Abuse through the use of shell companies and arrangements for tax purposes in the EU Feedback to the EU consultation by the IBFD task force on EU law

Abstract

The present study was developed based on the IBFD EU Task Force’s submission within the framework of the European Commission 2021 public consultation on the use of shell entities and arrangements for tax purposes. The analysis of the broad ramifications of this central issue within corporate tax law and policy takes its inception from a fundamental taxonomy of the adjacent although conceptually distinct notions of aggressive tax planning, tax avoidance, tax evasion and tax fraud as well as from a thematization of the notion of substance in tax law contexts. In this respect, the authors argue that, within EU Law, these distinctions have not always been upheld consistently and such thematization may have not been fully developed, contributing to structural disconnects that may, inter alia, also jeopardize the proposed initiative. Within this study, such conceptual taxonomy is functional to laying the foundations for an assessment of some of the key articulations of the proposed initiative. In the first place, the opportunity and possible legal compatibility issues surrounding the introduction of so-called substance requirements, upon which some design recommendations are set forth without prejudice by the authors. Based on this reconstruction, rules targeting shell companies and arrangements are also addressed in both a de iure condito (from an EU and comparative tax angle) and a de iure condendo perspective, thereby including considerations on the most viable approach to hypothetically implementing such measures. Administrability issues are also explored, with specific regard to the possible tools – already available under the existing framework, or to be envisaged – meant to prevent and monitor abusive practices of shell companies. Such possible tools are assessed having in mind the concern to ensure a balance with the safeguard of the rights of taxpayers on the procedural as well as substantive planes. In the view of the authors, such a balance may be conducive to the reshaping of cross-border relations between taxpayers and administrations within the European Union.

Keywords: Taxation, Tax law, International taxation, European taxation

JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24