Research On EU’s General Anti-Abuse Rules Of Tax Treaties And Implications

The general anti-abuse clause is a clause added to tax treaties to deal with the abuse of tax treaties by taxpayers.It is different from the special anti-abuse clause,and it addresses the general agreement abuse problem.With the increasing frequency of cross-border economic activities,the number,types and content of tax treaties are increasing,forming a huge network of tax treaties covering most of the cross-border trade activities,which provides objective conditions for the abuse of tax treaties.On the other hand,taxation is an important factor affecting economic profits in commercial activities,and entities engaged in transnational economic activities usually have a natural motivation to reduce taxes,which has become a subjective reason for taxpayers to abuse tax treaties to obtain preferential treatment.In many cases,taxpayers will take advantage of provisions in tax treaties to obtain tax benefits they should not be entitled to by setting up conduit companies or moving funds to low-tax or tax-exempt countries.These actions not only reduce the government’s tax revenue,but may also create unfair competition for other taxpayers,so they are considered tax avoidance behaviors that need to be cracked down.In order to effectively curb the abuse of tax treaties,most countries have adopted general anti-avoidance rules in domestic laws,judicial principles and other systems and beneficial owner clauses in tax treaties to combat abuse,but the effect is not satisfactory.Against this background,BEPS Action 6 proposes the PPT rule,which is proposed as a GAAR to address the abuse of agreements.China and many EU member states have incorporated this rule into the tax treaty system by signing the Multilateral Convention.However,there are inherent defects in PPT,especially in vague applicable standards and strong subjective arbitrariness.In practice,it may be difficult to grasp the discretionary scale.China also lacks regulations on how to apply PPT.In this regard,the general judicial principles and legislative provisions on the prevention of treaty abuse at the EU level provide guidance for EU member states to modify and apply PPT.This article believes that these experiences of the EU have provided significant reference for China.Studying the general anti-abuse rules and principles of EU tax treaties may help China legislators to design rules when introducing PPT,and help tax authorities to grasp the applicable standards.Therefore,relevant EU rules in legislation,their application in judiciary,and their reference to China are the issues to be solved in this article.This article is structured as four chapters.The first chapter introduces the statutory rules of the EU to prevent the abuse of tax treaties,expounds the development process of the general anti-abuse clauses in the Direct Tax Directive,analyzes the applicable standards of the GAAR after the "Anti-Tax Avoidance Directive" is issued,and the EU’s recommendations for countries to localized revise PPT.The second chapter sorts out the principles of EU case law on anti-abuse of direct taxation,including the origin of the principle of prohibition of abuse and its application and development in the field of direct taxation,and conducts in-depth research on the applicable conditions of the principle of prohibition of abuse,and at the same time uses the latest Danish BO case as an example,analyzes the key aspects that the EU pays attention to when judging subjective factors,especially whether there is a completely artificial arrangement.The third chapter compares the EU’s general anti-abuse rules with the OECD’s PPT.First,it elaborates on the applicable standards of the PPT according to OECD commentaries,and then compares PPT with the EU’s practices in terms of subjective elements,objective elements,and the principle of proportionality,and on this basis,evaluate and analyze the two mainstream general anti-abuse measures,points out the advanced points of the EU’s practice.The fourth chapter is the reference significance of the general anti-abuse rules of the EU to China.Firstly,it expounds the current situation of GAAR in China,and points out that compared with the practices of the EU and OECD,China currently has a narrow scope of application of GAAR and confusion in the setting of subjective elements,the lack of economic substance test and relevant supporting implementation measures,then analyze the feasibility of China’s reference to the EU’s experience to improve the terms of the agreement,and put forward suggestions for improving China’s general anti-abuse measures.