The Role of the Subjective Element in Tax Abuse and Aggressive Tax Planning

This article aims to examine the role of the subjective element in how certain transactions should be taxed according to the international tax system in cases of tax abuse and aggressive tax planning (ATP). This article also analyses the nature and the different scope of the taxpayer’s subjective intent and: (i) the bona fide commercial reasons; (ii) the result of the transaction in terms of reduction (or elimination) of tax; and (iii) other possible outcomes that the taxpayer desired. In particular, this paper examines the meanings (and the weight accorded thereto) of the different terms of “intention”, “purpose”, “motive”, “object” and “aim”, as currently used by soft law instruments in international taxation (specifically by the OECD in the BEPS Final Reports and by the European Commission). The question is whether these terms are synonymous or if they actually have separate and distinct meanings in identifying the subject element in abusive practices and in ATP schemes. Since the taxpayer’s intention is subjective in nature and is determined by factors that vary according to the individual case, this article attempts to identify the objective elements that both the OECD and EU law consider in finding abusive practices or ATP schemes. In this regard, this article also highlights the importance of evidence to prove the subjective element behind the arrangement or transaction undertaken.