Tax Avoidance, the “Balanced Allocation of Taxing Powers” and the Arm’s Length Standard: an odd Threesome in Need of Clarification

Abstract

The ECJ doctrine links the justification of tax avoidance to the balanced allocation of tax powers and the arm’s length standard. This link poses a number of new issues, among other, these three questions: what notion of “arm’s length standard” is the ECJ dealing with; can there be a permanent link between the “arm’s length standard” and tax avoidance; and: is the balanced allocation of tax powers not a previous issue? Furthermore, old issues remain to a certain extent unresolved: (i) Is there one anti–avoidance doctrine?; (ii) what is that doctrine based on? Is it based on (a) the notion of artificiality (not just sham transactions) and economic substance?; (b) is there an asymmetric application of the doctrine depending on whether or not the area to which it intends to be applied has been harmonized; (c) is it based or departs from a given allocation of tax powers. Finally (iii) what consequences on the internal law of Member States does the case law have?, especially considering different scenarios: (a) when there is no anti–avoidance rule ; (b) when there is a General anti–avoidance rule or judicial doctrine; (c) when there is a Targeted anti–avoidance rule and (d) whether such a rule is independent, harmonized, or based on a DTC.

This work has been completed in the framework the Project number CCG10–UC3M/HUM– 5181, titled “Domestic anti–avoidance rules in the EU and International Law setting” (Las medidas anti–elusión nacionales y su compatibilidad con el Derecho Comunitario y el Derecho Tributario Internacional”), financed by the Comunidad de Madrid and directed by the author. This work has also benefited from a post–maternity research help, granted by my University to all Professors (male or female) that have been on maternity/paternity leave.