ applies both an objective test and a subjective test. In Emsland-Stärke, the Court required under the objective test "a combination of objective circumstances in which, despite formal observance of the conditions laid down by the Community rules, the purpose of those rules has not been achieved".

For the question whether restrictions on the free movement can be justified on the ground of prevention of abusive practices, the CJ considers in direct taxation cases with regard to the subjective test: "the specific objective of such a restriction must be to prevent conduct involving the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory". The CJ emphasises hereby that the existence of tax motives do not imply that abuse is present given that an economic reality can still be present (Cadbury Schweppes, para. 65). In my view, the case law of the Court deals with the subjective intention of a person. First, you must examine the subjective intention of persons, however, given that you often do not know or may have doubts as to what the subjective intention of a certain person is (a person may deny that he has an intention to abuse), in such a case, the objective circumstances (the activity) must be examined. The subjective intention of the person should be able to be discerned from these objective circumstances, which is what I call the "objectified intention". In more recent case law,

it must be found that the CJ does consider artificiality decisive to the question whether the subjective test has been satisfied.

Abuse can only be called into question in the case of less (or no) payment of tax (hereafter, in brief, "tax advantage"). This is confirmed in the Weald leasing-case in which the CJ ruled that a VAT financing advantage is not contrary to the objective of the VAT Directive, unless the financing advantaged (also) leads to a tax advantage.

The objective test and the subjective test overlap largely under the treaty freedoms, given that in both tests it has to be examined whether there is a question of "wholly artificial arrangements" and not of an "economic reality". The overlap between the two tests under the Treaty freedoms can be explained: Whether an economic reality is present (important to the subjective abuse test) and whether there is participation in the economic life of a Member State (of importance under the objective test; which, namely, is the aim of the treaty freedoms), are very closely linked together and thus the objective and subjective abuse tests overlap under the Treaty Freedoms. Nevertheless, the subjective test has an added value, also under the treaty freedoms, because there must be a matter of avoidance of tax. If the tax burden is not lower due to the artificial actions, then there is no question of abuse. In addition, there is not necessarily an overlap between the objective test and the subjective test under secondary EU law (for instance under the VAT directive).

In "tax" cases in the area of direct tax law the Court permitted in abstracto that "wholly artificial arrangements" were to be combated. It must be remarked, however, that particularly the subjective test for the VAT is more broadly interpreted by the Court whereby abuse is present, not only when there is a wholly artificial arrangement, but also when "it is apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage" (italics DW). This description of abuse gives the Member States more scope in the combating of abuse, particularly in situations in which the ultimate objective of a certain transaction in itself is non-fiscal, but the route to achieve this was prompted particularly by fiscal purposes ('the most favourable tax route principle') This principle however does not mean that a taxpayer always has the discretion

to choose the most favourable tax route. The route as such, in my view, may also not be artificial and must reflect an economic reality. Of importance, however, is when the ultimate objective of a certain structure has a non-fiscal reason, testing, in my view, of the chosen route could be more marginal. The question is whether the broader description from the VAT case law is or will be declared applicable in the area of direct taxation, this particularly in situations in which the Treaty freedoms are exercised.

It is important that, for the question of whether there is abuse, to institute not only an objective test (conflict with the objective and scope of Community law), but also a subjective test. Under abuse of law, it is permitted that a certain case is decided contrary to the wording of the law. In light of the fact that a person should normally be able to rely on the principle of legal certainty (and thus on the letter of the law), such an opportunity must be dealt with extreme caution. Only persons who have a subjective abuse intention may be refused a certain favourable treatment upon invoking abuse of law.

In Cadbury Schweppes, the CJ considered that whether there is a "wholly artificial arrangement" or an "economic reality" must be determined "on objective factors which are ascertainable by third parties with regard, in particular, to the extent to which the CFC physically exists in terms of premises, staff and equipment" (physical presence test). In Cadbury Schweppes, the AG proposed two other tests, to wit, the genuine nature of the activity provided by the subsidiary, and the economic value of that activity with regard to the parent company and the entire group. In the literature, it is assumed that the CJ did not take these two tests into consideration but, in retrospect, this could be viewed differently. In Cadbury Schweppes, the CJ refers to the Eurofood case, and if this case is read in the proper context, then for the existence of an economic reality, it is also important where de policy of a company is determined (management and central administration) and is the competence of the staff in relation thereto, the level of decision-making is also relevant. Furthermore, there is no question of an economic reality in the case of a "letterbox" or "front" subsidiary, where a "company [is] not carrying out any business in the territory of the

Member State in which its registered office is situated". In my view, this does not mean that if there is sufficient substance the structure is always safe against anti-abuse provisions. When a company conducts sufficient activities, transactions can always be performed (such as loans not contributing to these economic activities) which could be artificial. Although in the event of the non-existence of activities this could be an indication of abuse, this must also be put into perspective: certain activities, after all, require little substance (consider holding or financing activities) such that substance will then also play a less decisive role. The last circumstance which was mentioned by the AG in Cadbury Schweppes and which can contribute to the economic reality was "economic value". However, in the Foggia case, we see that the CJ weighs the economic value (the costs savings for the group) against the tax advantage (the losses). That is a similar test to that which the AG set in Cadbury Schweppes.

Under thin capitalization rules, it concerns the question of whether there is an economic reality not on the substance, but on the commercial terms of the interest and the loan.

In VAT cases, services which seem to be economically unprofitable (Part Services) and rentals set at levels which were unusually low (Weald Leasing) do not seem to reflect an economic reality, but at arm's length prices and transactions between two non-affiliated parties (RBS Deutschland) which do not seem to give an indication of artificiality.

It can be derived from earlier case law (Leclerc, Lasteyrie) that a "U-turn" does not imply an economic reality. One characteristic that such U-turns have in common is that a number of transactions take place within a short period and due to this, in fact, the economic reality of these transactions comes up for discussion.

If a Member State wishes to invoke (due to lack of national anti-abuse legislation) the general Community law principle of abuse of rights, there must be a matter of abuse of a provision of secondary EU law. If there is presumed abuse of the EU treaty freedoms (primary EU Law), then invoking a general Community law principle of abuse of rights due to lack of national anti-abuse legislation is not possible. This arises from 3M Italia.

Another question, which has not yet been fully

clarified, is the question whether abuse of law as a general principle also implies that Member States have the obligation to combat abuse. In 3M Italia the CJ clearly ruled that this is not the case in direct taxation. But with respect to the levying of VAT, it is also defendable that there is an obligation to apply the general principle of Community law with respect to abuse of law.

It would appear clear after the Kofoed judgment that the prohibition on abuse of law is a general principle of Community law. The question is, however, whether we are dealing with a real general principle of Community Law in the strict sense. There is disagreement on this in literature. In that framework, it is observed that "the status of a "principle" in my view originates from a sort of linguistic generalization referring to various forms and applications of the concept of abuse under EU law.

Restrictive national rules which are applicable "to every situation" (in other words, measures which do not take into account specific circumstances that indicate abuse) "for whatever reason" (thus without taking account of the subjective intention to abuse) are, according to the Court, too general in order to serve to combat abuse. It is clear from the case law that anti-abuse measures which are only applicable in an individual case (so case-by-case) are, in principle, permitted under Union law (see: Centros, para. 25).

It appears from Cadbury Schweppes and Test Claimants in the Thin Cap Group Litigation an anti-abuse rule which operates with a legal presumption of abuse must contain:

1. An objective element which can be independently verified by a third party in order to determine whether the transaction in question represents, in whole or in part, a purely artificial arrangement, which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory (legal presumption of abuse based on the objective abuse test);

2. That the taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that arrangement" (proof to the contrary of the taxpayer based on the subjective abuse test);

The general indication that the Court gives is

that there must be a rule which is based on an "objective criterion, verifiable by a third party, being applied to test for the existence of a wholly artificial arrangement" (see para. 81 Thin Cap LGO and para. 56 in SIAT). On this, I first wish to remark that it is not clear why the objective criterion must be verifiable by a third party. In light of the confidentiality applicable in many Member States with regard to information about the tax position of a taxpayer, it fails to be seen why a third party must verify the objective criterion. As far as I am concerned, the Court could leave out the requirement that a third party must be able to verify the objective element.

Thus, the only relevant condition is that a legal abuse presumption must contain an "objective element» in "order to determine whether the transaction in question represents, in whole or in part, a purely artificial arrangement, which does not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory". In Thin cap GLO an at arm's length test that was applied to the amount of a loan and the interest on it was considered by the Court as a suchlike objective element. In my view, that is correct, given that in deviation from the at arm's length test, there can indeed be a "re-routing" of domestic profits to a lower taxed jurisdiction. In Cadbury Schweppes, the Court considered as objective element, being subject "to [a] very favourable tax regime". This is approved by the Court as a relevant criterion given that the UK CFC legislation "makes it possible to thwart practices which have no purpose other than to escape the tax normally due on the profits generated by activities carried on in national territory" (para. 59). This too appears to be a correct decision to me. The being subject to a very favourable tax regime appears to me to be a first indication that tax avoidance could be present. It must be noted, however, that due to the judgment of the Court in the SIAT case, the question can be asked whether such a "very favourable tax regime" test is still permitted. In SIAT, the CJ would appear to rule that a presumption of abuse based on an "appreciably more advantageous foreign regime" test as such is contrary to the principle of legal certainty because this cannot be determined in advance and can only be given substance in a case-by-case approach. It is not clear how this judgment bears

relation to other judgments (Cadbury Schweppes/ Haribo/Thin Cap Group LGO), in which provisions were approved which ultimately also led to a case-by-case test. I am of the opinion that an "appreciably more advantageous foreign regime" test as such is not contrary to the principle of legal certainty.

The Court is not always consistent in testing abuse legislation and can even sometimes permit more general abuse legislation which does not give the taxpayer the possibility to prove that in his situation there was no question of abuse. We see this in VAT cases (for example Ampliscientifica).

In situations with third countries, the CJ gives the Member State, in the case of lack of an instrument of international exchange of information, the right to combat abuse by means of general presumptions. Remarkable in this case law is that the CJ assumes a priori that the lack of information (and not being able to request information in a third State) is a problem in the combating of abuse.

Also in cases concerning cross-border offsetting of losses and profits (for example, Marks & Spencer and Oy AA) the Court permits more general rules than would be expected on the basis of combating abuse. However, it is not clear when the CJ is satisfied with a somewhat broad anti-abuse

provision or requires that the anti-abuse provision must only be focused on abuse and the taxpayer must also be offered the opportunity to provide proof to the contrary. It would seem obvious that this is not conducive to the legal certainty if the Court cannot be clearer in this matter. I, however, recommend to the CJ not to draw a distinction between the anti-abuse justification and the balanced allocation case law. Given that the justification grounds are "closely linked" to each other (cf para. 48 in SIAT), it would seem to me more obvious to bring the case law more in conformity with each other instead of making a sharp distinction.

Making use of a (more) favourable legal system within the EU is in conformity with the object of the internal market and benefitting therefrom in itself cannot be qualified as abuse. This means that, in principle, "tax jurisdiction shopping" is permitted. In VAT cases (RBS Deutschland), the CJ has been silent on this issue.

Finally, abuse may only be combated insofar as abuse is present and may not lead to sanctions. The consequences that a Member State attaches to the existence of abuse must be proportionate. The transactions involved in an abusive practice must be redefined such as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.

REFERENCES

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