EATLP ANNUAL Congress 2016 Tax Avoidance Revisited Exploring the Boundaries of Avoidance and Anti-Avoidance Rules in the BEPS context Munich 2 – 4 June 2016 Prof. Dr. Luc De Broe (KULeuven) Holder of the Deloitte Chair in International & EU Tax Law

The meaning of tax treaty abuse – key points I. Definition o Distinction between Type 1 and Type 2 abuse cases: Type 1 abuse cases (object of abuse = DTC-rule) Treaty shopping Rule shopping (“Other situations where a person seeks to circumvent treaty limitations”) Type 2 abuse cases (“ex post litigator”) Case 1 (object of abuse = domestic rule) Case 2 (object of abuse = DTC-rule) o BEPS Action Plan 6: Three-pronged approach to address treaty shopping = minimum standard to be achieved But states may still apply domestic rules to combat treaty abuse II. Treaty abuse should be tackled by treaty rules as treaties are bilateral instruments, not by domestic rules o Does application of domestic GAAR/SAAR/judicial doctrine comply with State’s commitments under DTC? o So BEPS Action Plan 6 is step in right direction, but still deplorable that OECD allows use of domestic AARs

III. LOB o Either detailed version in combination with anti-conduit rules or simplified version in combination with PPT o Complex (34/98 pag.): do business & tax authorities have capacity to apply clause? o Discretionary relief = PPT o Not EU compliant o Even if fully fledged LOB still use of domestic anti-conduit rules o Final version still awaited – review in light of release of new US LOB rule (February 2016 ) New provisions to be considered as part of the negotiations re the multilateral instrument o LOB rules usually not part of most country’s treaty policies (cf. national reports) US is exception to the rule: all but two US DTCs contain LOB clauses IV. PPT o Deviates from guiding interpretation principle in Comm. Art. 1 §9.5: lowering of abuse-threshold in favor of tax authorities o If important economic purpose still abuse if claiming DTC benefit is also a principal purpose = inacceptable (examples in Report are more flexible!) o Unbalanced division of burden of proof between tax authorities o No precise determination of tax consequences when abuse is proven o Compliant with “rule of law” (Constitutional requirements)? EU-compliant? The meaning of tax treaty abuse – key points

IV. PPT (cont’d) o Relationship with other treaty based SAARs and discretionary relief LOB? o No legal basis to exclude PPT from MAP (unless express provision) (Action 14) o No legal basis to exclude PPT from arbitration clause notwithstanding vague statement on Action 14 o Limited number of PPTs found DTCs (cf. national reports) V. Departure or exit taxes (Art. 13/18 OECD MC) o Not conflicting with DTC obligations: tax assessed when txp is still resident of emigration state and only on income accruing before emigration o Double taxation issues: recourse to MAP Desirable? Why not provide for step-up in DTC? VI. Tax policy considerations o If decided to enter into a DTC: include sufficient (proposed) provisions - two proposals: i.Exclusion of income benefitting from a special tax regime from the scope of Art. 11; 12; 21 OECD MC ii.General treaty rule intended to make DTCs responsive to certain future changes in a State’s domestic tax law o Awaiting finalization in light of similar provisions included in the new US Model The meaning of tax treaty abuse – key points