10.6092/issn.2531-6133/10023
This study concentrates on the Court of Justice of the European Union (CJEU) case law in order to reconstruct from it an interpretative guidance for the proper understanding and thus application of general anti-abuse rule included in Article 6 ATAD (the ATAD’s GAAR). Although Article 6 aims to harmonises general anti-abuse rule in the domain of tax law among all MSs, its wide scope and its phraseology raises a plethora of issues, in particular in respect of its proper – EU compatible – understating and thus application. The analysis of the relevant CJEU case law, as undertaken in this paper, will set a scene for the question of compatibility of the ATAD’s GAAR with the concept of abuse developed by the CJEU in cases regarding abusive practices of taxpayers.  This piece aims to contribute in determining the reasonable understanding of the core elements of the ATAD’s GAAR in accordance with the EU primary law, as interpreted by the CJEU. This may provide the readers with a useful interpretative guideline to the ATAD’s GAAR, which could be of an assistance not only for tax authorities, but by all stakeholders, including taxpayers, courts, and MSs’ legislative bodies.
application/pdf
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Błażej Kuźniacki
University of Bologna Law Review
tax avoidance
The C.J.E.U. Case Law Relevant to the General Anti-Avoidance Rule (G.A.A.R.) Under the Anti-Tax Avoidance Directive (A.T.A.D.)
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UBLR
Błażej Kuźniacki
2019/11/21
10.6092/issn.2531-6133/10023
261
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2531-6133
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tax avoidance
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282
The C.J.E.U. Case Law Relevant to the General Anti-Avoidance Rule (G.A.A.R.) Under the Anti-Tax Avoidance Directive (A.T.A.D.)
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4
 ARTICLES & ESSAYS                                                       https://doi.org/10.6092/issn.2531-6133/10023




               The C.J.E.U. Case Law Relevant to
       the General Anti-Avoidance Rule (G.A.A.R.) Under
          the Anti-Tax Avoidance Directive (A.T.A.D.)

                                               BLA
                                                ł żEJ KUźNIACKI
                                                               †



TABLE OF CONTENTS: 1. Introduction; 1.1. General Remarks on the A.T.A.D.’s G.A.A.R.; 1.2.
The Pivotal Importance of Cross-Border Situations for the Relevance of the C.J.E.U.’s Case
Law; 1.3. The Scope and the Purpose of This Study; 2. The Origin of Abuse; 3. The
Two-Pronged Test, the Objectiﬁed Intention, and the Essential Purpose; 4. The Sole, the
Essential, the Predominant, the Main, and One of the Main Purposes’ Standard of Abuse
under E.U. Secondary Law; 5. From the Sole to one of the Principal Purposes’ Standard of
Abuse under E.U. Primary Law between M.S.s and Between M.S.s and Third Countries; 6.
Synthesis and Conclusions.

ABSTRACT: This study concentrates on the Court of Justice of the European Union (C.J.E.U.)
case law in order to reconstruct from it an interpretative guidance for the proper
understanding and thus the application of the general anti-abuse rule included in Article
6 A.T.A.D. (the A.T.A.D.’s G.A.A.R.). Although Article 6 aims to harmonise general
anti-abuse rules in the domain of tax law among all M.S.s, its wide scope and its
phraseology raises a plethora of issues, in particular in respect of its proper – E.U.
compatible – understating and thus application. The analysis of the relevant C.J.E.U. case
law, as undertaken in this paper, will set a scene for the question of compatibility of the
A.T.A.D.’s G.A.A.R. with the concept of abuse developed by the C.J.E.U. in cases regarding
abusive practices of taxpayers.       This piece aims to contribute in determining the
reasonable understanding of the core elements of the A.T.A.D.’s G.A.A.R. in accordance
with E.U. primary law, as interpreted by the C.J.E.U.. This may provide the readers with a
useful interpretative guideline to the A.T.A.D.’s G.A.A.R., which could be of assistance not
only for tax authorities, but for all stakeholders, including taxpayers, courts, and M.S.s’
legislative bodies.

KEYWORDS: G.A.A.R., A.T.A.D., B.E.P.S., C.J.E.U, tax avoidance


JEL CODES: K34, H26, H21




                                       UNIVERSITY OF BOLOGNA LAW REVIEW

                                                    ISSN 2531-6133

                                                    [VOL.4:2 2019]

          This article is released under the terms of Creative Commons Attribution 4.0 International License (CC-BY)



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          1. INTRODUCTION

     1.1. GENERAL REMARKS ON THE A.T.A.D.’S G.A.A.R.

The general anti-abuse rule embodied in Article 6 A.T.A.D. (the A.T.A.D.’s
G.A.A.R.) is a unique European Union (hereinafter E.U.) provision, not least
because it is the ﬁrst provision under the E.U. law, which aims at preventing
the abuse of tax law1 by Member States (hereinafter M.S.s),2 but also due to
its challenging structure and wording which is supposed to ﬁt all M.S.s in
prevention of abuse of tax law. It reads as follows:
           General anti-abuse rule

             1. For the purposes of calculating the corporate tax liability,
                a Member State shall ignore an arrangement or a series of
                arrangements which, having been put into place for the
                main purpose or one of the main purposes of obtaining a
†
    PhD University of Oslo (Norway), Post-doctorate research at Singapore Management
    University (Singapore), Attorney-at-Law, Visiting Senior Research Fellow at the
    Amsterdam Centre for Tax Law, University of Amsterdam (The Netherlands).
1
  More generally, even if one accepts that E.U. or international law prohibits the abuse
  of law (abuse of rights), it is still debatable whether or not the concept of “abuse of
  law” constitutes a general principle of international law or a general principle of E.U.
  law. For E.U. law see, e.g., PAUL FARMER ET AL., PROHIBITION OF ABUSE OF LAW: A NEW
  GENERAL PRINCIPLE OF E.U.? (Rita de la Feria & Stefan Vogenauer eds., 2011); Paolo
  Piantavigna, Conference Report: Prohibition of Abuse of Law: A New General Principle of
  E.U. Law?, 37 INTERTAX 166 (2009); ALEXANDRE SAYDé, ABUSE OF E.U. LAW AND REGULATION
  OF THE INTERNAL MARKET (2014). Although some recent Court of Justice of the European
  Union’s (hereinafter C.J.E.U.) case law implies that the prohibition of abuse of tax law
  stems from or is identiﬁed with general principle of E.U., such implication has a weak
  doctrinal foundation and seems to be at odds with its settled case law (see infra sec. 4).
  For international public law see 1 GERALD FITZMAURICE, THE LAW AND PROCEDURE OF THE
  INTERNATIONAL COURT OF JUSTICE (1986); Alexandre Kiss, Abuse of Rights, in 1 ENCYCLOPEDIA
  OF PUBLIC INTERNATIONAL LAW (R. Bernhardt ed., 1992); IAN BROWNLIE, PRINCIPLES OF PUBLIC
  INTERNATIONAL LAW (6th ed. 2003); Michael Byers, Abuse of Rights: An Old Principle, A New
  Age, 47 MCGILL L. J. 389 (2002). See also Free Zone of Upper Savoy and Gex (Fr. v. Swaz.),
  Judgment, 1932 P.C.I.J. (ser. A/B,) No. 46, at 167 (June 7) and Rights of Nationals of the
  United States of America in Morocco (Fr. v. U.S.), Judgment, 1952 I.C.J. Rep. 176, ¶ 212
  (Aug. 27).
2
  Before its entry into force, i.e. 1 January 2019, several G.A.A.R.s have been contained
  in partially harmonised areas of direct tax law in order to prevent the abuse of the E.U.
  directives. See Council Directive 2011/96, art. 1(2)-(4), 2011 O.J. (L 345), 8, as amended
  by Council Directive 2013/13, 2013 O.J. (L 141), 30, Council Directive 2014/86, 2014 O.J.
  (L 219/40), and Council Directive 2015/121, 2015 O.J. (L 21/1); Council Directive 2003/49,
  art. 5, 2003 O.J. (L 157)(EC), 49, as amended by Council Directive 2006/98, 2006 O.J.
  (L 157)(EC), 203, and Council Directive 2013/13, 2013 O.J. (L 141), 30; Council Directive
  2009/133, art. 15(1)(a), 2009 O.J. (L 310/34), as amended by Council Directive 2013/13, 2013
  O.J. (L 141), 30.




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               tax advantage that defeats the object or purpose of the
               applicable tax law, are not genuine having regard to all
               relevant facts and circumstances. An arrangement may
               comprise more than one step or part.

            2. For the purposes of paragraph 1, an arrangement or a
               series thereof shall be regarded as non-genuine to the
               extent that they are not put into place for valid commercial
               reasons which reﬂect economic reality.

            3. Where arrangements or a series thereof are ignored in
               accordance with paragraph 1, the tax liability shall be
               calculated in accordance with national law.

The crucial outcome of Article 6 is that it harmonises a general anti-abuse
rule in the domain of tax law among all M.S.s. Hence, it has a wide scope
and its phraseology is not too precise, including expressions such as “the
main purpose or one of the main purposes”, “defeats the object or purpose
of the applicable tax law”, and “not genuine [arrangement]”.
        Structurally, Article 6 is composed of three core elements: (i) an
arrangement; (ii) a tax advantage; and (iii) abuse. All three must exist for
Article 6 to be triggered. The structure of Article 6 is designed so that it
initially opens its gate broadly by setting low thresholds for identifying
“an arrangement” and “a tax advantage”, but then narrows it down to
what should be considered as “abusive”.3 However, the abusive part of
Article 6 (at least linguistically) does not seem to be narrow enough (or
high enough) to be in line with the standard of abuse developed by the
C.J.E.U.4 and it does not deﬁne the border between abusive and
non-abusive arrangements with the clarity that is required to comply
with the legal certainty and foreseeability principles. This puts Article 6 at
odds with its balancing function, which is clearly articulated in the recital
11 of the preamble to the A.T.A.D.:               “GAARs should be applied to
arrangements that are not genuine; otherwise, the taxpayer should have
3
  Cf. to the U.K. G.A.A.R. at Anna Burchner, Jeremy Cape & Matthew Hodkin, United Kingdom:
  Anti-Avoidance Measures of General Nature and Scope – G.A.A.R. and Other Rules, 103A IFA
  CAHIERS 805, 810 (2018).
4
  See infra sec. 2-5.


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the right to choose the most tax efficient structure for its commercial
affairs.”5
        The approach of the E.U. Council follows from the essential nature
of the G.A.A.R. which is to cover and prevent the widest possible range of
tax abuse cases. It is also needed to achieve its purpose: to “tackle abusive
tax practices that have not yet been dealt with through speciﬁcally
targeted provisions”, such as transfer pricing or C.F.C. rules.6 That is to
say, the drafters of Article 6 seem to have been motivated by a desire to
design a vague and broad anti-abuse rule, which will function as a
deterrent for taxpayers. To a certain extent the drafters also seem also to
be inclined by a desire to undo what the C.J.E.U. had already achieved, i.e.
to lower the standard of abuse in tax cases under E.U. law.



    1.2. THE PIVOTAL IMPORTANCE OF CROSS-BORDER SITUATIONS FOR THE RELEVANCE OF THE
    C.J.E.U.’S CASE LAW

Article 6 aims to cover cross border situations (between M.S.s and
between M.S.s and third countries) as well as domestic ones. In fact,
recital 11 of the preamble to the A.T.A.D. emphasises that Article 6 should
be applied in cross-border and domestic situations in a uniform manner.
This a very important feature of the Article, which seeks to prevent the
discriminatory application of E.U. harmonised G.A.A.R.s by requiring that
the scope and results of their application in domestic and cross-border
situations do not differ.7            Moreover, this feature suggests that the
5
  Cf. Andrés Báez Moreno & Juan José Zornoza Pérez, The General Anti-abuse Rule of the
  Anti-tax Avoidance Directive, in COMBATING TAX AVOIDANCE IN THE E.U.: HARMONIZATION AND
  COOPERATION IN DIRECT TAXATION 118, 126-30 (José Manuel Almudí Cid, Jorge A. Ferreras
  Gutiérrez, Pablo A. Hernández González-Barreda eds., 2019); Maarten. Floris de Wilde, Is
  The A.T.A.D.’s G.A.A.R. a Pandora’s Box?, in THE IMPLEMENTATION OF ANTI-BEPS RULES IN THE
  E.U.: A COMPREHENSIVE STUDY 301, 308-14 (Pasquale Pistone & Dennis Weber eds., 2018).
6
  See recital 11 of the preamble to the A.T.A.D.. One could argue in accordance with recital 1
  of the preamble to the A.T.A.D. that the broadest purpose of the G.A.A.R. is “the need for
  ensuring that tax is paid where proﬁts and value are generated”. This is, however, highly
  debatable and questionable. Cf. Wilde, supra note 5, at 319.
7
  See Adam Zalasiński & Agnieszka Olesińska, Poland: Anti-Avoidance Measures of General
  Nature and Scope – G.A.A.R. and Other Rules, 103A IFA CAHIERS 607, 620 (2018). See
  generally Andrés Báez Moreno, A PAN-European G.A.A.R.? Some (Un)Expected Consequences



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practical impact of Article 6 is much wider than the one of international
arrangements, since the rule covers the entire spectrum of corporate
income tax, whereas many tax avoidance arrangements are purely
domestic.
         This feature of Article 6 should not be seen as a way to circumvent a
possible scrutiny of the C.J.E.U. because of the lack of discrimination or
restriction of cross-border situations compared to domestic ones.8
Fundamentally, the A.T.A.D. is secondary E.U. law and given its inferiority
to the primary law, all provisions of that Directive must be compatible
with E.U. Treaties and the relevant C.J.E.U. case law, in particular in cases
regarding abuse of tax law under fundamental freedoms.9 Indeed, the E.U.
Commission in the proposal of the A.T.A.D. pointed out that in
“compliance with the acquis, the proposed G.A.A.R. is designed to reﬂect
the artiﬁciality tests of the C.J.E.U. where this is applied within the
Union.”
         Moreover, as implied by the C.J.E.U. case law,10 the consequences of
evaluating whether domestic provisions are compatible with E.U. law
should be drawn not only from their formal (ipso iure) scope of
application, but also from their actual (ipso facto) scope of application. In
that regards, it should be remembered that G.A.A.R.s target tax avoidance.
This phenomenon, due to difference in levels of taxation on income
among countries and disparities existing in their tax systems, typically
occurs in cross border situations.              Consequently, there is a risk that
G.A.A.R.s’ actual scope of application will cover resident taxpayers which
are engaged in cross border arrangements more often than resident
taxpayers involved in purely domestic arrangements. It means that the
   of the Proposed E.U. Tax Avoidance Directive Combined with the Dzodzi Line of Cases, BRIT.
   TAX REV. 143 (2016).
 8
   Such attempt was made by the O.E.C.D. in respect of C.F.C. rules, see Organization
   for Economic Cooperation and Development [O.E.C.D.], Designing Effective Controlled
   Foreign Company Rules, Action 3 – Final Report, at 22 (October 5, 2015).
 9
   See further sec. D.
10
   See A.G. Léger’s Opinion of 20 May 1999 and the corresponding judgment of Case C-
   439/97, Sandoz v. GmbH v Finanzlandesdirektion für Wien, 1999 E.C.R. I-07041 ¶ 19,
   31-48. See also Case C-254/97, Baxter, 1999 E.C.R. I-04809 ¶ 12-13.




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G.A.A.R.s of M.S.s would not – in the C.J.E.U.’s eyes – be immune to
analysis of their ipso facto (indirect) restrictive effect on fundamental
freedoms even though there is case law conﬁrming that, ipso iure, not
treating domestic and foreign investments differently is enough to avoid
a restriction. Only if their actual application to cross border and domestic
situations were to be alike, no restrictions would arise.
            This shows that the proper understanding of the relevant C.J.E.U.’s
case law may prove to be invaluable for determining the appropriate
implementation and application of the A.T.A.D.’s G.A.A.R. by M.S.s. This,
naturally, pertains to cross border situations, as purely domestic
situations are not within the purview of the C.J.E.U.. Hence, this study will
focus on potential cross-border use of the A.T.A.D.’s G.A.A.R., although its
application         reaches      not    only    cross-border,         but      also     domestic
arrangements and transactions.



       1.3. THE SCOPE AND THE PURPOSE OF THIS STUDY

The C.J.E.U.’s case law in the ﬁeld of abuse law (the relevant C.J.E.U.’s case
law) plays a prominent role in an appropriate implementation and
application of the A.T.A.D.’s G.A.A.R.. First, it delineates the compatibility
range for the A.T.A.D.’s G.A.A.R. with E.U. fundamental freedoms. Second,
it helps to understand the key concepts under the A.T.A.D.’s G.A.A.R.,
which aim to cover the notion of abuse of tax law. The importance of the
C.J.E.U. case law for drafting the A.T.A.D.’s G.A.A.R. was duly noticed by the
European Commission, which stated in the proposal to the A.T.A.D. that
“[i]n compliance with the acquis, the proposed G.A.A.R. is designed to
reﬂect the artiﬁciality tests of the C.J.E.U. where this is applied within the
Union.”11
            The analysis of the relevant C.J.E.U. case law in sections 2-5 below
will set a scene for the question of compatibility of the A.T.A.D.’s G.A.A.R.
11
     Commission Proposal for a Council Directive Laying Down Rules against Tax Avoidance
     Practices that Directly Affect the Functioning of the Internal Market, at 9, COM (2016) 026
     ﬁnal (Jan. 1, 2016).


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 with the concept of abuse developed by the C.J.E.U. in cases regarding
 abusive practices of taxpayers.12             Attention is given to the structural
 elements of the concept of abuse under the C.J.E.U. case law and this
 Court’s perception of threshold of abuse concerning the taxpayer’s
 intention to obtain a tax advantage. The analysis will be followed by its
 synthesis and a conclusion in section 6.
         This piece aims to contribute in determining the reasonable
 understanding of the core elements of the A.T.A.D.’s G.A.A.R. in
 accordance with E.U. primary law, as interpreted by the C.J.E.U.. This may
 provide the readers with a useful interpretative guideline to the A.T.A.D.’s
 G.A.A.R., which could be of assistance not only to tax authorities, but to all
 stakeholders, including taxpayers, courts, and M.S.s legislative bodies.




         2. THE ORIGIN OF ABUSE

 The C.J.E.U.’s concept of abuse of law has its origins in the 1970 judgment
 Van Binsbergen. In that case, the C.J.E.U. for the ﬁrst time pointed out that
 a M.S. may restrict the fundamental freedom (here: the freedom to
 provide services) to prevent the circumvention of domestic rules insofar
 as E.U. law does not protect an activity that is “entirely or principally
 directed toward its territory . . . for the purpose of avoiding [its domestic
 rules] (emphasis added)”.13              This implies that for the C.J.E.U. the
12
   The present analysis focuses only on the milestones in the C.J.E.U. case law on abuse of
   law and it does not necessarily follow a chronological order of the judgments. The aim is
   to succinctly and effectively compose the historical and current state of art in the area of
   abuse of tax law as developed by the C.J.E.U. case law.
13
   Case C-33/74, Van Binsbergen v. Bestuur van de Bedrijfsvereniging, 1974 E.C.R. 01299
   ¶ 13. The quoted ﬁndings stemming from this landmark judgment has been used by
   the C.J.E.U. in many other cases regarding the fundamental freedoms, i.e. freedom to
   provide services (the freedom of establishment, the free movement of goods and the
   free movement of workers). Accord Case C-52/79, Procureur du roi v. Debauve, 1980
   E.C.R. 883; Case C-288/89, Stichting Collectieve Antennevoorziening Gouda et al. v.
   Commissariaat voor de Media, 1991 E.C.R. I-4007; Case C-211/91, Commission v. Belgium,
   1992 E.C.R. I-6757; Case C-148/91, Veronica Omroep Organisatie v. Commissariaat voor
   de Media, 1993 E.C.R. I-00487; Case C-11/95, Commission v. Belgium, 1996 E.C.R. I-
   04115; Case C-222/94, Commission v. United Kingdom, 1996 E.C.R. I-4025; Case C-


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circumvention of domestic rules in certain circumstances equals an
abusive practice that is not protected by E.U. law. This in particular, is
pertinent to U-turn schemes.               Although U-turn schemes have been
usually identiﬁed as a source of abusive practices in V.A.T. cases,14 they
have been also identiﬁed in blatant tax avoidance cases regarding direct
taxation.15 This shows that the reasoning of the C.J.E.U. used to initiate
the concept of the abuse of law in respect of the freedom to provide
services was from the very beginning relevant to some types of abuse in
the ﬁeld of tax law. Until 2000, however, not much guidance was given by
the C.J.E.U. on the way to determine the abuse.




         3. THE TWO-PRONGED TEST, THE OBJECTIFIED INTENTION, AND THE ESSENTIAL
     PURPOSE

The C.J.E.U. gave more clarity to the concept of abuse of law in its
judgment of 14 December 2000 in the Emsland-Stärke case by introducing
a two-pronged test to determine abuse: (i) a combination of objective
circumstances in which, despite formal observance of the conditions laid
down by the E.U. rules, the purpose of those rules has not been achieved;
   56/96, VT4 Ltd. v. Vlaamse, 1997 E.C.R. I-3143 and Case C-34/95, C-35/95 and C-36/95,
   Konsumentombudsmannen v. De Agostini and TV-Shop, 1997 E.C.R. I-03843; Case C-
   115/78, Knoors v. Secretary of State, 1979 E.C.R. 399; Case C-246/80, Broekmeulen v
   Huisarts Registratie Commissie, 1981 E.C.R. 2311; Case C-271/82, Auer, 1983 E.C.R. 2727;
   Case C-292/86, Gullung v. Conseil de l’ordre des avocats, 1988 E.C.R. 00111; Case C-81/87,
   Daily Mail, 1988 E.C.R. 05483; Case C-130/88, Van de Bijl, 1989 E.C.R. 3039; Case C-61/89,
   Bouchoucha, 1990 E.C.R. I-03551; Case C-212/97, Centros v Erhvervs, 1999 E.C.R. I-01459
   and Case C-167/01, Kamer van v. Inspire Art, 2003 E.C.R. I-10155; Case C-229/83, Leclerc,
   1995 E.C.R. I-00179; Case C-53/81, Levin, 1982 E.C.R. 01035; Case C-249/83, Hoeckx,
   1985 E.C.R. 973; Case C-139/85, Kempf, 1986 E.C.R. 01741; Case C-39/86, Lair, 1988 E.C.R.
   03161; Case C-292/89, Antonissen, 1991 E.C.R. I-00745. The case law cited after: A. G.
   Prats et al., E.U. Report: Anti-avoidance measures of general nature and scope – G.A.A.R.
   and other rules, IFA Cashiers 2018, Vol. 103A, p. 7 at footnotes 7-10.
14
   For that see DENNIS WEBER, TAX AVOIDANCE AND THE EC TREATY FREEDOMS A STUDY OF THE
   LIMITATIONS UNDER EUROPEAN LAW TO THE PREVENTION OF TAX AVOIDANCE 196-208 (2005).
15
   See B. Kuźniacki, Tax Avoidance through Controlled Foreign Companies under European Union
   Law with Speciﬁc Reference to Poland, in Accounting, Economics, and Law: A Concivium, sec.
   3.4.2 (R. S. Avi-Yonah, Y. Biondi, S. Sunder (eds.), 1st edn., 2017).




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 (ii) a subjective element consisting in the intention to obtain an advantage
 from the E.U. rules by artiﬁcially creating the conditions laid down for
 obtaining it.16 This test turns out to be the role model for determining
 abuse in E.U.. It became useful for that purpose across all areas of the
 C.J.E.U.’s juridical purview and was integrated into several anti-abuse
 rules in E.U. secondary law which partly harmonises the area of taxation.17
         The two-pronged test for the ﬁrst time was applied by the C.J.E.U.
 in tax matters on 21 February 2006 in the Halifax case regarding V.A.T., i.e.
 fully harmonised area of taxation at the E.U. level. In this landmark case,
 the C.J.E.U. objectiﬁed the second prong of the abuse test by saying that in
 order to determine the abuse of V.A.T. Directive,18 it must be “apparent
 from a number of objective factors that the essential aim of the transactions
 concerned is to obtain a tax advantage (emphasis added)”.19 This ﬁnding
 of the C.J.E.U. showed that a determination of the taxpayers’ tax
 avoidance intention must not be based on the subjective, but solely on the
 objective elements of the taxpayers’ arrangement (the objectiﬁed
 purpose/intention),20 and that the essential rather than the sole purpose
 to avoid taxation is enough to pass the subjective part of the abusive test
 in the domain of V.A.T..
16
   Case C-110/99, Emsland-Stärke GmbH v. Hauptzollamt Hamburg-Jonas, 2000 E.C.R. I-
   11569 ¶ 52-53.
17
   See Prats et al., supra note 13, at 8.
18
   Sixth Council Directive 77/388/EEC of 17 May 1977 on the Harmonization of the Laws of
   the Member States Relating to Turnover Taxes - Common System of Value Added Tax:
   Uniform Basis of Assessment, 1977 O.J. (L 145) 1–40.
19
   Case C-255/02, Halifax plc et al. v. Commissioners of Customs & Excise, 2006 E.C.R. I-
   01609 ¶ 75.
20
   Cf. A.G. Maduro’s Opinion of 7 April 2005 in Case C-255/02, Halifax plc, 2006 E.C.R. I-
   01609 ¶ 70. See also P. Tran, Cadbury Schweppes plc v. Commissioners of Inland Revenue:
   Eliminating a Harmful Tax Practice or Encouraging Multinationals to Shop around the Bloc,
   The Loyola of Los Angeles International & Comparative Law Review 2008, Vol. 30, No. 77,
   p. 86; D. Weber, “Abuse of Law in European Tax Law: An Overview and Some Recent Trends in
   the Direct and Indirect Tax Case Law of the C.J.E.U. – Part 1”, European Taxation 2013, No.6,
   p. 252 (on the objectiﬁed intention in tax avoidance cases).




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         4. THE SOLE, THE ESSENTIAL, THE PREDOMINANT, THE MAIN, AND ONE OF THE
     MAIN PURPOSES’ STANDARD OF ABUSE UNDER E.U. SECONDARY LAW

 Historically, the C.J.E.U. used the threshold of abuse in line with the
 standard of sole/essential/predominant/main intention to obtain a tax
 advantage by a taxpayer under E.U. directives to identify the abuse of law.
 Interestingly, it was done so irrespective of the fact that the wording of
 the anti-abuse rules under the directives reﬂected the standard of one of
 the principal/primary intentions/motives. For instance, in the Kofoed case
 of 5 July 2007,21 the C.J.E.U. dealt with the question of abuse which, the
 Merger Directive (hereinafter M.D.), identiﬁed according to the taxpayer’s
 intention. Following the provision, “the principal objective” or “one of its
 principal objectives” has to be tax evasion or tax avoidance.22 Despite this
 wording, the C.J.E.U. implied in paragraph thirty-eight of its judgement
 that the abusive practices in light of the M.D. exists only if transactions
 are carried out not in the context of normal commercial operations, but
 “solely for the purpose of wrongfully obtaining advantages provided for by
 Community [now: E.U.] law (emphasis added).”
         This passage was repeated by the C.J.E.U. in paragraph 50 of its
 judgment of 10 November 2011 in the Foggia case.23                            Although in
 paragraph 35 of this judgment, the C.J.E.U. considered the lower threshold
 of abuse than the sole purpose by saying that “tax considerations, can
 constitute a valid commercial reason provided, however, that those
 considerations are not predominant in the context of the proposed
 transaction (emphasis added).”, the abuse threshold was still more
 demanding for the tax authorities than under the M.D., i.e. predominant
 purpose according to the C.J.E.U.’s interpretation vs one of the principal
 purposes according to the wording of the M.D.. One can also infer from this
 juxtaposition that according to the C.J.E.U. the phrase “one of the
21
   Case C-321/05, Kofoed v. Skatteministeriet, 2007 E.C.R. I-05795.
22
   Council Directive 90/434/EEC of 23 July 1990 on the Common System of Taxation
   Applicable to Mergers, Divisions, Transfers of Assets and Exchanges of Shares Concerning
   Companies of Different Member States, art. 11 (1)(a), 1990 O.J. (L 225).
23
   Case C-126/10, Foggia v. Secretário de Estado dos Assuntos Fiscais, 2011 E.C.R. I-10923.


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 principal purposes” should be understood as “the predominant purpose”.
 That is to say, the taxpayer’s tax intention cannot be any less than
 predominant to meet the standard of abuse under E.U. secondary law.
         More recently, in Eqiom (7 September 2017)24 and in the joint cases
 Deister Holding and Juhler Holding (20 December 2017)25 the C.J.E.U.
 further clariﬁed that the objective of combating abuse under E.U.
 secondary law has the same scope as under E.U. primary law and therefore
 must be justiﬁed in the same way, i.e. by the need to exclusively target
 wholly artiﬁcial arrangements which do not reﬂect economic reality, the
 purpose of which is to unduly obtain a tax advantage.26 Although the
 C.J.E.U. has not made any explicit reference to the degree of the taxpayer’s
 intention to obtain a tax advantage, the use of the wholly artiﬁcial
 arrangement’s mantra from the Cadbury Schweppes27 implies that the
 Court had in mind the sole purpose rather than the principal or one of the
 principal purposes. This deviation from the wording of the anti-abuse rule
 under E.U. secondary law was implicitly justiﬁed by the C.J.E.U. by saying
 that the derogation from providing tax advantage under P.S.D. must be
 interpreted strictly. Otherwise the overarching purpose of this Directive,
 which is to ensure ﬁscal neutrality for distribution of proﬁts from
 subsidiaries to their parent companies, may be frustrated.28
         This settled case law of the C.J.E.U. indeed provided a far-reaching
 protection to taxpayers who optimize their taxation, including the use of
24
   Case C-6/16, Eqiom SAS and Enka SA v. Ministre des Finances et des Comptes publics,
   2017 E.C.R. I-5795.
25
   Joined Cases C-504 & 613/16, Deister Holding AG, Juhler Holding A/S v. Bundeszentralamt
   für Steuern, 2017 E.C.R. 1009.
26
   See Case C-6/16, Eqiom SAS and Enka SA v. Ministre des Finances et des Comptes publics,
   2017 E.C.R. 641 ¶ 30; see also Joined Cases C-504 & 613/16, Deister Holding AG, Juhler
   Holding A/S v. Bundeszentralamt für Steuern, 2017 E.C.R. 1009 ¶ 60.
27
   Case C-196/04, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd.                    v.
   Commissioners of Inland Revenue, 2006 E.C.R. I-7995 (Indeed, the C.J.E.U. in Eqiom
   directly referred to the Cadbury Schweppes in ¶ 30 and indirectly did so in the Deister
   Holding and Juhler Holding by referring in ¶ 60 to ¶ 30 of the Eqiom in the case law cited
   there, i.e. also Cadbury Schweppes).
28
   See Case C-6/16, Eqiom SAS and Enka SA v. Ministre des Finances et des Comptes publics,
   2017 E.C.R. 641 ¶ 26 and Joined Cases C-504 & 613/16, Deister Holding AG, Juhler Holding
   A/S v. Bundeszentralamt für Steuern, 2017 E.C.R. 1009 ¶ 49-50. See also Case C-58/01,
   Océ van der Grinten NV v. Commissioners of Inland Revenue, 2003 E.C.R. I-9827 ¶ 86.




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 pure holding companies or pure management companies in the E.U. with
 ultimate shareholders in third countries.29
         In the Danish Beneﬁcial Ownership cases of 26 February 2019
 regarding the abuse of I.R.D. and P.S.D., the C.J.E.U. seems to interpret the
 concept of abuse under E.U. secondary law by referring to the principal
 objective or one of the principal objectives to obtain a tax advantage, i.e. by
 sticking to the wording of anti-abuse rules under I.R.D. and P.S.D., rather
 than to the sole or the essential or the predominant objective of doing so.
 However, a closer look at the entire sentence of the C.J.E.U. in which the
 abovementioned phrase was used, implies that the standard of abuse
 under E.U. secondary law does not appear to be lowered at all, at most, it
 seems it was lowered only in respect of the taxpayer’s intention to obtain
 a tax advantage.

           A group of companies may be regarded as being an artiﬁcial

           arrangement where it is not set up for reasons that reﬂect

           economic reality, its structure is purely one of form and its

           principal objective or one of its principal objectives is to obtain

           a tax advantage running counter to the aim or purpose of the

           applicable tax law (emphasis added).30

 In the author’s opinion, if an arrangement is not set up for reasons that
 reﬂect economic reality and its structure is purely one of form, it is
 inconceivable that only one of its principal objectives is to obtain a tax
 advantage. The sole, or at least the essential/predominant/main objective
 that outranks all other objectives, seems to be associated to this artiﬁcial
 arrangement. Accordingly, the use of the phrase “one of the primary
 objectives” by the C.J.E.U. does not seem to change much (if anything at
 all) in relation to determining the standard of abuse of E.U. secondary law.
29
   See also B. Kuźniacki, The C.J.E.U. as a Protector of Tax Optimization via Holding Companies,
   47 Intertax 2019, No. 3, pp. 312–323.
30
   Joined Cases C-115/16, C-118/16, C-119/16 and C-299/16, N Luxembourg 1, X Denmark
   A/S, C Danmark I, Z Denmark ApS v. Skatteministeriet, ECLI:EU:C:2019:134 ¶ 127 and
   Joined Cases C-116/16 and C-117/16, Skatteministeriet v. T Danmark, Y Denmark Aps, 2019
   ECLI:EU:C:2019:134 ¶ 100.




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 It is also worth mentioning that the C.J.E.U. with the Danish Beneﬁcial
 Ownership cases has introduced the obligation for the M.S.s’ tax
 authorities to deny a tax advantage in the area of partly harmonised direct
 taxation by relying on an unwritten, general E.U. principle to prevent
 abuse, even in the absence of domestic or agreement-based anti-abuse
 provisions.31 Despite a weak doctrinal foundation of this conclusion of the
 C.J.E.U.,32 being at odds with its settled case law,33 which may only be
 explained on account of the speciﬁcities of Danish legislation and
 socio-political after-B.E.P.S. (Base erosion and proﬁt shifting) pressure,
 this ﬁnding of the Court is of little practical relevance at the present and
 in the future due to the implementation of A.T.A.D.’s G.A.A.R. by M.S.s.
 Since that rule embodies the general principle of prevention of abuse in
 the area of taxation, M.S.s will always have in force a written rule to deny
31
   In relation to the fully harmonised indirect taxation, see Joined Cases C-131/13, C-
   163/13 and C-164/13, Staatssecretaris van Financiën v. Schoenimport ‘Italmoda’ Mariano
   Previti vof, Turbu.com BV, Turbu.com Mobile Phone’s BV and Staatssecretaris van
   Financiën, 2014 EU:C:2014:2455 ¶ 62, Case C-251/16, Edward Cussens et al. v. T. G.
   Brosman, 2017 ECLI:EU:C:2017:881 ¶ 33. See Case C-115/16, N Luxembourg et al. v.
   Skatteministeriet, 2016 ECLI:EU:C:2019:134 ¶ 117-118 and Case C-115/16, N Luxembourg
   et al. v. Skatteministeriet, 2019 ECLI:EU:C:2019:134 ¶ 89-90.
32
   See W. Haslehner & G. Koﬂer, Three Observations on the Danish Beneﬁcial Ownership Cases,
   KLUWER INTERNATIONAL TAX BLOG (Mar. 13, 2019), http://kluwertaxblog.com/2019/03/13/
   three-observations-on-the-danish-beneﬁcial-ownership-cases. Cf. A. Zalasiński, The
   Principle of Prevention of (Direct Tax) Abuse: Scope and Legal Nature – Remarks on the 3M
   Italia Case, 52 European Taxation 2012, No. 9, Published online: 27 July 2012, sec. 5. See
   generally D. Weber, Tax Avoidance and the EC Treaty Freedoms: A Study of the Limitations
   under European Law for the Prevention of Tax Avoidance (Kluwer Law International, 2005);
   R. de la Feria and S. Vogenauer (eds.), Prohibition of Abuse of Law – A New General Principle
   of EU Law?, Hart Publishing, 2011; A. P. Dourado (ed.), Tax Avoidance Revisited in the E.U.
   BEPS Context, European Association of Tax Law Professors International Tax Series Vol.
   15, Amsterdam: IBFD, 2017.
33
   See Case C-321/05, Hans Markus Kofoed v. Skatteministeriet, 2007 E.C.R. I-5818 ¶ 42
   (where the C.J.E.U. stated that: “[t]he principle of legal certainty precludes directives from
   being able by themselves to create obligations for individuals. Directives cannot therefore
   be relied upon per se by the Member State as against individuals”). See also the opinion
   of AG Kokott, who clariﬁed that recourse to “any existing general principle of [E.U.]
   law prohibiting the misuse of law” would be barred, as the anti-abuse rule under E.U.
   secondary law is a concrete expression of such principle. See also A.G. Kokott’s Opinions
   in Case C-321/05, Hans Markus Kofoed v. Skatteministeriet, 2007 E.C.R. I-5798 ¶ 67 and
   in Case C-352/08, Modehuis A. Zwijnenburg BV v. Staatssecretaris van Financiën, 2009
   E.C.R. I-04303 ¶ 62 (”[I]t is clear that no general principle exists in European Union law
   which might entail an obligation of the member states to combat abusive practices in the
   ﬁeld of direct taxation and which would preclude the application of a provision such as
   that at issue in the main proceedings where the taxable transaction proceeds from such
   practices and European Union law is not involved”, as noted by C.J.E.U. in Case C-417/10,
   Ministero dell’Economia e delle Finanze, Agenzia delle Entrate v. 3M Italia SpA, 2012
   ECLI:EU:C:2012:184 ¶ 32).



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 a tax advantage. The retrospective effect of that C.J.E.U. judgment, in
 turn, appears to be very doubtful under the principles of rule of law and
 legal certainty.




         5. FROM THE SOLE TO ONE OF THE PRINCIPAL PURPOSES’ STANDARD OF ABUSE
     UNDER E.U. PRIMARY LAW BETWEEN M.S.S AND BETWEEN M.S.S AND THIRD
     COUNTRIES

 After the analysis of cases in the ﬁeld of indirect taxes fully harmonised
 under E.U. secondary law and direct taxes partly harmonized under E.U.
 secondary law, it is now wise to turn the attention to C.J.E.U. case law in
 the area of direct taxes, which is not fully or even largely harmonised
 under E.U. secondary law. Although the A.T.A.D.’s G.A.A.R. sets the general
 standard of abuse, thus applicable to both harmonised and not
 harmonised areas of taxation, it appears reasonable to argue that the
 G.A.A.R.s under Directives (E.U. secondary law) should trump the
 A.T.A.D.’s G.A.A.R. Consequently, C.J.E.U. case law analysed below seems
 to be of outmost relevance and importance in completing the scene for a
 proper understanding of the abuse standard under the A.T.A.D.’s G.A.A.R..
         Already in 1986 with Avoir Fiscal The C.J.E.U. acknowledged that a
 taxpayer may rely on E.U. law to choose and enforce the most favourable
 tax route in their affairs.34 Since then such ﬁnding constituted a point of
 departure in the C.J.E.U.’s reasoning in all tax avoidance cases.35 This is
 why recital 11 of the preamble to A.T.A.D. says that the taxpayer should
 have the right to choose the most tax efficient structure for its
34
   Case 270/83, Commission v. France, 1986 E.C.R. 00273 ¶ 25; see also Case C-294/97,
   Eurowings Luftverkehrs AG v. Finanzamt Dortmund-Unna, 1999 E.C.R. I-07447 ¶ 44
   et seq.; Case C-364/01, The heirs of H. Barbier v. Inspecteur van de Belastingdienst
   Particulieren/Ondernemingen buitenland te Heerlen, 2003 E.C.R. I-15013 ¶ 71.
35
   See, e.g., Case C-294/97, Eurowings Luftverkehrs AG v. Finanzamt Dortmund-Unna, 1999
   E.C.R. I-07447 ¶ 44 et seq.; Case C-364/01, The heirs of H. Barbier v. Inspecteur van de
   Belastingdienst Particulieren/Ondernemingen buitenland te Heerlen, 2003 E.C.R. I-15013
   ¶ 71.


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 commercial affairs. That is also why simply counteracting a tax avoidance
 does not amount to abuse of E.U. primary law.36 Such abuse, in turn,
 constitutes only the qualiﬁed tax avoidance, i.e. through the use of wholly
 artiﬁcial arrangements intended solely to escape taxation.
         The C.J.E.U. for the ﬁrst time coined the phrase “wholly artiﬁcial
 arrangement” for the ﬁrst time in Imperial Chemical Industries, a 1998
 judgment.37 Since then the expression has been repeated in nearly all
 cases on tax avoidance,38              including the landmark case Cadbury
 Schweppes of 12 September 2006.39
         In paragraph 64 of the judgement in the Cadbury Schweppes case,
 the C.J.E.U. stated that the two-pronged test applies to determine the
 existence of a wholly artiﬁcial arrangement.                      In that respect, the
 references were made to paragraphs 52-53 of the judgements in the
 Emsland-Stärke and Halifax cases,40 even though the terms used in those
 paragraphs were “abuse” and “an abusive practice”, not “wholly
 artiﬁcial arrangement”. This implies that the phrase “a wholly artiﬁcial
 arrangement” could be understood as “an abusive practice” in the area of
 not harmonised direct taxes,41 as well in the area of harmonised direct
 taxes, by analogy.
         Also, from the Cadbury Schweppes it follows that in order to amount
 to abuse the intention to avoid taxes must be the sole one.
36
   See Joined Cases C-39/13 to C-41/13, SCA Group Holding BV (C-39/13), X AG, X1 Holding
   GmbH, X2 Holding GmbH, X3 Holding GmbH, D1 BV, D2 BV, D3 BV v. Inspecteur
   van de Belastingdienst Amsterdam and Inspecteur van de Belastingdienst Holland-
   Noord/kantoor Zaandam v. MSA International Holdings BV, MSA Nederland BV, 2014
   ECLI:EU:C:2014:1758 ¶ 42 and A.G. Kokott’s Opinion in Case C-231/05, Oy AA, 2006
   ECLI:EU:C:2002:545 ¶ 62.
37
   Case C-264/96, Imperial Chemical Industries plc v. Kenneth Hall Colmer, 1998 E.C.R. I-
   04695 ¶ 26.
38
   See, e.g., C-436/00 X and Y v. Riksskatteverket, 2000 ECR I-10829 ¶ 61.; see also Case C-
   324/00, Lankhorst-Hohorst v. Finanzamt Steinfurt, 2000 E.C.R. I-11779 ¶ 37 and Case
   C-446/03, Marks & Spencer plc v. David Halsey, 2005 E.C.R. I-10837 ¶ 57.
39
   Case C-196/04, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd.                    v.
   Commissioners of Inland Revenue, 2006 E.C.R. I-8031 ¶ 51, 55-57, 61, 63, 68, 69,
   72, 75-76.
40
   C-110/99 and C-255/02 respectively.
41
   A. Saydé, Abuse of E.U. Law and Regulation of the Internal Market, Oxford: Hart Publishing,
   2014, p. 92.




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          It follows that, in order for a restriction on the freedom of

          establishment to be justiﬁed on the ground of prevention of

          abusive practices, the speciﬁc objective of such a restriction

          must be to prevent conduct involving the creation of wholly

          artiﬁcial arrangements which do not reﬂect economic reality,

          with a view to escaping the tax normally due on the proﬁts

          generated by activities carried out on national territory.

          . . . [T]he fact that none of the exceptions provided for by the

          legislation on CFCs applies and that the intention to obtain tax

          relief prompted the incorporation of the CFC and the

          conclusion of the transactions between the latter and the

          resident company does not suffice to conclude that there is a

          wholly artiﬁcial arrangement intended solely to escape that tax.42

 A contrario, there is no abuse if a taxpayer shifts its genuine economic
 activities to other M.S.s for the sole purpose to avoid taxation.43                      That
 being said, the abuse exists only if: (i) there is no genuine economic
 activity being conducted by the taxpayer and (ii) their sole purpose is to
 conduct that non-genuine activity in order to avoid taxation.
         The C.J.E.U. recognized the abuse in the ﬁeld of direct taxation in a
 more nuanced way than by referring to wholly artiﬁcial arrangements in
 cases regarding the free transfer of proﬁts in the form of tax deductible
 expenses/losses at the choice of a taxpayer.44                        Arrangements or
 transactions which trigger transfers of expenses/losses, typically covered
 by domestic transfer pricing or thin capitalisation rules, can be
 considered abusive (artiﬁcial), even if they are conducted by entities
 engaged in genuine economic activities, to the extent that they exceed the
 arm’s length “compatible” value.45 In such cases, however, the taxpayer
 should have an opportunity to provide a commercial justiﬁcation for their
42
   Cadbury Schweppes, ¶ 55. Id, ¶ 63.
43
   See Prats et al., supra note 13, at 12.
44
   See Case C-231/05, Oy AA, 2007 E.C.R. I–6373 252 ¶ 63; see also Case C-311/08, Société de
   Gestion Industrielle SA (SGI) v. État belge, 2010 E.C.R. I-487 ¶ 66.
45
   See Case C-524/04, Test Claimants in the Thin Cap Group Litigation v. Commissioners of
   Inland Revenue, 2007 E.C.R. I-2107 ¶ 92.


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 non-arm’s length arrangements or transactions, without being subject to
 undue administrative constraints.46
          The cross border non-arm’s length arrangements or transactions,
 according to the C.J.E.U., may undermine a balanced allocation of the
 power to impose taxes between the M.S.s by increasing the taxable base in
 the low-tax M.S. and reducing it in the high-tax M.S. to the extent that
 the losses/expenses will be transferred on non-arm’s length basis.47
 Thus, in such cases, safeguarding the balanced allocation of taxing
 powers between M.S.s can be considered a separate autonomous
 justiﬁcation.48 In other cases, the balanced allocation of taxing powers
 between M.S.s may constitute a justiﬁcation in combination with other
 reasons, e.g. prevention of tax avoidance or ensuring coherence of the tax
 system. Therefore, one may observe that M.S.s have more scope to apply
 domestic anti-avoidance provisions within the E.U. for excluding
 cross-border offsetting of losses with proﬁts than to apply other types of
 anti-avoidance provisions,49 i.e. they can prevent abuse beyond wholly
 artiﬁcial arrangements.50
46
   See Case C-382/16, Hornbach-Baumarkt-AG v. Finanzamt Landau, 2018 ECLI:EU:C:2018:
   366 ¶ 49 (according to the C.J.E.U., the concept of ”commercial justiﬁcation” must be
   interpreted in light of the principle of free competition which, by its nature, rules out
   acceptance of economic reasons resulting from the position of the shareholder).
47
   See, e.g., Case C-446/03, Marks & Spencer plc v. David Halsey, 2005 E.C.R. I-10837
   ¶ 46, Case C-231/05, Oy AA., 2007 E.C.R. I-06373 ¶ 54-56 and Case C-337/08, X
   Holding BV v. Staatssecretaris van Financiën, 2010 ECR I-1215 ¶ 32-33. See also
   D. Smit, E.U. freedoms, non E.U.-countries and Company Taxation, EUCOTAX Series on
   European Taxation, Alphen aan den Rijn: Wolters Kluwer Law & Business 2012, p.
   269; D. Weber, Abuse of Law in European Tax Law: An Overview and Some Recent Trends
   in the Direct and Indirect Tax Case Law of the E.C.J. – Part 1, European Taxation 2013,
   No.6, pp. 320-322; P. Pistone, Public Discussion Draft BEPS Action 3: Strengthening CFC
   Rules Comments by Prof. Dr Pasquale Pistone, COMMENTS RECEIVED ON PUBLIC DISCUSSION
   DRAFT BEPS ACTION 3: STRENGTHENING CFC RULES, 5 May 2015 – PART 2, pp. 445-446
   (Apr. 23, 2015), http://www.oecd.org/tax/aggressive/public-comments-beps-action-3-
   strengthening-cfc-rules-part2.pdf.
48
   The prevention of double compensation of losses is an autonomous justiﬁcation for
   restricting fundamental freedoms since the C.J.E.U. judgments of 12 June 2018 in Bevola
   case, see Case C-650/16, A/S Bevola and Jens W. Trock ApS v. Skatteministeriet, 2018
   ECLI:EU:C:2018:424 ¶ 52-52 and see also Case C-28/17, NN A/S v. Skatteministeriet, 2018
   ECLI:EU:C:2018:526 ¶ 42-48.
49
   Cf. Weber, supra note 47, at 320-322. Pistone, supra note 47, at 445-446.
50
   It should be bear in mind, however, that double compensation of losses may not be abusive
   at all. For instance, a compensation of losses by a foreign P.E. in its state of location and in
   the residence state of its head office does not constitute an abusive practice, if stemming
   from an ordinary course of business of the P.E. and its head office.



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 The C.J.E.U. through the case law discussed above suggest that a balanced
 allocation of the power to impose taxes between M.S.s would be
 threatened if tax avoidance via wholly artiﬁcial arrangements were to be
 permitted.       In other words, there is a direct causal link between the
 creation and exploitation of wholly artiﬁcial arrangements for the sole
 purpose of tax avoidance and a risk to the balanced allocation of taxing
 rights.51 While preventing the former automatically protects the latter,
 the causal chain does not work in the opposite direction, showing that the
 C.J.E.U. did not consider the need to protect the balanced allocation of
 taxing powers between Member States as a separate justiﬁcation to apply
 anti-avoidance provisions in a restrictive manner.                    Instead the Court
 regarded that issue as immanently linked with the need to prevent the use
 of wholly artiﬁcial arrangements to avoid tax, or, to put it differently, that
 the need to safeguard the balanced allocation of taxing powers among
 M.S.s is part of an economic substance analysis.
           A subtle economic substance analysis, i.e. assessing a transfer of
 the proﬁts rather than the entire arrangement, can also be found in the
 recent X GmbH case of 26 February 2019.52 In X GmbH, the Court stated
 that the free movement of capital between Member States and third
 countries is intended not to frame the conditions under which companies
 can establish themselves within the internal market. Therefore:

            [i]n the context of the free movement of capital, the concept of

            ‘wholly artiﬁcial arrangement’ cannot necessarily be limited to

            merely the indications, referred to in paragraphs 67 and 68 of

            the judgment of 12 September 2006 in Cadbury Schweppes case,

            that the establishment of a company does not reﬂect economic

            reality . . . . That concept is also capable of covering, in the

            context of the free movement of capital, any scheme which has

            as its primary objective or one of its primary objectives the artiﬁcial
51
     See Weber, supra note 47, at 258.
52
      Case C-135/17, X-GmbH v. Finanzamt Stuttgart - Körperschaften, 2019 ECLI:EU:C:2019:
     136.




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            transfer of the proﬁts made by way of activities carried out in the

            territory of a Member State to third countries with a low tax rate.53

 These ﬁndings of the C.J.E.U. imply that for the purpose of examining the
 proportionality of the domestic legislation,                      which restricts free
 movement         of   capital    between      M.S.s     and     third      countries,        the
 understanding of the concept of the wholly artiﬁcial arrangement may be
 more nuanced than under the Cadbury Schweppes. This concept may cover
 any scheme which has as its primary objective or one of its primary
 objectives the artiﬁcial transfer of the proﬁts made by way of activities
 carried out in the territory of a M.S. to third countries with a low tax rate.
 In the author’s view, there would be no difference in an intra-E.U.
 situation.        The main driver for differentiating the approach in
 determining the standard of abuse may, however, the differences among
 the scope and the substantive requirements protected under different
 fundamental freedoms. The freedom of establishment will always trigger
 the need to scrutinize premises, people on the ground, physical offices,
 while the freedom to provide services or the free movement of capital may
 require to focus on more subtle constituencies of the arrangements, such
 as contracts between the companies, or the transfers of proﬁts between
 companies (their circularity).




           6. SYNTHESIS AND CONCLUSIONS

 Since the origin of the concept of abuse under C.J.E.U. case law, it was
 clear that the taxpayers have the right to choose the most efficient way to
 route their tax affairs and that their intention to obtain a tax advantage
 has to be the sole or at least the essential/predominant/main reason to
 enter under the radar of abuse. Identifying the degree of that intention
53
     Case C-135/17, X-GmbH v. Finanzamt Stuttgart - Körperschaften, 2019 ECLI:EU:C:2019:
     136 ¶ 84.



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 matters for the second prong of the two-pronged test in ﬁnding the
 abuse.       The ﬁrst prong, in turn, requires a combination of objective
 circumstances in which, despite formal observance of the conditions laid
 down by the E.U. rules, the purpose of those rules has not been achieved.
           As a result of both social and political (especially in the course of
 post-B.E.P.S.) changes in company tax landscapes since Cadbury
 Schweppes and the preceding cases, the C.J.E.U. nowadays is more prone to
 deviate from its settled case law in setting the threshold for abuse.
 Nevertheless, despite moving from the sole/essential/predominant/
 principal intention of a taxpayer to obtain a tax advantage to one of the
 main purposes, the C.J.E.U. keeps saying that an abusive (artiﬁcial)
 arrangement is that which is not set up for reasons that reﬂect economic
 reality and its structure is purely one of form. In the context of tax cases,
 it is hard to imagine that such arrangement is designed by a taxpayer for
 any other purpose than to solely or essentially/predominantly/mainly
 obtain a tax advantage.
           Furthermore, the C.J.E.U. has never in the area of not harmonised
 direct tax law cases among M.S.s stated that the standard for abuse may
 rely on the threshold lower than the sole intention to obtain a tax
 advantage.        In the scope of partly harmonised direct tax law or fully
 harmonised indirect tax law, this threshold was lowered below to the
 essential, predominant or main intention, but never lower, except for the
 recent Danish beneﬁcial ownership cases where the phrase “one of the
 primary objectives” has been used.54 Only in X GmbH, the C.J.E.U. used the
 phrase “one of the primary objectives” in not harmonised direct tax law,
 but that case concerned the artiﬁcial transfer of the proﬁts from a M.S. to
 a low tax third country. Again, it is implausible to consider such transfers
 are realised by a taxpayer for one of the primary objectives to obtain a tax
 advantage. Rather they are deliberately designed and conducted to solely
 or essentially/predominantly/mainly obtain a tax advantage.
54
     But, as observed before, it does not change much in that respect.




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 To sum up: (i) there is nothing in the C.J.E.U. relevant case law implying
 that one of the main purposes to obtain a tax advantage can constitute a
 threshold of abuse among M.S.s in not harmonised areas of direct tax law;
 and (ii) beyond that, i.e.                partly harmonised direct tax law or not
 harmonised direct tax law in situations between M.S.s and third
 countries,         coining       the    phrase      “one      of     the     principal/primary
 purposes/objectives” is of little relevance insofar as the phrase
 “artiﬁcial” in respect to an arrangement or transaction has been always
 used. In the reality of corporate tax avoidance, artiﬁcial arrangements or
 transactions are not designed by taxpayers to obtain a tax advantage for
 other than sole or essential, predominant or main purpose. Furthermore,
 the C.J.E.U. relevant case law implies that different circumstances should
 be taken into account to identify the existence of abuse, especially when
 determining the artiﬁciality of the arrangements or transactions, under
 different fundamental freedoms, different national legislations, and
 different types of speciﬁc arrangements or transactions.55 In particular,
 the relevant circumstances to be taken into account include the
 geolocations of arrangements or transactions (within or outside the E.U.)
 and their type and nature (purely passive ﬁnancial transactions concluded
 on paper versus active business transactions triggering changes in the
 physical world).
            The overall analysis of the C.J.E.U. relevant case law implies that
 the phrases “the main purpose” and “one of the main purposes” should
 be understood alike as “the main purpose”, but more typically as the
 essential or the predominant purpose. Any lower standard of abuse under
 the      A.T.A.D.’s      G.A.A.R.      would     make      this     rule     either     applicable
 disproportionally (not only to abusive but also to non-abusive practices)
55
     Cf. Communication from the Commission, The Application of Anti-Abuse Measures in the
     Area of Direct Taxation within the E.U. and in Relation to Third Countries, at 5, COM (2007) 785
     ﬁnal (Dec. 10, 2007). Cf., e.g., Dennis Weber, The New Common Minimum Anti-Abuse Rule
     in the E.U. Parent-Subsidiary Directive: Background, Impact, Applicability, Purpose and Effect,
     44 INTERTAX 117 (2016); Koen Lenaerts, The Concept of ‘Abuse of Law’ in the Case Law of the
     European Court of Justice on Direct Taxation, 22 MAASTRICHT J. EUR. COMP. L. 329 (2015); Eric
     Robert & DrissTof, The Substance Requirement and the Future of Domestic Anti-Abuse Rules
     within the Internal Market, 51 EUR. TAX’N 436 (2011).



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or largely dysfunctional by the lack of compatibility with the second and
the third test: it is highly unlikely that the taxpayer’s arrangement is to be
artiﬁcial enough to defeat the object and purpose of the tax law if only one
of its main purposes was to obtain a tax advantage. This guidance, as
stemming from the C.J.E.U. relevant case law, once followed, may
contribute to a reasonable, proportional and E.U. compatible way of
reading and applying the A.T.A.D.’s G.A.A.R. by the M.S.s tax authorities.




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