In What Way Does the Russian GAAR Comply With EU ATAD and BEPS Rules?

Abstract

The issues of tackling aggressive tax planning are actual throughout the whole history of global market economy. Earlier this struggle was held by the states individually through imposing rules into their national legislation authorizing tax supervisory bodies to use new methods of control, establishing liability for tax evasion, and developing the approaches by judgements of the courts on relevant cases.
The removal of administrative barriers, globalization processes in market economy and promotion of entrepreneurship, alongside with other measures that stimulate taxpayers to fulfill their tax obligations responsibly are affecting tax abuse. Today the intentions of the states to promote international tax cooperation and combat tax avoidance are reflected in General Anti-Avoidance Rules (GAAR) and special international agreements on tax issues Specific Anti-Avoidance Rules (SAAR), as well as coordination of efforts in the framework of international economic organizations (e.g. BEPS Action Plan developed in OECD).
The Action Plan on Base Erosion and Profit Shifting (hereinafter - BEPS plan) was implemented to the Russian Tax Code in 2017 and greatly developed the existing level of anti-abusive approaches in the Russian tax law. The legal regime of taxation on profit and income in the Russian Federation is influenced by a number of factors including the internationalization of tax law. The implementation of OECD principles and regulation predetermined the recent development of national tax policy. These changes in Russian tax legislation were mostly due to the implementation of measures introduced by OECD and mainly by BEPS plan . Russia is an integral part of the world community and general problems in the field of taxation affect the Russian tax regime. As prescribed in the Russian Constitution Russia has the supremacy of the international law as international treaties are the integral part of the Russian legal system. And in case when the national rule is incompatible with the international treaty, the treaty shall prevail. The norms of supranational law and the norms enshrined in OECD acts affect the possibility of improving the Russian tax regime trough the implementation of these acts or through incorporation. The recent consolidation brought many novelties into the Tax Code of the Russian Federation : in particular the rules for taxation of controlled foreign companies, the rules of fine (insufficient) capitalization, the concept of beneficial ownership, criteria for tax residence of legal entities, ratification of the Convention on Mutual Administrative Assistance in Tax Matters. These novelties are milestones of the present Russian tax policy at the present stage. On June 2017, the Russian Federation joined the OECD Multilateral Convention on implementation of measures relating to tax agreements in order to counteract the erosion of the tax base and withdraw profits from taxation , which contains mandatory provisions reflected in the final report of the BEPS Action plan.

Popular Abstract

The development of methods of combating tax avoidance was provided for by the provisions of the Main Directions of the Tax Policy of the Russian Federation for 2016 and the planning period of 2017 and 2018 , which focused on the active participation of the Russian Federation in the implementation of BEPS. The document stated that the Russian tax legislation does not contain a proper mechanism to tackle tax avoidance and combat obtaining unreasonable tax benefits. At the same time, the best practices of European countries indicate that measures to combat aggressive tax planning are reflected in the EU law and in particular in ATAD. In this regard, Russia is in progress to enforce the mechanisms for tackling tax avoidance into its tax legislation. A proper solution would be to consider tests used by EU MS to identify abuses.
In addition to the systematic approach to tax abuse reflected in the understanding of the principles used to tackle abusive practices and the role of the Court of Justice of the European Union, the significant differences between Russian GAAR and the European GAARs lies in the methodological approach in testing.
In addition to the tests on subjective criteria and tests on objective criteria there are different approaches to the tax avoidance as a sole purpose, the essential aim and the principal purpose. For instance in the judgement on Cadburry Schweppes case the subjective test with sole purpose was used (same as in Article 6 of ATAD), in the judgement on Kofoed (C-321/05) case the subjective test with principle purpose was used (same as in Parent-Subsidiary Directive, Merger Directive and Interest and Royalties Directive) in Emsland-Stärke case the objective test with subjective element was applied while in Halifax case the objective test with essential purpose.
In indirect taxation (VAT and customs duties), the subjective test is much less significant: the higher the degree of harmonization in a particular area, the more important the objective test is. In the Halifax judgment, the subjective test is not even mentioned.
In direct taxation, the statutory GAARs in these three directives require the primary goal of obtaining a tax advantage, that is, a subjective test for qualifying tax evasion.
The most stringent is a subjective test, based on decisions in cases on the compatibility of national anti-abuse legislation with fundamental freedoms of the EU. It requires a tax advantage as the “sole purpose” of the transaction.
Article 6 of the ATAD does not require Member States to introduce legislative anti-abuse rules: countries that have a judicial doctrine in line with the general idea of this article can be guided by the provisions laid down in the Kofoed case and apply this practice in the future.
In recent years, the institutions established and applied in the tax laws of foreign (mostly European) countries have been introduced into Russian tax law. These legislative innovations are held in the global trend of combating corporate tax evasion, which is expressed primarily in the BEPS project. Participation in this project provides the Russian Federation with opportunities for the development of certain norms aimed at combating base erosion and the implementation of world experience in combating abusive tax practices into national legislation. However, these processes are characterized by frequent changes in legislation, which indicates that the concept of deoffshorization and the implementation of the BEPS Action Plan is not always worked out in detail in the draft laws at the time of their adoption.
The development of legal regulation on issues of international cooperation in the area of taxation and the exchange of tax information allows us to positively characterize the process of using the best modern tax practices by the Russian Federation. I believe that the development of a unified integrated approach to combating abusive tax practices will not only incorporate into the Tax Code developments and mechanisms of foreign and international tax law, but will also create a qualitatively new approach to the implementation of international program documents at the level of Russian tax legislation.
The Court of Justice of the European Union has repeatedly explained that in direct taxation Member States are not obliged to introduce measures aimed at combating avoidance schemes. However, in the light of EU legislative initiatives in corporate taxation, expressed in the form of directives that eliminate specific tax barriers in the domestic market, the trend has tended towards obligations to introduce these measures imposed on Member States.
GAAR finds its roots in the practice of the EU Court of Justice on violations of the primary and secondary law of the European Union. It is not clear whether the EU Court will be forced to apply more stringent tests with the adoption of ATAD. The gap of the Directive also remained the consequences of identifying an abusive measure, since this issue was left entirely to the discretion of Member States.
After revising the general anti-evasive rules in EU secondary law and in judicial practice, I can conclude that the different formulations of subjective tests of these GAARs still follow a predictable pattern. In addition to developing “statutory” rules, the European Commission also improved its legislative technique and laid down GAARs, which are in line with the current practice in the Court of Justice of the EU.
Finally, the use of a three-tier GAAR interpretation structure can mitigate uncertainty for taxpayers and also preserve the necessary abstract nature of EU law.

• author: Shcherbakov, Aleksei
• supervisor: Sigrid Hemels
• organization: Department of Business Law
• course: HARN60 20201
• year: 2020
• type: H1 - Master's Degree (One Year)
• subject: Law and Political Science
• keywords: Tax law, tax abuse, GAAR, ATAD, BEPS, CFC, EU law, Russian tax law, tax avoidance
• language: English
• id: 9020580
• date added to LUP: 2020-06-22 13:09:30
• date last changed: 2020-06-22 13:09:30