Preface 5
List of abbreviations 16
A. Introduction 21
1. Background 21
2. Terminology 21
2.1. Tax evasion 21
2.2. Tax avoidance and tax mitigation 22
3. Scope of the study 24
3.1. Point of departure 24
3.2. Bringing GAARs into play 25
4. The comparative approach and the research question 26
5. Structure of the study 29
B. Judicial anti-avoidance 30
1. Introduction 30
2. Judicial anti-avoidance in Germany 31
2.1. Introduction 31
2.2. The traditional view: Formal and literal interpretation 32
2.3.Major tax reform 33
2.3.1. Adoption of the “economic perspective” and introduction of a GAAR 33
2.3.2. Consequences of the reform 35
2.3.2.1. Counteracting abuse using the GAAR 35
2.3.2.2. Counteracting abuse by way of interpretation (and other means) 36
2.3.2.3. The tax reform was successful 39
2.4. Further development 39
2.4.1. National Socialist excesses under the guise of statutory interpretation 39
2.4.2. Developments after 1945: (re-)adoption of the “economic perspective” 41
2.4.3. The “economic perspective” as a means of teleological interpretation 42
2.4.4. The status quo: Sec 42 Fiscal Code 44
2.4.4.1. Introduction in 1977 44
2.4.4.2. Amendment in 2001 45
2.4.4.3. Amendment in 2008 and present state 45
2.5. The legal relevance of Sec 42 Fiscal Code 47
2.5.1. Two ways to deal with abuse 47
2.5.2. The concept of Innentheorie 48
2.5.3. The concept of Außentheorie 50
2.5.4. Tax law and the mechanism of analogy 50
2.5.5. More than just two theories 52
2.5.6. Regarding the controversy and function of Sec 42 Fiscal Code 55
3. Judicial anti-avoidance in the UK 59
3.1. Introduction 59
3.2. The traditional view: Literalism and formalism (The Duke of Westminster) 59
3.2.1. The pillars of the Duke of Westminster 59
3.2.2. The Duke of Westminster 61
3.2.3. The Duke of Westminster put to the test 63
3.2.4. Literal interpretation and form vs. substance: A myth is born 65
3.3. The interim view: The uncertainty of Ramsay 67
3.3.1. Initial remarks 67
3.3.2. Artificial, circular and self-cancelling transactions: W.T. Ramsay Ltd. v IRC 68
3.3.2.1. Facts of the case and the taxpayer’s view 68
3.3.2.2. Two ways to deal with the case 68
3.3.2.3. The House of Lords’ approach 69
3.3.2.4. The House of Lords’ alternative suggestion 70
3.3.3. Ramsay confirmed: IRC v Burmah Oil 71
3.3.3.1. Facts of the case and the taxpayer’s view 71
3.3.3.2. The House of Lords’ approach 72
3.3.4. Step transaction test: Furniss v Dawson 74
3.3.4.1. Facts of the case and starting situation 74
3.3.4.2. Ramsay as a transaction based anti-avoidance approach 74
3.3.4.3. The impacts of Furniss v Dawson 76
3.3.5. Ramsay at a dead end: Craven v White 77
3.3.5.1. Facts of the cases 77
3.3.5.2. Limiting the impacts of Ramsay 78
3.3.5.3. Ramsay as an approach to statutory construction? 79
3.4. The status quo: Ramsay as an approach to statutory interpretation 79
3.4.1. The rediscovery of statutory construction: McGuckian v IRC 79
3.4.1.1. Facts of the case and the taxpayer’s view 79
3.4.1.2. The House of Lords’ approach 80
3.4.2. Ramsay as a principle of statutory construction: MacNiven v Westmoreland 83
3.4.2.1. Facts of the case and the taxpayer’s view 83
3.4.2.2. The House of Lords’ approach 83
3.4.3. Ramsay as a principle of statutory construction confirmed: BMBF 85
3.4.3.1. Facts of the case and the taxpayer’s view 85
3.4.3.2. The House of Lords’ approach 86
3.4.4. Statutory construction can be difficult 88
3.4.4.1. Making use of various methods of interpretation 88
3.4.4.2. Mayes v HMRC (“SHIPS 2”) as a reason for the introduction of the GAAR 91
3.4.4.3. HMRC v DCC Holdings: What if? 95
4. Judicial anti-avoidance in the EU 97
4.1. Introduction 97
4.2. Development of an abuse test 99
4.2.1. Emsland Stärke 99
4.2.2. Was it necessary to set up an abuse test? 100
4.2.2.1. The pillars of Emsland Stärke 100
4.2.2.2. Different approaches? 104
4.2.2.3. There was no need to set up an abuse test in Emsland Stärke 106
4.2.3. Implications of the abuse test 106
4.2.3.1. No influence in the short run 106
4.2.3.2. No influence in the short run also in the field of VAT 110
4.2.3.3. Very influential in the long run 112
4.3. Abuse in the field of VAT 114
4.3.1. Halifax 114
4.3.1.1. Facts of the case and questions referred to the Court 114
4.3.1.2. Adopting the abuse test in the field of VAT 114
4.3.1.3.There was no need to adopt the abuse test 115
4.3.1.4. Implications of the objective test 117
4.3.1.5. Implications of the subjective test 118
4.3.2. Cases adopting the Halifax abuse test 119
4.3.2.1. Part Service and Weald Leasing 119
4.3.2.2. Objective test and tax advantage 121
4.3.2.3. Subjective test 122
4.3.2.4. Legal consequences 124
4.3.3. New focus: Wholly artificial arrangements in the field of VAT 124
4.3.3.1. Change of focus 124
4.3.3.2. Wholly artificial arrangements in respect of the relevant statute 125
4.4. Abuse in the field of direct taxation 129
4.4.1. Cadbury Schweppes 129
4.4.1.1. Facts of the case and questions referred to the Court 129
4.4.1.2. Question of justification or question of scope? 130
4.4.1.3. Preventing the creation of “wholly artificial arrangements” 133
4.4.1.4. Proportionality of the restriction and no subjective test 134
4.4.2. Shifting the emphasis towards proportionality 138
4.4.3. Bringing Halifax and Cadbury Schweppes together 139
4.4.4. Further development of the case law 140
4.4.5. New focus: Wholly artificial arrangements in primary law 142
4.4.5.1. Requirements for a restriction to be proportional 142
4.4.5.2. The Court’s approach in Cadbury Schweppes and Thin Cap 143
4.4.5.3. The Court’s approach in further cases 144
4.5. A uniform concept of abuse? 148
C. Comparison of the GAARs 151
1. Introduction 151
2. The way to the GAARs and identifying common elements 152
2.1. The way to the GAAR in Germany 152
2.1.1. The GAAR has a long lasting history 152
2.1.2. Statutory requirements and the courts’ approach 152
2.2. The way to the GAAR in the UK 154
2.2.1. The failed attempt to introduce a GAAR in the late 1990s 154
2.2.2. Aaronson Report 155
2.2.2.1. Background of the Aaronson Report 155
2.2.2.2. Main findings of the Aaronson Report 156
2.2.2.3. General Anti-Avoidance Rule or General Anti-Abuse rule? 158
2.2.2.4. Aaronson’s GAAR 159
2.2.3. The UK GAAR 159
2.2.3.1. Introduction of a general anti-abuse rule 159
2.2.3.2. Statutory requirements 160
2.2.3.3. The importance of the GAAR Guidance 161
2.3. The way to the GAAR in the EU 162
2.3.1. The pillars of the EU GAAR 162
2.3.1.1. CCCTB Proposal: The first EU GAAR initiative 162
2.3.1.2. Article 80 CCCTB and the influence of the ECJ 164
2.3.2. The EU GAAR 165
2.3.2.1. Recommendation of an EU GAAR 165
2.3.2.2. Requirements of the EU GAAR 165
2.3.2.3. Practical importance: The EU GAAR and domestic GAARs 166
2.3.2.4. Practical importance: The EU GAAR and the PSD GAAR and the BEPS GAAR 167
2.4. Identifying common requirements 169
2.4.1. Overview of the common requirements 169
2.4.2. The idea behind the various requirements 170
3. Arrangements covered 172
4. Taxes covered 173
5. Objective test 175
5.1. Common elements 175
5.2. The objective test in the German GAAR 176
5.2.1. Starting point 176
5.2.2. Leaving the application of Sec 42 Fiscal Code open 177
5.2.3. Using Sec 42 Fiscal Code as a starting aid 179
5.3. The objective test in the UK GAAR 182
5.3.1. Starting point 182
5.3.2. Indicators of abuse 183
5.3.2.1. Indicators of abusive arrangements (Sec 207 (4) FA 2013) 183
5.3.2.2. Indicator of a non-abusive arrangement (Sec 207 (5) FA 2013) 185
5.3.3. Drawing the line between use and abuse: Examples of the GAAR Guidance 187
5.3.4. Examples where the GAAR does not apply 187
5.3.4.1. The arrangement is in line with the statutory requirements 187
5.3.4.2. The “contrived or abnormal” arrangement is in line with the statutory requirements 189
5.3.5. Examples where the GAAR applies on grounds of Sec 207 (2) (a) FA 2013 191
5.3.6. Examples where the GAAR applies on grounds of Sec 207 (2) (c) FA 2013 194
5.3.6.1. Further development of the law 194
5.3.6.2. The GAAR and Mayes (SHIPS 2) 196
5.3.6.3. Counteracting arrangements using the instruments of teleological reduction and analogy 197
5.3.7. Lessons learnt from the examples 199
5.3.7.1. The importance of the various GAAR elements 199
5.3.7.2. The objective test as an approach to statutory interpretation 200
5.3.7.3. The objective test as a reminder of having to properly interpret the law 201
5.4. The objective test in the EU GAAR 202
5.4.1. The objective test is not flawless 202
5.4.2. The objective test will be applied differently 203
5.5. Conclusion: An objective test can be valuable 205
6. Subjective tests 205
6.1. Common elements 205
6.1.1. Subjectivity in the German GAAR 205
6.1.2. Subjectivity in the UK GAAR 206
6.1.3. Subjectivity in the EU GAAR 207
6.1.3.1. Starting point 207
6.1.3.2. The EU GAAR reveals weaknesses 207
6.1.4. Subjectivity is present on various layers 210
6.2. Arrangement test 210
6.2.1. What it is about and the difference from the objective test 210
6.2.2. (In)appropriateness: The arrangement test instead of the objective test 211
6.2.2.1. Starting point 211
6.2.2.2. Inappropriate and appropriate arrangements 211
6.2.2.2.1. Non-tax reasons to rebut the inappropriateness 211
6.2.2.2.2. Arrangements that have the effect of offsetting or cancelling each other 214
6.2.2.2.3. Overall plan 216
6.2.2.2.4. Interposition of persons 217
6.2.2.2.5. Arrangements and the expectation of a reasonable business conduct 221
6.2.2.3. The arrangement test must be rejected 223
6.2.3. Artificiality: The arrangement test in addition to the objective test 224
6.2.3.1. Starting point 224
6.2.3.2. “Artificial” 225
6.2.3.3. The arrangement test must be rejected 226
6.3. Purpose test 227
6.3.1. Main or essential purpose… 227
6.3.2. … of the arrangement or the person? 229
6.3.3. The purpose test must be rejected 231
6.4. Tax advantage 233
6.4.1. The idea behind the tax advantage 233
6.4.2. The presence of the tax advantage 233
6.4.3. The subjectivity of the tax advantage 236
6.4.4. Requiring a tax advantage must be rejected 237
6.5. Double-reasonableness test 238
6.5.1. What is it about 238
6.5.2. The double-reasonableness test must be rejected 240
6.6. Conclusion: Subjective tests must be rejected 240
6.6.1. Summary of the critique 240
6.6.2. Solution 242
7. Legal consequences 244
7.1. Basing taxation on a fictional arrangement 244
7.2. Reconstruction poses serious problems 247
7.3. Consequential adjustments 248
D. Valuation of the GAARs 251
1. Introduction 251
2. Judicial anti-avoidance 251
2.1. Points of departure in the UK and in Germany 251
2.1.1. Resembling starting positions: The legal form is decisive 251
2.1.2. Contrasting developments: Various methods of interpretation vs. literal interpretation 252
2.1.2.1. Tax reform in Germany 252
2.1.2.2. No action taken in the UK 254
2.1.2.3. Developments around the Second World War 255
2.1.2.4. Developments in the post-war years 256
2.1.3. Reasons for these divergent developments 258
2.1.3.1. The relationship of tax law with other fields of law 258
2.1.3.2. Liberalism and social reasons 259
2.1.3.3. Victorian values and background of the judges 260
2.1.3.4. Common law and influence of academics 262
2.1.3.5. Parliamentary sovereignty, legal certainty and the rule of law 263
2.1.4. Consequence: Different drafting of tax legislation 265
2.2. EU Law: Adding another layer of complexity 267
2.2.1. Abuse was a latecomer in EU law 267
2.2.2. Judicial anti-avoidance in European law 268
2.3. All roads lead to Rome 270
2.3.1. Counteracting abuse on grounds of a judicially developed GAAR? 270
2.3.1.1. The initial uncertainty of Ramsay and the concept of Außentheorie 270
2.3.1.2. Ramsay did not develop into a judge-made GAAR 273
2.3.2. Counteracting abuse as a matter of interpretation? 274
2.3.2.1. Common elements: Transaction based anti-avoidance 274
2.3.2.2. Germany: Counteracting abuse should only be a matter of interpretation 276
2.3.2.3. UK: Counteracting abuse is a matter of interpretation 278
2.3.2.4. EU: Counteracting abuse should return to a matter of interpretation 279
2.3.3. Development of similar ways to counteract abuse by interpretation 280
2.3.3.1. Summary 280
2.3.3.2. Influence of other countries on the UK 282
2.3.3.3. Influence of the ECJ on UK courts 283
2.3.4. Substance-over-form and the economic perspective (wirtschaftliche Betrachtungsweise) 285
2.3.4.1. Substance-over-form approach from a German court’s perspective 285
2.3.4.2. Economic perspective (wirtschaftliche Betrachtungsweise) from a UK court’s perspective 286
3. Statutory anti-avoidance (GAARs) 289
3.1. Common elements inherent in the GAARs 289
3.2. Drawing the line between “abusive” and “non-abusive” arrangements 290
3.3. The GAARs only codify what courts already did 291
4. Reasons for introducing and suggesting the GAARs 292
4.1. To raise revenue and for political reasons 292
4.2. To compensate legislative cowardice 295
4.2.1. Overly complex tax systems as a source of tax avoidance 295
4.2.2. Tax systems do not have to be ‘perfect’ 297
4.2.3. GAARs as a result of legislative cowardice 298
4.3. To compensate judicial and administrative shortcomings in statutory interpretation 299
4.3.1. Methods of interpretation and the complexity of the tax system 299
4.3.2. Applying various methods of interpretation can be difficult 301
4.3.3. GAARs as a tool to compensate shortcomings in interpretation 303
5. What remains at the end? 304
5.1. What is claimed to be achieved 304
5.2. What is achieved 305
5.2.1. GAARs leading to a simpler tax system? 305
5.2.1.1. A GAAR alone does not make the tax system simpler 305
5.2.1.2. Legislators may contribute to the simplification of a tax system 306
5.2.2. GAARs reducing the uncertainty surrounding the case law? 310
5.2.2.1. Uncertainty is a result of overly complex tax systems 310
5.2.2.2. GAARs can contribute to legal uncertainty and inequality 311
5.2.3. GAARs can be detrimental to the legal culture 313
5.2.3.1. The finding of an abusive arrangement is a matter of interpretation 313
5.2.3.2. GAARs may have an adverse effect on the legal culture 314
5.3. Is there even a remaining scope for GAARs? 316
5.3.1. GAARs as reminders of having to interpret the law 316
5.3.2. Making interpretation possible 318
E. Summary 320
1. Starting position 320
2. The courts’ approach 320
3. The GAARs’ approach 328
4. Valuation of the GAARs 333
F. Annex 338
1. Overview of the common requirements of the German, UK and EU GAAR 338
2. German GAAR (author’s translation) 339
2.1. Sec 4 and 5 Reich Fiscal Code 339
2.2. Sec 6 Fiscal Adjustment Act 339
2.3. Sec 42 Fiscal Code in the version of 1977and 2001 339
2.4. Sec 42 Fiscal Code in the version of 2008 340
3. UK GAAR 340
4 . EU GAAR 347
4.1. EU GAAR: Commission Recommendation on Aggressive Tax Planning 347
4.2. PSD GAAR 348
4.3. BEPS GAAR 348
G. Bibliography 350