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Dr Christiana HJI Panayi Centre for Commercial Law Studies, Queen Mary University of London
Dr Christiana HJI Panayi is Senior Lecturer in Tax Law, Centre for Commercial Law Studies at Queen Mary University of London
This is the third part of a four-part article examining the compatibility of the proposals produced in respect of the OECD/G-20 Base Erosion and Profit Shifting Action Plan with European Union law. This article considers Action 6, which is intended to curb double non-taxation.
Action 6 of the Base Erosion and Profit Shifting (“BEPS”) Action Plan urged the Organization for Economic Cooperation and Development (“OECD”) to develop model treaty provisions and recommendations to prevent the granting of treaty benefits in inappropriate circumstances and to curb double non-taxation. The OECD proposals here also raise serious concerns as to their compatibility with EU law.
The various discussion drafts1 and the Treaty Abuse Final Report2 produced under Action 6 follow a three-pronged approach. First, there is to be a clear indication in the title and preamble of the OECD model that contracting states, when entering into a tax treaty, intend to avoid creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements. Second, a limitation on benefits (“LOB”) clause based on the U.S. LOB is recommended.3 Third, this is to be buttressed by a more general anti-abuse rule based on the principal purposes of transactions or arrangements, the principal purpose test (“PPT”).4 The preferred approach was to combine these two rules to cover the widest range of treaty abuses, with the emphasis on double non-taxation. However, there would be flexibility to accommodate constitutional and EU restrictions.
It should however be noted that, technically, intended or unintended double non-taxation caused by national tax laws of the member states is not incompatible with European Union (“EU”) law, provided that the tax treatment does not constitute harmful tax competition or state aid. EU law does not require member states to levy any income taxes or corporate income taxes or, if they do impose taxes, to impose them at any level. If the lack of imposition of such taxes results in double non-taxation, so be it. Arguably, this is the reverse of juridical double taxation with which the Court of Justice of the European Union (“CJEU”) has consistently refused to interfere, finding that juridical double taxation, but not economic double taxation, is a disadvantage arising from the parallel exercise of tax competences by different member states.5 To the extent that such an exercise is not discriminatory, juridical double taxation is not prohibited under EU law. The member states are not required to adapt their own tax systems to different member state tax systems to eliminate this type of double taxation. By analogy, the same reasoning should apply to double non-taxation. If it is the result of the parallel and non-discriminatory exercise of tax competences by different member states, it is not prohibited by EU law, notwithstanding the tax advantages that could accrue to some taxpayers.
In addition, double non-taxation may not even be accepted as a justification for a restriction of fundamental freedoms. The mischief of double non-taxation is that it results in a loss of tax revenue for the member state concerned. However, the loss of tax revenue, also referred to as erosion of tax base in judgments of the CJEU, was never allowed as a justification.6 The emphasis has always been on justification on the basis of tax avoidance and tax evasion. Obtaining a mere tax saving has never been equated to tax avoidance or evasion in the view of the CJEU.7 Recently, in Felixstowe,8 the Court held that a restrictive measure might be justified by the objective of countering tax havens, though at the time of writing this article, such a justification has not featured in any later cases and, in any case, cannot be equated with loss of tax revenue.
Consequently, notwithstanding the European Commission's initiatives to address double non-taxation,9 technically, there is no competence on the part of the EU to deal with double non-taxation. This is the result of lack of harmonization of the laws of the member states. Arguably, only to the extent that double non-taxation can be analyzed from the specter of abuse, is there some limited legal base for EU action. Otherwise, it is submitted that there is technically none.
What about LOB clauses and their compatibility with EU law? In the past decade, the compatibility of anti-treaty-shopping provisions with EU law was a topic of intense academic debate. It was argued that anti-treaty-shopping provisions, and especially LOB clauses, were in breach of the freedom of establishment and/or the free movement of capital.10 Could member states, therefore, include anti-treaty-shopping provisions in tax treaties between themselves or with non-EU Member States?
For this argument to succeed, it must be demonstrated that treaty shopping, i.e., the activity that these anti-abuse provisions seek to curb, is an activity protected under EU law. Of course, there must also be genuine (cross-border) activity. The more abusive the structure, the less likely it is that the fundamental freedoms can be applied at all. For, if the intermediary entity is a complete sham, arguably there is no genuine exercise of establishment in that jurisdiction nor is there any movement of capital. As a result, the more economic substance there is in the intermediary company itself, the more likely it is that the setting up of the establishment itself will be recognized as an activity that could be prima facie covered by the freedom of establishment. Similarly, the more economic substance there is in the intermediary, the more likely it is that investment through it will be prima facie covered by the free movement of capital. Assuming this first threshold issue is satisfied and the aforementioned fundamental freedoms are prima facie engaged, is there a restriction to them?
From the perspective of the freedom of establishment, it could be argued that treaty shopping, i.e., the use of the intermediary entity located in a favorable tax jurisdiction to effect the investment, is an exercise of freedom of establishment. The fact that the intermediary entity has limited economic substance, but is not a complete sham for threshold purposes, should not prevent the arrangement from being characterized as an exercise of establishment. An analogy may be drawn with a line of non-tax related cases, i.e., Centros11 and Überseering.12 These cases dealt with corporate forum shopping. Here, the CJEU approved the formation of primary and secondary establishments, even if they lacked economic substance in one member state and were thought to have been set up to circumvent the company law formation requirements applicable in another member state.13 Just because the undertaking was corporate forum shopping within the EU with little economic substance in the establishment did not necessarily mean that the protection under the freedom of establishment was withdrawn. Can this strand of reasoning also apply to treaty shopping? Does the fact that treaty shopping entails tax-location shopping rather than corporate forum shopping change matters?
There is no reason why it should, at least prima facie. As emphatically held in Cadbury Schweppes,14 profiting from tax advantages in force in another member state is not per se abuse. Citing the case law on corporate forum shopping, the CJEU reiterated that the fact that a company was established in a member state for the purpose of benefiting from more favorable legislation did not in itself suffice to constitute abuse of that freedom, which would have ab initio prevented enjoyment of the freedom. The same reasoning applied to a company established in another member state “for the avowed purpose of benefiting from the favourable tax regime which that establishment enjoyed …”.15 Such an exercise of tax forum shopping did not, according to the CJEU, deprive a company of the opportunity to rely on the rights conferred under freedom of establishment. The arrangement had to be examined on its facts.
It would, therefore, appear that just as treaty shopping entails a type of forum shopping, this does not necessarily mean it is abusive. If anything, it appeared to be encouraged by the CJEU in its earlier case law. As such, it could be argued that treaty shopping is an exercise of establishment, regardless of the motives behind it. What anti-treaty-shopping provisions tend to do is to disregard the intermediary entity and treat another company as the ultimate recipient of the income. Consequently, it could be argued that anti-treaty-shopping provisions restrict the freedom of establishment. Of course, this restriction could be justified, as explained subsequently in this article, but this is, nevertheless, a restriction.
From the perspective of the free movement of capital, it could also be argued that a treaty shopper is exercising its free movement of capital by investing in a company indirectly, i.e., through another member state entity, and, therefore, receives its return from such investment indirectly. The analysis here focuses on the existence (or lack of) indirect investment, rather than the use of an intermediary entity. The issue is not so much the fact of establishing a related entity through which investment is made. What is important is that the treaty shopper, whether an EU national or not, takes advantage of the treaty network of another member state to invest in a third member state by channelling income through an intermediary entity which it does not control.
In other words, this is an instance of indirect, rather than direct investment, i.e., investment through a related entity, and as such, should prima facie be protected under the free movement of capital. Anti-treaty-shopping provisions tend to disregard the intermediary entity and/or recharacterize the payment as being directly made to another company. As a result, they may ultimately make the investment of capital through an intermediary in another member state more expensive. Consequently, it could be argued that anti-treaty-shopping provisions restrict the free movement of capital.
Of course, as under the freedom of establishment, this restriction could be justified by imperative requirements in the general interest. It must also be suitable and proportional.16 Not every kind of structure is ultimately protected under EU law.
For instance, the restriction could be justified on the basis of countering tax avoidance and/or evasion. In order for this ground to succeed, as discussed in the second part of this article, in the context of Actions 2 to 4 of the BEPS project, the anti-treaty-shopping provisions must have the specific purpose of preventing wholly artificial arrangements. Broad anti-abuse clauses that do not distinguish between bona fide activities and abusive situations have been struck down. The prevention of tax avoidance and/or evasion could, therefore, exonerate a restrictive treaty provision if this is sufficiently targeted to this end. The provision must also be suitable and must not go beyond what is necessary to attain the objective pursued, whether this is prevention of tax evasion or tax avoidance. As a result, if less than wholly artificial arrangements are caught by an anti-treaty-shopping provision, the restriction is unlikely to be justified. As a corollary, the more artificial the treaty-shopping arrangement, the more likely it is to have tax avoidance connotations, against which an anti-treaty-shopping provision can more readily be justified.
The restriction could also be justified on the basis of safeguarding the allocation of tax jurisdiction. It could be argued that what anti-treaty-shopping provisions seek to do is to restore the allocation choices of the tax treaty that is “shopped”. As the original allocation choices of the relevant tax treaty are respected under EU law after the “D” case,17 so should measures to protect and restore those allocation choices. In fact, as will be explained in this article, this line of case law and the treaty allocation ground may be used to preempt any argument of incompatibility of an LOB clause with EU law altogether. Assuming though that it is not so used and allocation of taxing rights is considered as a justification to a restriction, the application of this justification must be fine-tuned and proportional. In this context, the allocation of tax jurisdiction is less threatened by intermediary entities imbued with economic substance. The more substance there is in the treaty shopping arrangement, the less likely it is that the allocation choices under the underlying tax treaty would be frustrated. Anti-treaty-shopping provisions must recognize this.
The application of this ground as an imperative requirement could also depend on the effect of the anti-treaty-shopping provisions on the structure. Do they restore the original withholding tax rate that would have applied absent the treaty-shopping arrangement or do they impose a (penal) statutory withholding tax rate? If the former, it could be argued that what the anti-treaty-shopping provision does is to restore the treaty balance. However, if the statutory withholding tax rate applies, it is more difficult to see how the anti-treaty-shopping provision restores the treaty balance, as that balance is itself overridden.
At this point, it should be noted that, under the free movement of capital, it does not matter whether the capital movement is to or from a non-Member State, as long as there is some capital movement to or from a member state. However, this could be relevant at the justification stage.18 A restriction may be more readily justified if it affects third-country nationals than if it affects EU nationals. Nevertheless, this has to be proven. Another point to note is that the freedom of establishment is only available to EU nationals. As a result, if the intermediary entity is in a non-EU Member State, an anti-treaty-shopping provision frustrating the arrangement may not be incompatible with EU law if freedom of establishment is the relevant freedom.
In conclusion, it is possible that anti-treaty-shopping provisions restrict the freedom of establishment and/or the free movement of capital. However, they could be justified, depending on how these provisions are phrased, whether or not they are sufficiently targeted against wholly artificial arrangements and proportional. It also depends on whether or not these provisions try to curb treaty shopping through a non-EU Member State. Of course, this discussion may simply be theoretical and/or at best academic, for the time being. If a case were to arise at the CJEU, it is likely that the Court would seize on the “D” case and Test Claimants in the ACT Group Litigation19 case and avoid a clash with the LOB clause altogether by finding lack of comparability and non-discrimination.
The “D” case established that, when dealing with tax benefits conferred on nonresidents through tax treaties, there is no comparability between a nonresident of one treaty partner and a nonresident of another. Consequently, the fact that a member state applied different treaty rates to nonresidents did not mean that the member state was discriminating between those two nonresidents. In the “D” case, the CJEU accepted the allocation attained in the relevant tax treaties, even if this meant that some nonresidents were treated more harshly than other nonresidents. It was found that the Netherlands was not required to extend to a German resident the treaty benefits given to Belgian residents. The Germany-Netherlands Income and Capital Tax Treaty (1959) did not provide for the same allowances as the Belgium-Netherlands Income and Capital Tax Treaty (1970). This was a question of pre-agreed allocation of tax powers between these member states. The relevant tax treaties were not to be interfered with by extending benefits given to Belgian residents also to German residents. In other words, the benefits given under a tax treaty were unique to that tax treaty, so an EU national not benefiting under its own tax treaty could not demand the extension of treaty benefits.
This reasoning was followed in the Test Claimants in the ACT Group Litigation case and extended to LOBs, thereby demonstrating the Court's reluctance to interfere with anti-treaty-shopping provisions. It was found that there was no comparability between two nonresidents benefiting from the same tax treaty, owned by residents from different treaty partners. This meant that withdrawal of treaty benefits on the basis of the ownership of the non-resident entity would not necessarily constitute discrimination, precisely as there would be no comparable situations being treated differently to start with. Otherwise, the “equilibrium and reciprocity underlying the existing DTCs would be undermined, taxpayers would be able more easily to avoid the provisions of DTCs intended to combat tax avoidance and the legal certainty of taxpayers would be affected accordingly.”20
LOB clauses were considered to be a natural corollary of the bilateralism enshrined in tax treaties. They were characterized by the CJEU as “an inherent consequence of bilateral double taxation conventions,”21 which were not precluded by EC Treaty provisions on freedom of establishment.
It should be noted that the fact that the impugned anti-treaty-shopping provision was an LOB clause, which can be applied quite mechanically without taking into account the bona fides of the structure or the similarity of the two nonresident situations, did not concern the CJEU. Neither did the Court venture to explain the situation from the viewpoint of a restriction. The CJEU also omitted to explain the difference between not relieving certain double taxation as a result of the treaty allocation and forfeiting relief otherwise applicable under the treaty allocation.22
The author has argued elsewhere23 that there is a very fine distinction between the “D” case and Test Claimants in the ACT Group Litigation. In “D”, no comparability was found between two nonresident individuals from different member states benefiting from two different tax treaties. In Test Claimants in the ACT Group Litigation, no comparability was found between two nonresident entities in the same member state benefiting from the same tax treaty on the basis of ownership. Is not the latter situation much more comparable than the former?
Another difference between the cases was that if comparability was found in the “D” case, this would have resulted in a de facto multilateralization of the underlying tax treaty. The source member state would have been under a positive obligation, i.e., to confer a specific treaty benefit to a nonresident person who was not entitled to the benefit under its own tax treaty. In contrast, what the Test Claimants in the ACT Group Litigation case entailed was the refusal of treaty benefits otherwise available to a nonresident entity purely on the basis of its ownership. In other words, if comparability was found, the source member state would have been under a negative obligation, i.e., not to treat a certain nonresident entity worse than another. The two cases could have been distinguished on these grounds.
Other scholars have also expressed their disagreement with the analysis in the Test Claimants in the ACT Group Litigation case, which openly accepted LOB clauses. It has been argued that the judgment of the CJEU was far from satisfactory, as the nature of LOB clauses was not considered and the analysis was in contradiction to previous case law. However, case law since the “D” case and the Test Claimants in the ACT Group Litigation case overwhelmingly suggests that the Court respects the allocation of taxing rights under a tax treaty and, generally, respects tax treaties.24 As a result, although LOB clauses contain mechanical tests, similar to those which the CJEU has found to be disproportional in its general case law, nevertheless, they are likely to survive any future legal challenge. In addition, as an LOB clause is a treasured U.S. model clause, the status of which has been fully endorsed and enhanced by the OECD in its BEPS project, this anti-abuse mechanism is unlikely to be challenged in the EU in any meaningful way in the near future.
This ultimate clash may happen sooner rather than later, as recently, the Commission has asked the Netherlands to amend the LOB clause in the Dutch-Japanese Tax Treaty, on the basis that it is incompatible with EU law.25 It remains to be seen if this case will finally arrive in the CJEU and whether the Court will deviate from its reasoning in previous cases.
As regards the third main proposal in Action 6, the PPT, this is very similar to the general anti-avoidance rules (“GAAR”) test that has been inserted into the Parent-Subsidiary Directive.26 One difference is that in the GAAR of the Parent-Subsidiary Directive, reference is made to the “main purpose,” rather than the “principal purpose,” which is used in the OECD's proposals under Action 6. This is not considered to be a substantive difference. In fact, in the initial discussion draft on Action 6, the OECD had used the “main purpose” test. It was only in the revised discussion draft that this was replaced with the PPT.27 It was argued that the PPT rule incorporated principles already recognized in the Commentary on Article 1 of the OECD Model. It is interesting to note that the GAAR test suggested in the Commission's Recommendation on Aggressive Tax Planning28 refers to the essential purpose, not one of main purposes.
Of course, it should be remembered that, irrespective of whether these tests rely on the main purpose or one of the main purposes or the sole purpose, simple tax forum shopping does not constitute abuse under the Court's case law. As stated in Cadbury Schweppes, “the fact that a Community national, whether a natural or legal person, sought to profit from tax advantages in force in a Member State other than his State of residence cannot in itself deprive him of the right to rely on [the fundamental freedoms].”29 Therefore, for EU purposes, the focus of any GAAR or PPT test must be on the artificiality of the impugned arrangement and not (only) the purposes or intentions when entering into the arrangement.
Another difference in the various PPT clauses is the result of these anti-abuse rules being triggered. With the PPT under Action 6, treaty benefits are not to be given. In contrast, under the GAAR in the Commission's Recommendation on Aggressive Tax Planning, there is possibility for further action, possibly recharacterization. As stated, “[n]ational authorities shall treat these arrangements for tax purposes by reference to their economic substance.”30 While this possibility is not referred to in the new GAAR of the Parent-Subsidiary Directive, it cannot be excluded, as the Directive does not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.
Another point of deviation is the relevance and impact of commercial justifications, i.e., the subjectivity of the rules. Under the amended Parent-Subsidiary Directive, an arrangement or a series of arrangements should not be regarded as genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. This resonates with the Court's reasoning in Cadbury Schweppes, in theTest Claimants in the Thin Cap Group Litigation case, and, more recently, in the VAT context, in Ocean Finance.31 There is similar stipulation in the GAAR proposed in the Recommendation on Aggressive Tax Planning.32 There is no such provision in the recommended PPT under Action 6, which suggests a more objective analysis that cannot be rebutted by commercial reasons. Arguably, valid commercial reasons could be taken into account if a discretionary relief provision is inserted into the PPT rule under Action 6, something proposed by the OECD in its latest discussion draft and incorporated in the Treaty Abuse Final Report.
It should also be noted that under the PPT proposed under Action 6, there seems to be a presumption that a treaty benefit is not in accordance with the object and purpose of the tax treaty, unless proven otherwise. It is stated that a benefit under a given tax treaty should not be granted if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction. The onus is, therefore, on the taxpayer to demonstrate that “granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.”33 This is further illustrated in the proposed commentaries contained in the discussion drafts and the final report. In contrast, there is no such presumption under the GAAR of the Recommendation on Aggressive Tax Planning and that of the Parent-Subsidiary Directive.
Notwithstanding this technical analysis of the legal credentials of the Action 6 PPT rule under EU law, it is unlikely that the CJEU would treat a PPT, especially if combined with an LOB clause, more harshly than the much more preemptive and mechanical LOB test.
There is another angle that must be considered. The PPT rule, however, “un-mechanical” and subjective, can still be problematic if deemed to be uncertain. In Itelcar,34 it was held that anti-abuse rules must be sufficiently clear, precise and predictable, otherwise they do not meet the requirements of legal certainty. As such, rules which do not meet the requirements of the principle of legal certainty cannot be considered to be proportionate to the objectives pursued.35 As a result, anti-abuse rules must make it possible, from the outset, to determine their scope with sufficient precision.
Is the PPT as an anti-abuse rule sufficiently clear, precise and predictable? This would depend on how it is interpreted and applied. While the suggested wording has similarities with the GAARs under the Parent-Subsidiary Directive and the Recommendation on Aggressive Tax Planning, if the Action 6 PPT is applied in a way that catches both commercial and uncommercial arrangements, arguably, its ambit would not be sufficiently clear and would risk being found in breach of EU law. This point should not be ignored by member states either in applying their GAARs or in the incorporation of the GAAR of the Parent-Subsidiary Directive. This analysis also suggests that, ultimately, there might not be much scope for widely diverging GAARs in terms of leniency or strictness.
Dr Christiana HJI Panayi © is Senior Lecturer in Tax Law, Centre for Commercial Law Studies, Queen Mary University of London. The author can be contacted at firstname.lastname@example.org.
This article is a modified version of another article published by the author at the Bulletin for International Taxation: Christiana HJI Panayi, “The Compatibility of the OECD/G20 Base Erosion and Profit Shifting Proposals with EU Law”,  1/2 Bulletin for International Taxation.
1 OECD, BEPS Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances (OECD 2014); OECD/G20 Base Erosion and Profit Shifting Project, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances - Action 6: 2014 Deliverable(OECD 2014); and OECD, Follow Up Work on BEPS Action 6: Preventing Treaty Abuse (OECD 2015); and Revised Discussion draft - BEPS Action 6: Prevent Treaty Abuse (OECD 2015). For an analysis of this, see C. HJI Panayi, Advanced Issues in International and European Tax Law (Hart Publishing, 2015) at chapter 3, section 3.1.
2 OECD (2015), Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris.
3 In the final report, the possibility of further modification of the LOB was left open until the U.S. model treaty provisions were finalized. See Treaty Abuse Final Report, p. 20, para. 25.
4 HJI Panayi, supra note 1, at chapter 3, section 3.1.
5 Case C-513/04 Mark Kerckhaert and Bernadette Morres v. Belgian State  ECR I-10967; Case C-128/08 Jacques Damseaux v. Etat Belgique  ECR I-6823. For commentary, see Christiana HJI Panayi, European Union Corporate Tax Law (Cambridge U. Press 2013) chapters 4 and 6; Christiana HJI Panayi 'Tax Treaties post-Damseaux’  Tax Journal, September 14, 2009, 9; Luca Cerioni, “Double Taxation and the Internal Market: Reflections on the ECJ's Decisions in Block and Damseaux and the Potential Implications”  Bulletin for International Taxation 543. The case was followed by Joined Cases C-436/08 and Case C-437/08 Haribo &Österreichische Salinen and Case C-67/08 Block  ECR I-0883.
6 See, for example, Case C-136/00 Rolf Dieter Danner  ECR I-8147; Case C-422/01 Försäkringsaktiebolaget Skandia (publ) and Ola Ramstedt v. Riksskatteverket ECR I-6817; Case C-264/96 Imperial Chemical Industries plc (ICI) v Kenneth Hall Colmer (Her Majesty's Inspector of Taxes)  ECR I-4695, para. 28; Case C-307/97 Compagnie de Saint-Gobain, Zweigniederlassung Deutschland, v. Finanzamt Aachen-Innenstadt  ECR I-6161, para. 50; Case C-385/00 F.W.L. de Groot v. Staatssecretaris van Financiën  ECR I-11819, para. 103.
7 See, for example, Case C-294/97 Eurowings Luftverkehrs AG v. Finanzamt Dortmund-Unna  ECR I-07447
at para. 44 and other cases cited there.
8 See Case C-80/12 Felixstowe Dock & Railway Co Ltd v HMRC  ECR I-0000, para. 32.
9 See HJI Panayi, supra note 1, at chapter 5.
10 See, for example, Christiana HJI Panayi, “Open Skies for EC Tax?”  3 BTR 189; Georg W. Kofler, “European Taxation Under an 'Open Sky’: LoB Clauses in Tax Treaties Between the U.S. and the EU Member States”  Tax Notes International 45; Christiana HJI Panayi, Double Taxation, Tax Treaties, Treaty Shopping and the European Community (Kluwer 2007).
11 Case C-212/97 Centros Ltd v Erhvervs- og Selskabsstyrelsen  ECR I-1459.
12 Case C-208/00 Überseering BV v. Nordic Construction Company Baumanagement GmbH (NCC)  ECR I-9919.
13 See Christiana HJI Panayi, “Corporate Mobility under Private International Law and European Community Law: Debunking Some Myths”,28  Yearbook of European Law 124-176.
14 Case C-196/04 Cadbury Schweppesplc and Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue  ECR I-7995, paras 34-38.
15 Ibid, para. 38.
16 Case C-55/94Gebhard ECR I-4165.
17 Case C-376/03 D. v Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen,  ECR I-5821.
18 See, for example, ICI; Case C-9/02 Hughes de Lasteyrie du Saillant v. Ministère de L'Economie des Finances et de l'Industrie  ECR I-02409. The CJEU, in the early cases especially, tended to use the terms “avoidance” and “evasion” without distinction. In some cases, it referred to the justification as being based on tax avoidance (e.g., ICI, para. 26) whereas in others it referred to tax evasion (e.g. Case C-324/00 Lankhorst-Hohorst GmbH v. Finanz Steinfurt  ECR I-11779, fn.44, para. 37; Case C-436/00 X & Y, para. 62).
19 Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation v Commissioners of Inland Revenue  ECR I-11673.
20 Ibid, para. 80.
21 Ibid, para. 91.
22 See the analysis in HJI Panayi (2007), supra note10, at chapter 126.96.36.199.
23 Ibid, chapter 5.
24 See, for example, Case C-414/06 Lidl Belgium ECR I-3601, para. 51; Case C-182/08 Glaxo Wellcome GmbH & Co. KG v. Finanzamt München II,para. 88.
25 See PWC EU Tax Alert, November 19, 2015. According to the Commission, on the basis of previous case law (Gottardo, C-55/00 and Open Skies, C-466/98), a Member State concluding a treaty with a third country cannot grant more favorable treatment to companies held by shareholders resident in its own territory than to comparable companies held by shareholders resident elsewhere in EU/EEA. Furthermore, a Member State cannot offer better conditions to companies traded on its own stock exchange than to companies traded on stock exchanges elsewhere in the EU/EEA.
26 Council Directive 2011/96/EU of November 30, 2011 on the Common System of Taxation Applicable in the Case of Parent Companies and Subsidiaries of Different Member States, OJ C 107 (2007), EU Law IBFD.
27 HJI Panayi supra note 1, at chapter 3.
28 See Commission Recommendation of December 6, 2012 on Aggressive Tax Planning (C (2012) 8806 final), which states that “[a]n artificial arrangement or an artificial series of arrangements which has been put into place for the essential purpose of avoiding taxation and leads to a tax benefit shall be ignored. National authorities shall treat these arrangements for tax purposes by reference to their economic substance”. See also HJI Panayi, supra note 1, at chapter 5, section 5.2.4.
29 Cadbury Schweppes, supra note 14, at para. 36.
30 Recommendation on Aggressive Tax Planning, supra note 28, at para. 4.2.
31 Case C-524/04 Test Claimants in the Thin Cap Group Litigation v Commissioners of Inland Revenue  ECR I-2107; Case C-653/11 HMRC v.Paul Newey, trading under the business name Ocean Finance ECR I-0000. See the analysis in HJI Panayi, supra note 1, at chapter 5, section 5.1. See also HJI Panayi, supra note 5, at chapter 8 for the pre-Ocean Finance (C-653/11) case law.
32 See Recommendation on Aggressive Tax Planning, supra note 28, at para. 4.4, where it is stated that: “[f]or the purposes of point 4.2 an arrangement or a series of arrangements is artificial where it lacks commercial substance”. But see also para 4.5, which states that: “[f]or the purposes of point 4.2, the purpose of an arrangement or series of arrangements consists in avoiding taxation where, regardless of any subjective intentions of the taxpayer, it defeats the object, spirit and purpose of the tax provisions that would otherwise apply …”.
33 See the proposed wording for the PPT, set out in the Treaty Abuse Final Report, supra note 2, p.55, para. 26.
34 Case C-282/12 Itelcar ECR I-0000.
35 Ibid, para. 44. See also Case C318/10 SIAT  ECR I-0000, paras 58 and 59.
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