Substance carve-out and function-risk analysis in the ATAD’s CFC rule as two sides of the same coin: Strengths and limits of a uniform concept of abuse

Abstract

When the European Union lawmakers introduce two implementation options for a mandatory anti-abuse rule – as they have done under the controlled foreign company (CFC) rule of the Anti-Tax Avoidance Directive (ATAD) – there is a real risk that these provisions will be attributed materially different abuse tests. This could call into question the assumption of a uniform EU concept of abuse materializing in the general principle of prohibition of abuse, and sow the seeds for additional forms of undesirable tax planning strategies. This article shows that the abuse tests of both implementation options of the ATAD’s CFC rule prescribe an identical abuse test and that beyond the limits of the harmonization effect, a single concept of abuse applies to all CFC situations as long as the scope of EU corporate tax law is affected. Anti-Tax Avoidance Directive, controlled foreign company rule, uniform concept of abuse