Abuse in the area of direct taxation

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Abuse in the area of direct taxation

Key points

The starting point for this initiative is the agreement between Member States on what is deemed "abuse" – i.e. on the distinction between "tax evasion" and "tax avoidance". In the case of the latter, avoidance is only an offence if "wholly artificial arrangements" are set up, i.e. if fictitious situations are created. 

A particularly important aspect is "thin capitalisation", i.e. providing foreign subsidiaries with funds instead of increasing capital. The approach taken by administrations is somewhat subjective, and it is particularly difficult to judge when it comes to financial institutions.

A balance needs to be struck between the interests of the state and those of the taxpayer, with the proportionality principle always applied when deciding on cases of "wholly artificial arrangements".

The EESC feels that it is its duty to highlight the role that tax administrations should play in combating both abuse and, most importantly, artificial (or even genuine) arrangements serving as a front for criminal activities.