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Seiler

GAARs and Judicial Anti-Avoidance in Germany, the UK and the EU

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Series on International Tax LawUniv.-Prof. Dr. Dr. h.c. Michael Lang (Editor)

Volume 98

GAARs and Judicial Anti-Avoidance

in Germany, the UK and the EU

Markus Seiler

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Druck: Hans Jentzsch & Co GmbH1210 Wien, Scheydgasse 31

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Seiler, GAARs and Judicial Anti-Avoidance V

PrefacePrefacePrefaceThis book is based on my doctoral thesis written at the Institute for Austrian andInternational Tax Law at the Vienna University of Economics and Business (WUVienna) which I defended in February 2016 in Vienna.

I am deeply thankful to the professors of the Institute for Austrian and Internati-onal Tax Law for providing me with a unique academic environment, for givingme the possibility to participate in numerous conferences both nationally and in-ternationally and for giving me the opportunity to enjoy such an excellent educa-tion. Particularly, I would like to express my sincere thanks to Univ.-Prof. Dr. Dr.h. c. Michael Lang for being my thesis supervisor, and for his suggestions whichhave been a considerable contribution to my work. Gratitude is also owed toUniv.-Prof. Dr. Josef Schuch for being my second thesis supervisor and to the restof my doctoral committee, Univ.-Prof. Dr. Alexander Rust and Univ.-Prof. Dr.Claus Staringer.

My biggest debt of gratitude goes to my family for their support and love. I wouldalso like to extend my gratitude to my friends and colleagues at the Institute forAustrian and International Tax Law, without whom the process of writing thethesis would have been much harder. Lastly, I would like to thank Linde for pub-lishing this book.

Vienna, May 2016 Markus Seiler

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Contents

Preface ................................................................................................................... VList of abbreviations ............................................................................................ XVIIA. Introduction ................................................................................................... 11. Background ..................................................................................................... 12. Terminology.................................................................................................... 2

2.1. Tax evasion .......................................................................................... 22.2. Tax avoidance and tax mitigation .................................................... 2

3. Scope of the study........................................................................................... 43.1. Point of departure............................................................................... 43.2. Bringing GAARs into play................................................................. 5

4. The comparative approach and the research question ............................. 65. Structure of the study..................................................................................... 9B. Judicial anti-avoidance.................................................................................. 101. Introduction .................................................................................................... 102. Judicial anti-avoidance in Germany ............................................................ 11

2.1. Introduction ........................................................................................ 112.2. The traditional view: Formal and literal interpretation ................ 122.3. Major tax reform................................................................................. 13

2.3.1. Adoption of the “economic perspective” and introduction of a GAAR .................................................. 13

2.3.2. Consequences of the reform............................................ 152.3.2.1. Counteracting abuse using the GAAR .......................... 152.3.2.2. Counteracting abuse by way of interpretation

(and other means) ............................................................ 162.3.2.3. The tax reform was successful ........................................ 19

2.4. Further development.......................................................................... 192.4.1. National Socialist excesses under the guise of the

statutory interpretation.................................................... 192.4.2. Developments after 1945: (re-)adoption of the

“economic perspective”.................................................... 212.4.3. The “economic perspective” as a means of

teleological interpretation................................................ 222.4.4. The status quo: Sec 42 Fiscal Code ................................. 24

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2.4.4.1. Introduction in 1977 ........................................................ 242.4.4.2. Amendment in 2001 ........................................................ 252.4.4.3. Amendment in 2008 and present state ......................... 25

2.5. The legal relevance of Sec 42 Fiscal Code........................................ 272.5.1. Two ways to deal with abuse ........................................... 272.5.2. The concept of Innentheorie ........................................... 282.5.3. The concept of Außentheorie.......................................... 302.5.4. Tax law and the mechanism of analogy......................... 302.5.5. More than just two theories............................................. 322.5.6. Regarding the controversy and function of

Sec 42 Fiscal Code............................................................. 353. Judicial anti-avoidance in the UK ................................................................ 39

3.1. Introduction ........................................................................................ 393.2. The traditional view: Literalism and formalism

(The Duke of Westminster) .............................................................. 403.2.1. The pillars of the Duke of Westminster......................... 403.2.2. The Duke of Westminster................................................ 413.2.3. The Duke of Westminster put to the test ...................... 433.2.4. Literal interpretation and form vs. substance:

A myth is born................................................................... 453.3. The interim view: The uncertainty of Ramsay ............................... 47

3.3.1. Initial remarks ................................................................... 473.3.2. Artificial, circular and self-cancelling transactions:

W.T. Ramsay Ltd. v IRC .................................................. 483.3.2.1. Facts of the case and the taxpayer’s view ...................... 483.3.2.2. Two ways to deal with the case ...................................... 483.3.2.3. The House of Lords’ approach ....................................... 493.3.2.4. The House of Lords’ alternative suggestion ................. 503.3.3. Ramsay confirmed: IRC v Burmah Oil ......................... 513.3.3.1. Facts of the case and the taxpayer’s view ...................... 513.3.3.2. The House of Lords’ approach ....................................... 523.3.4. Step transaction test: Furniss v Dawson ....................... 543.3.4.1. Facts of the case and starting situation ......................... 543.3.4.2. Ramsay as a transaction based anti-avoidance

approach ............................................................................ 543.3.4.3. The impacts of Furniss v Dawson .................................. 563.3.5. Ramsay at a dead end: Craven v White ......................... 573.3.5.1. Facts of the cases .............................................................. 573.3.5.2. Limiting the impacts of Ramsay .................................... 583.3.5.3. Ramsay as an approach to statutory construction? ..... 59

3.4. The status quo: Ramsay as an approach to statutory interpretation ..................................................................................... 59

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3.4.1. The rediscovery of statutory construction: McGuckian v IRC .......................................................... 59

3.4.1.1. Facts of the case and the taxpayer’s view ...................... 593.4.1.2. The House of Lords’ approach ....................................... 603.4.2. Ramsay as a principle of statutory construction:

MacNiven v Westmoreland ......................................... 633.4.2.1. Facts of the case and the taxpayer’s view ...................... 633.4.2.2. The House of Lords’ approach ....................................... 633.4.3. Ramsay as a principle of statutory construction

confirmed: BMBF .......................................................... 653.4.3.1. Facts of the case and the taxpayer’s view ...................... 653.4.3.2. The House of Lords’ approach ....................................... 663.4.4. Statutory construction can be difficult ......................... 683.4.4.1. Making use of various methods of interpretation ....... 683.4.4.2. Mayes v HMRC (“SHIPS 2”) as a reason for the

introduction of the GAAR ........................................... 713.4.4.3. HMRC v DCC Holdings: What if? ................................ 75

4. Judicial anti-avoidance in the EU................................................................. 774.1. Introduction ....................................................................................... 774.2. Development of an abuse test .......................................................... 79

4.2.1. Emsland Stärke ................................................................. 794.2.2. Was it necessary to set up an abuse test? ...................... 804.2.2.1. The pillars of Emsland Stärke ......................................... 804.2.2.2. Different approaches? ...................................................... 844.2.2.3. There was no need to set up an abuse test in

Emsland Stärke ................................................................. 864.2.3. Implications of the abuse test ......................................... 874.2.3.1. No influence in the short run ......................................... 874.2.3.2. No influence in the short run also in the field

of VAT ............................................................................... 904.2.3.3. Very influential in the long run ..................................... 92

4.3. Abuse in the field of VAT ................................................................. 944.3.1. Halifax ............................................................................... 944.3.1.1. Facts of the case and questions referred to the Court ... 944.3.1.2. Adopting the abuse test in the field of VAT ................. 954.3.1.3. There was no need to adopt the abuse test ................... 954.3.1.4. Implications of the objective test ................................... 974.3.1.5. Implications of the subjective test ................................. 984.3.2. Cases adopting the Halifax abuse test ........................... 994.3.2.1. Part Service and Weald Leasing ..................................... 994.3.2.2. Objective test and tax advantage .................................... 1014.3.2.3. Subjective test ................................................................... 102

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4.3.2.4. Legal consequences .......................................................... 1044.3.3. New focus: Wholly artificial arrangements in

the field of VAT ................................................................ 1044.3.3.1. Change of focus ................................................................ 1044.3.3.2. Wholly artificial arrangements in respect of the

relevant statute ................................................................. 1054.4. Abuse in the field of direct taxation ................................................ 109

4.4.1. Cadbury Schweppes.......................................................... 1094.4.1.1. Facts of the case and questions referred to the Court .. 1094.4.1.2. Question of justification or question of scope? ........... 1104.4.1.3. Preventing the creation of “wholly artificial

arrangements” .................................................................. 1134.4.1.4. Proportionality of the restriction and no

subjective test .................................................................... 1144.4.2. Shifting the emphasis towards proportionality ........... 1184.4.3. Bringing Halifax and Cadbury Schweppes together ... 1194.4.4. Further development of the case law ............................. 1204.4.5. New focus: Wholly artificial arrangements in

primary law ....................................................................... 1224.4.5.1. Requirements for a restriction to be proportional ...... 1224.4.5.2. The Court’s approach in Cadbury Schweppes and

Thin Cap ........................................................................... 1234.4.5.3. The Court’s approach in further cases .......................... 124

4.5. A uniform concept of abuse? ........................................................... 128C. Comparison of the GAARs.......................................................................... 1311. Introduction .................................................................................................... 1312. The way to the GAARs and identifying common elements ..................... 132

2.1. The way to the GAAR in Germany .................................................. 1322.1.1. The GAAR has a long lasting history............................. 1322.1.2. Statutory requirements and the courts’ approach........ 132

2.2. The way to the GAAR in the UK...................................................... 1342.2.1. The failed attempt to introduce a GAAR in the late

1990s .................................................................................. 1342.2.2. Aaronson Report .............................................................. 1352.2.2.1. Background of the Aaronson Report ............................ 1352.2.2.2. Main findings of the Aaronson Report ......................... 1362.2.2.3. General Anti-Avoidance Rule or General

Anti-Abuse rule? .............................................................. 1382.2.2.4. Aaronson’s GAAR ........................................................... 1392.2.3. The UK GAAR ................................................................. 1392.2.3.1. Introduction of a general anti-abuse rule .................... 1392.2.3.2. Statutory requirements .................................................... 140

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2.2.3.3. The importance of the GAAR Guidance ...................... 1412.3. The way to the GAAR in the EU ...................................................... 142

2.3.1. The pillars of the EU GAAR ........................................... 1422.3.1.1. CCCTB Proposal: The first EU GAAR initiative ......... 1422.3.1.2. Article 80 CCCTB and the influence of the ECJ .......... 1442.3.2. The EU GAAR .................................................................. 1452.3.2.1. Recommendation of an EU GAAR ............................... 1452.3.2.2. Requirements of the EU GAAR ..................................... 1452.3.2.3. Practical importance: The EU GAAR and domestic

GAARs ............................................................................... 1462.3.2.4. Practical importance: The EU GAAR and the PSD

GAAR and the BEPS GAAR ........................................... 1472.4. Identifying common requirements ................................................. 149

2.4.1. Overview of the common requirements ....................... 1492.4.2. The idea behind the various requirements ................... 150

3. Arrangements covered................................................................................... 1524. Taxes covered.................................................................................................. 1535. Objective test ................................................................................................... 155

5.1. Common elements ............................................................................. 1555.2. The objective test in the German GAAR......................................... 156

5.2.1. Starting point..................................................................... 1565.2.2. Leaving the application of Sec 42 Fiscal Code open..... 1575.2.3. Using Sec 42 Fiscal Code as a starting aid ..................... 159

5.3. The objective test in the UK GAAR ................................................. 1625.3.1. Starting point .................................................................... 1625.3.2. Indicators of abuse ........................................................... 1635.3.2.1. Indicators of abusive arrangements

(Sec 207 (4) FA 2013) ...................................................... 1635.3.2.2. Indicator of a non-abusive arrangement

(Sec 207 (5) FA 2013) ...................................................... 1655.3.3. Drawing the line between use and abuse: Examples

of the GAAR Guidance ................................................... 1675.3.4. Examples where the GAAR does not apply .................. 1675.3.4.1. The arrangement is in line with the statutory

requirements ..................................................................... 1675.3.4.2. The “contrived or abnormal” arrangement is in line

with the statutory requirements ..................................... 1695.3.5. Examples where the GAAR applies on grounds of

Sec 207 (2) (a) FA 2013 ................................................... 1715.3.6. Examples where the GAAR applies on grounds of

Sec 207 (2) (c) FA 2013 ................................................... 1745.3.6.1. Further development of the law ..................................... 174

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5.3.6.2. The GAAR and Mayes (SHIPS 2) .................................. 1765.3.6.3. Counteracting arrangements using the instruments

of teleological reduction and analogy ........................... 1775.3.7. Lessons learnt from the examples .................................. 1795.3.7.1. The importance of the various GAAR elements ......... 1795.3.7.2. The objective test as an approach to statutory

interpretation .................................................................... 1805.3.7.3. The objective test as a reminder of having to

properly interpret the law ............................................... 1815.4. The objective test in the EU GAAR.................................................. 182

5.4.1. The objective test is not flawless ..................................... 1825.4.2. The objective test will be applied differently................. 183

5.5. Conclusion: An objective test can be valuable................................ 1856. Subjective tests ................................................................................................ 185

6.1. Common elements ............................................................................. 1856.1.1. Subjectivity in the German GAAR ................................. 1856.1.2. Subjectivity in the UK GAAR ......................................... 1866.1.3. Subjectivity in the EU GAAR.......................................... 1876.1.3.1. Starting point .................................................................... 1876.1.3.2. The EU GAAR reveals weaknesses ................................ 1876.1.4. Subjectivity is present on various layers ........................ 190

6.2. Arrangement test ................................................................................ 1906.2.1. What it is about and the difference from the

objective test ..................................................................... 1906.2.2. (In)appropriateness: The arrangement test instead

of the objective test ........................................................... 1916.2.2.1. Starting point .................................................................... 1916.2.2.2. Inappropriate and appropriate arrangements ............. 1916.2.2.2.1. Non-tax reasons to rebut the inappropriateness ......... 1916.2.2.2.2. Arrangements that have the effect of offsetting

or cancelling each other .................................................. 1946.2.2.2.3. Overall plan ....................................................................... 1966.2.2.2.4. Interposition of persons .................................................. 1976.2.2.2.5. Arrangements and the expectation of a

reasonable business conduct .......................................... 2016.2.2.3. The arrangement test must be rejected ......................... 2036.2.3. Artificiality: The arrangement test in addition to the

objective test ..................................................................... 2046.2.3.1. Starting point .................................................................... 2046.2.3.2. “Artificial” ......................................................................... 2056.2.3.3. The arrangement test must be rejected ......................... 206

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6.3. Purpose test ......................................................................................... 2076.3.1. Main or essential purpose…............................................ 2076.3.2. … of the arrangement or the person? ............................ 2096.3.3. The purpose test must be rejected .................................. 211

6.4. Tax advantage...................................................................................... 2136.4.1. The idea behind the tax advantage ................................. 2136.4.2. The presence of the tax advantage.................................. 2136.4.3. The subjectivity of the tax advantage ............................. 2166.4.4. Requiring a tax advantage must be rejected.................. 217

6.5. Double-reasonableness test ............................................................... 2186.5.1. What is it about ................................................................. 2186.5.2. The double-reasonableness test must be rejected ........ 220

6.6. Conclusion: Subjective tests must be rejected ................................ 2206.6.1. Summary of the critique .................................................. 2206.6.2. Solution .............................................................................. 222

7. Legal consequences ........................................................................................ 2247.1. Basing taxation on a fictional arrangement .................................... 2247.2. Reconstruction poses serious problems .......................................... 2277.3. Consequential adjustments ............................................................... 228

D. Valuation of the GAARs .............................................................................. 2311. Introduction .................................................................................................... 2312. Judicial anti-avoidance .................................................................................. 231

2.1. Points of departure in the UK and in Germany ............................. 2312.1.1. Resembling starting positions: The legal form

is decisive............................................................................ 2312.1.2. Contrasting developments: Various methods of

interpretation vs. literal interpretation .......................... 2322.1.2.1. Tax reform in Germany .................................................. 2332.1.2.2. No action taken in the UK .............................................. 2342.1.2.3. Developments around the Second World War ........... 2352.1.2.4. Developments in the post-war years ............................. 2362.1.3. Reasons for these divergent developments ................... 2382.1.3.1. The relationship of tax law with other fields of law .... 2382.1.3.2. Liberalism and social reasons ......................................... 2392.1.3.3. Victorian values and background of the judges .......... 2402.1.3.4. Common law and influence of academics .................... 2422.1.3.5. Parliamentary sovereignty, legal certainty and

the rule of law ................................................................... 2432.1.4. Consequence: Different drafting of tax legislation 245

2.2. EU Law: Adding another layer of complexity ................................ 2472.2.1. Abuse was a latecomer in EU law .................................. 2472.2.2. Judicial anti-avoidance in European law ....................... 248

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2.3. All roads lead to Rome....................................................................... 2502.3.1. Counteracting abuse on grounds of a judicially

developed GAAR? ............................................................ 2502.3.1.1. The initial uncertainty of Ramsay and the concept

of Außentheorie ............................................................... 2502.3.1.2. Ramsay did not develop into a judge-made GAAR .... 2532.3.2. Counteracting abuse as a matter of interpretation? .... 2542.3.2.1. Common elements: Transaction based

anti-avoidance .................................................................. 2542.3.2.2. Germany: Counteracting abuse should only be a

matter of interpretation .................................................. 2562.3.2.3. UK: Counteracting abuse is a matter of

interpretation .................................................................... 2582.3.2.4. EU: Counteracting abuse should return to a matter

of interpretation ............................................................... 2592.3.3. Development of similar ways to counteract abuse

by interpretation .............................................................. 2602.3.3.1. Summary ........................................................................... 2602.3.3.2. Influence of other countries on the UK ........................ 2622.3.3.3. Influence of the ECJ on UK courts ................................ 2632.3.4. Substance-over-form and the economic perspective

(wirtschaftliche Betrachtungsweise) .............................. 2652.3.4.1. Substance-over-form approach from a German court’s

perspective ........................................................................ 2652.3.4.2. Economic perspective (wirtschaftliche Betrachtungs-

weise) from a UK court’s perspective ............................ 2663. Statutory anti-avoidance (GAARs) .............................................................. 269

3.1. Common elements inherent in the GAARs.................................... 2693.2. Drawing the line between “abusive” and “non-abusive”

arrangements....................................................................................... 2703.3. The GAARs only codify what courts already did........................... 271

4. Reasons for introducing and suggesting the GAARs ................................ 2724.1. To raise revenue and for political reasons....................................... 2724.2. To compensate legislative cowardice ............................................... 275

4.2.1. Overly complex tax systems as a source of tax avoidance ..................................................................... 275

4.2.2. Tax systems do not have to be ‘perfect’ ......................... 2774.2.3. GAARs as a result of legislative cowardice.................... 278

4.3. To compensate judicial and administrative shortcomings in statutory interpretation ................................................................. 2794.3.1. Methods of interpretation and the complexity of

the tax system .................................................................... 279

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4.3.2. Applying various methods of interpretation can be difficult .......................................................................... 281

4.3.3. GAARs as a tool to compensate shortcomingsin interpretation ................................................................ 283

5. What remains at the end?.............................................................................. 2845.1. What is claimed to be achieved......................................................... 2845.2. What is achieved ................................................................................. 285

5.2.1. GAARs leading to a simpler tax system? ...................... 2855.2.1.1. A GAAR alone does not make the tax system

simpler ............................................................................... 2855.2.1.2. Legislators may contribute to the simplification of

a tax system ....................................................................... 2865.2.2. GAARs reducing the uncertainty surrounding

the case law? ...................................................................... 2905.2.2.1. Uncertainty is a result of overly complex tax

systems ............................................................................... 2905.2.2.2. GAARs can contribute to legal uncertainty and

inequality ........................................................................... 2915.2.3. GAARs can be detrimental to the legal culture ........... 2935.2.3.1. The finding of an abusive arrangement is a matter

of interpretation ............................................................... 2935.2.3.2. GAARs may have an adverse effect on

the legal culture ................................................................ 2945.3. Is there even a remaining scope for GAARs? ................................. 296

5.3.1. GAARs as reminders of having to interpret the law.... 2965.3.2. Making interpretation possible....................................... 298

E. Summary ......................................................................................................... 3001. Starting position ............................................................................................. 3002. The courts’ approach ..................................................................................... 3003. The GAARs’ approach................................................................................... 3084. Valuation of the GAARs................................................................................ 313

F. Annex............................................................................................................... 3181. Overview of the common requirements of the German,

UK and EU GAAR ......................................................................................... 3182. German GAAR (author’s translation)......................................................... 319

2.1. Sec 4 and 5 Reich Fiscal Code ........................................................... 3192.2. Sec 6 Fiscal Adjustment Act .............................................................. 3192.3. Sec 42 Fiscal Code in the version of 1977and 2001........................ 3202.4. Sec 42 Fiscal Code in the version of 2008........................................ 320

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3. UK GAAR........................................................................................................ 3204. EU GAAR ........................................................................................................ 327

4.1. EU GAAR: Commission Recommendation on Aggressive Tax Planning ................................................................... 327

4.2. PSD GAAR .......................................................................................... 3284.3. BEPS GAAR ........................................................................................ 328

G. Bibliography................................................................................................... 330

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List of abbreviationsList of abbreviationsList of abbreviations

Abs Absatz (para)AC Law Reports: Appeal Cases (3rd series)AEUV Vertrag über die Arbeitsweise der Europäischen Union

(TFEU)AG Advocate GeneralAll ER All England Law ReportsAnm. Anmerkung (Comment)AO Abgabenordnung (Fiscal Code)App.Cas. Law Reports: Appeal Cases (2nd series)APTB Asia Pacific Tax BulletinBAO Bundesabgabenordnung (Austrian Federal Fiscal Code)BB Der BetriebsberaterBEPS Base Erosion and Profit ShiftingBerlinFG Berlinförderungsgesetz (Berlin Promotion Act)BFH Bundesfinanzhof (Federal Fiscal Court)BFH/NV Sammlung nicht veröffentlichter Entscheidungen des BFH

(collection of the decisions of the BFH which are not publis-hed officially)

BFHE Sammlung der Entscheidungen des BFH (collection of deci-sions of the BFH)

BFIT Bulletin for International TaxationBGBl Bundesgesetzblatt (Federal Law Gazette)BRD Bundesrepublik Deutschland (Federal Republic of Germany)Bgin. Beschwerdegegnerin (the party complained against)BT Bundestag (German Bundestag)BTDrucks Bundestagsdrucksache (Bundestag document)BTR British Tax ReviewBVerfG Bundesverfassungsgericht (Federal Constitutional Court)BVerfGE Sammlung der Entscheidungen des BVerfG (collection of the

decisions of the BVerfG)

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CAA Capital Allowances ActCCCTB Common Consolidated Corporate Tax BaseCFC Controlled Foreign CorporationCGT Capital Gains TaxCh Law Reports Chancery DivisionCML Review Common Market Law ReviewCOM legislative proposals, and documents relatedCTA Corporation Tax ActCTC Canada Tax Casesd.h. das heißt (i.e.)DB Der BetriebDM Deutsche MarkDOTAS disclosure of tax avoidance schemesDRiZ Deutsche RichterzeitungDStR Deutsches SteuerrechtDStZ Deutsche SteuerzeitungDStZ/A Deutsche Steuerzeitung Ausgabe ADTA Double Taxation Agreemente.g. example givenEBT employee benefit trustEC European CommunityEC Tax Journal European Community Tax JournalEC Tax Review European Community Tax ReviewECHR European Court of Human RightsECJ European Court of Justiceed editorEEC European Economic CommunityEStG Einkommensteuergesetz (ITA)ET European Taxationetc et ceteraEU European UnionEuR Zeitschrift EuroparechtEWCA Civ England and Wales Court of Appeal Civil DivisionEWHC England and Wales High CourtFA Finance Act

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Seiler, GAARs and Judicial Anti-Avoidance XIX

FCAFC Federal Court of Australia Full CourtFG FinanzgerichtFN footnoteFR FinanzrundschauGAAR General Anti-Avoidance (Abuse) Rule GBP Great Britain PoundGITC Gray’s Inn Tax ChambersGrEStG Grunderwerbsteuergesetz (Real Estate Transfer Tax Act)GrS Großer Senat (Grand Senate)GrStG Grundsteuergesetz (Real Estate Tax Act)HKCFA Hong Kong Court of Final AppealHL House of Lords Official ReportHM Her MajestyHMRC Her Majesty’s Revenue and Customsi.e. id esti.V.m. in Verbindung mit (in conjunction with)ICTA Income and Corporation Taxes ActIFSC International Financial Services CentreIHTA Inheritance Tax ActIOM Isle of ManIRC Inland Revenue CommissionersIStR Internationales SteuerrechtITA Income Tax ActJbFSt Jahrbuch der Fachanwälte für SteuerrechtjurisPR-SteuerR juris PraxisReport SteuerrechtJuS Juristische SchulungJStG Jahressteuergesetz (Annual Tax Act)JZ JuristenzeitungKB King‘s BenchKStG Körperschaftsteuergesetz (CITA)LIFO last in first outLLP Limited Liability PartnershipLR Law ReportsLtd LimitedMN marginal number

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Seiler, GAARs and Judicial Anti-AvoidanceXX

MNE Multi-National EnterpriseMP Member of ParliamentNICs national insurance contributionsNo numberNr. Nummer (number)OECD Organization for Economic Co-operation and DevelopmentOECD-MC OECD Model ConventionOFH Oberster Finanzgerichtshof (Supreme Fiscal Court)OJ Official JournalÖStZ Österreichische Steuerzeitungp pagepara paragraphPSD Parent-Subsidiary-DirectiveQ.B. Queen’s BenchQBC qualifying corporate bondsQC Queen’s CounselQCB Qualifying Corporate BondsR & D research & developmentRAO Reichsabgabenordnung (Reich Tax Code)RDS relevant discounted securitiesReg RegulationRFH Reichsfinanzhof (Reich Fiscal Court)RFHE Sammlung der Entscheidungen des RFH (collection of deci-

sions of the RFH)RGBl Reichsgesetzblatt (Reich Law Gazette)RIE recognised investment exchangeRM ReichsmarkRStBl Reichssteuerblatt (Reich Tax Gazette)Rz Randziffer (MN)s SectionS.C. (H.L.) Session Cases (House of Lords cases, Scotland)SAAR Specific Anti-Avoidance (Abuse) RuleSch ScheduleSDLT Stamp Duty Land TaxSec Section

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Seiler, GAARs and Judicial Anti-Avoidance XXI

SSCR Social Security (Contributions) RegulationsSSRN Social Science Research NetworkStAnpG Steueranpassungsgesetz (Fiscal Adjustment Act)StÄndG Steueränderungsgesetz (Tax Amendment Act)StBJb SteuerberaterjahrbuchSTC Simon’s Tax CasesStuW Steuer und WirtschaftSWD Staff and joint staff working documentsSWI Steuer und Wirtschaft InternationalTAAR Targeted Anti-Avoidance (Abuse) RuleTC Tax CasesTCC Tax and Chancery ChamberTCGA Taxation of Chargeable Gains ActTFEU Treaty on the Functioning of the European UnionTIOPA Taxation (International and Other Provisions) ActTNI Tax Notes InternationalUK United KingdomUKFTT United Kingdom First-tier TribunalUKHL United Kingdom House of LordsUKSC United Kingdom Supreme CourtUKUT United Kingdom Upper TribunalUNSW Law JournalUniversity of New South Wales Law JournalUS United StatesVAT Value Added Taxvs. versusVwGH Verwaltungsgerichtshof (Austrian Supreme Administrative

Court)WBl Wirtschaftsrechtliche BlätterWLR Weekly Law Reports

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Seiler, GAARs and Judicial Anti-Avoidance 1

A. Introduction

1. BackgroundTaxation is at the core of the sovereignty of a country.1 Money provided by taxa-tion has been used by governments throughout history to carry out many func-tions. Taxes may be used to cover a state’s own financial needs or they may bespent to build and maintain infrastructure, to enforce the law and public order, toprotect property or to pay off the state’s debt. Taxes are also an important tool forthe redistribution of wealth.2 As such, taxes may be passed on in the form of sub-sidies or they may be used to fund welfare and public services.

When a state is levying taxes, it will inevitably interfere with the rights of its tax-payers.3 For this to be justifiable, a tax system has to take into account many fac-tors. A well designed tax code should be neutral, i.e. it should avoid distortions ofthe market.4 Additional factors that need to be considered in the design of a taxcode concern matters of administrative efficiency (i.e. the cost-yield ratio for atax) and the principle of legal certainty.5 Eventually, a tax code also has to ensurethat equal taxpayers are equally affected.6 This is because one core aspect of taxa-tion is related to the fact that the tax burden should be distributed among the in-dividuals (and businesses). It is therefore also for the tax law to protect individu-als (and businesses) from having to disproportionately contribute to the financialneeds of a State.7

Nonetheless, for as long as there have been taxes, persons have been trying to re-duce their tax bills. This is where the phenomenona of “tax evasion”, “tax avoid-ance” and “tax mitigation” come into play. From a government’s perspective, taxavoidance and tax evasion are matters of concern as they nibble away the edges ofthe tax base, thus, reducing government revenue.8 Whenever this is the case, itwill inevitably cause problems as a legislative decision concerning the distribution

1 Tiley/Loutzenhiser, Revenue Law 10; J. Lang in Tipke/J. Lang 1 et seq.2 Tiley/Loutzenhiser, Revenue Law 8.3 Nevermann, Justiz und Steuerumgehung 47.4 Tiley/Loutzenhiser, Revenue Law 11 et seq adds that the UK tax system has many rules which break

the principle of neutrality. 5 Davies, Principles of Tax Law 6; Tiley/Loutzenhiser, Revenue Law 12 et seq; Cagianut in Cagianut/

Vallender 18.6 Tiley/Loutzenhiser, Revenue Law 11; J. Lang in Tipke/J. Lang 1 et seq.7 Davies, Principles of Tax Law 6; J. Lang in Tipke/J. Lang 3; Nevermann, Justiz und Steuerumgehung 47.8 Tiley/Loutzenhiser, Revenue Law 96.

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A. Introduction

Seiler, GAARs and Judicial Anti-Avoidance2

of the tax burden is not put into practice. It should in this context be noted thatthe terms tax evasion, tax avoidance and tax mitigation are often used impreciselyor with varying meanings.9 However, the precise nature of this problem dependson the precise definition of these terms.10

2. Terminology2.1. Tax evasionThere seems to be substantial consensus about the term “tax evasion” (“Steuer-hinterziehung”11).12 Accordingly, both German as well as British scholars arguethat tax evasion involves concealment of the facts.13 Tax evasion concerns actionswhere taxpayers make false declarations, disguise or conceal facts with the resultthat tax authorities claim too little taxes from them. Accordingly, tax evasion im-plies criminal activity,14 is illegal15 and is synonymous with tax fraud:

“[T]he expression tax evasion should be deleted from the vocabulary as it is a euphemismwhich covers its true name, which is tax fraud. Tax evasion requires falsehood of somekind. Basically it requires either non-disclosure, or fabrication of a story which differsfrom the facts.”16

2.2. Tax avoidance and tax mitigationTaxpayers also have another possibility to frustrate the legislator’s attempt of col-lecting the taxes. This is where the term “tax avoidance” comes into play. Taxavoidance is a concept that can be properly used with more than one meaning.17

Accordingly, the meaning of the term must be derived from the context. In itsgeneral sense, tax avoidance refers to an activity aimed at the reduction of tax thatis not criminal in nature.18

9 Thuronyi, Comparative Tax Law 154; Eidenmüller in de la Feria/Vogenauer 142; Vogenauer in de laFeria/Vogenauer 524 with numerous examples from the jurisprudence of the ECJ; Tiley/Loutzen-hiser, Revenue Law 97; see also Englisch, Working Paper Series 11/13, 3 with further references.

10 See below next section A.2.11 J. Lang in Tipke/J. Lang 182.12 Thuronyi, Comparative Tax Law 155; Alvarrenga, BFIT 2013, 348. Thuronyi adds that what behav-

iour constitutes tax evasion depends, however, on the criminal laws of each country. 13 Templeman in Shipwright 1; J. Lang in Tipke/J. Lang 167 argues that “Steuerhinterziehung” (“tax eva-

sion”) only comes into question where the taxpayer disguises or conceals the facts; Englisch, WorkingPaper Series 11/13, 4.

14 Thuronyi, Comparative Tax Law 154; Templeman in Shipwright 1; J. Lang in Tipke/J. Lang 1151 etseq; Englisch, Working Paper Series 11/13, 4.

15 Tiley/Loutzenhiser, Revenue Law 96; J. Lang in Tipke/J. Lang 182.16 Thuronyi, Comparative Tax Law 154 and Gololobov, The Yukos Case 223 refer to Dilger in Ship-

wright 12. See also Eidenmüller in de la Feria/Vogenauer 142.17 Thuronyi, Comparative Tax Law 155; Tiley/Loutzenhiser, Revenue Law 96 et seq; Nevermann, Justiz

und Steuerumgehung 49.18 Thuronyi, Comparative Tax Law 155.


2. Terminology


“Tax avoidance” also needs to be distinguished from “tax mitigation” (which issynonymous with “tax planning” or “tax minimization”).19 Scholars from boththe UK and Germany emanate from such a distinction. J. Lang distinguishes, inthe context of German tax law, between two concepts: “Steuerumgehung” is sup-posed to be legal as it involves conduct what British lawyers would probably referto as “tax mitigation”, “tax planning” or “tax minimization”.20 The term“Steuervermeidung” stands for the second concept and addresses issues what law-yers from the UK would typically refer to as “tax avoidance”. Lord Nolan, in IRCv Willoughby, summarises the distinction:

“The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without in-curring the economic consequences that Parliament intended to be suffered by any tax-payer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, onthe other hand, is that the taxpayer takes advantage of a fiscally attractive option af-forded to him by the tax legislation, and genuinely suffers the economic consequences thatParliament intended to be suffered by those taking advantage of the option.”21

“Tax avoidance” ultimately involves a concept that corresponds to the idea ofwhat certain civil law jurisdictions would consider “abuse of law”.22 The conceptof abuse is invoked in diverse areas of civil law and in many legal systems to servea variety of purposes.23 Its origins may be traced back to Roman law.24 Abuse oflaw is about correctly applying the law to a specific set of facts.25 Abuse of lawmust therefore be distinguished from “abuse of rights”, which is concerned withthe excessive exercise of an individual right that causes harm to another personwithout good reason.26 It should be noted that courts (particularly the ECJ) havenot always been consistent in distinguishing between abuse of rights and abuse oflaw. Sometimes, the ECJ used concepts of “abuse of rights” and “abuse of law” syn-onymously.27

19 Also Thuronyi, Comparative Tax Law 155 or Tiley/Loutzenhiser, Revenue Law 97 distinguish be-tween these concepts.

20 J. Lang in Tipke/J. Lang 182; see also Thuronyi, Comparative Tax Law 155; Tiley/Loutzenhiser, Re-venue Law 97.

21 IRC v Willoughby [1997] 1 WLR 1071, 1079. See also Tiley/Loutzenhiser, Revenue Law 97.22 See also Englisch, Working Paper Series 11/13, 4 or Zimmer in Cahiers 42 et seq.23 Thuronyi, Comparative Tax Law 158 et seq.24 Tridimas in de la Feria/Vogenauer 169 referring to “Nullus videtur dolo facere, qui suo iure utitur”

Gaius, Digest 50.17.55.25 Eidenmüller in de la Feria/Vogenauer 142.26 Tridimas in de la Feria/Vogenauer 169; Englisch, Working Paper Series 11/13, 22 referring to ECJ

12. 5. 1998, C-367/96, Alexandros Kefalas and Others, para 20; ECJ 23. 3. 2000, C-373/97, Diamantis,para 33.

27 One example is Kofoed (ECJ 5. 7. 2007, C-321/05, Kofoed). In para 38, the Court declared for the firsttime that there is a general Community law principle that “abuse of rights” is prohibited. However,the matter was actually one of “abuse of law”. See also ECJ 22. 12. 2010, C-277/09, RBS Deutschland,para 52; ECJ 27. 10. 2011, C-504/10, Tanoarch, para 51; ECJ 20. 6. 2013, C-653/11, Newey, para 46and Tridimas in de la Feria/Vogenauer 171; Vogenauer in de la Feria/Vogenauer 524; Pistone, Intertax2007, 535. See also below section B.4.5.


A. Introduction


Abuse of law concerns the proper interpretation of a particular legal provision.Abuse of law seeks to prevent a person from deriving benefits which, although itmay result from formal compliance with a measure, pursues ends which lie beyondits objectives.28 Abuse of law is therefore an issue of having to ascertain the scopeof a provision. Account has to be taken of the various means of interpretation. Acivil law lawyer would typically interpret the respective statute within the light ofits wording, its telos, its historical background and its systematic integration withinthe tax system and would also use the methods of analogy and teleological reduc-tion.29 Common law lawyers would typically refer to “purposive interpretation” ofthe respective statute.30 Ultimately, it is about having to assess whether the facts ofa case answer the questions asked by the relevant (taxing) statute. Accordingly, theexpressions “tax avoidance” and “tax mitigation” are merely labels that describethe outcome of interpretation. Accordingly, it should be noted that the author usesthe expression “tax abuse” synonymously with “tax avoidance”.

3. Scope of the study3.1. Point of departureIt has already been described above that the phenomenona of “tax avoidance”(“Gestaltungsmissbrauch”) and “tax evasion” (“Steuerhinterziehung”) are a causeof concern for governments.31 Quite obviously, tax avoidance and tax evasionleads to less tax revenue. No legislature can allow taxpayers to arrange their affairsin such a way that the tax system becomes voluntary or that government revenuefalls short of what is needed.32 Accordingly, the legislator has a multitude of pos-sibilities to fill these tax gaps:

Governments may simply fill the tax gap by way of cutting expenditure (e.g. cut-ting the military budget). On the other hand, governments may also want to hireadditional staff, thereby hoping to better enforce the existing (tax) laws. It is alsoconceivable that the legislator may want to sanction tax evasion under criminallaw, thus hoping to discourage taxpayers from evading taxation. Governmentsmay also decide to accrue additional revenues by introducing new taxes or byshifting and increasing the tax burden on less mobile activities, such as labour.Another possibility to fill the tax gap consists in broadening the tax base. Accord-ingly, the legislator could abolish benefits or could introduce measures which

28 Tridimas in de la Feria/Vogenauer 171. 29 Larenz, Methodenlehre5 298 et seq, 365 et seq; Bydlinski, Juristische Methodenlehre2 472 et seq.30 Barak, Purposive Interpretation 85 with further references. When analysing various cases decided by

UK courts, this study will also show that the term “purposive interpretation” is not used synony-mously with the civil law concept of “teleological interpretation”. There are cases where courts fromthe UK applied, under the guise of “purposive interpretation” methods that a lawyer coming from acivil law country would probably refer to as historical or contextual means of interpretation.

31 See above section A.1. 32 Tiley/Loutzenhiser, Revenue Law 99.


3. Scope of the study


prohibit the deduction of certain expenses. Furthermore, the legislator could alsointroduce rules particularly aimed at dealing with the phenomenon tax avoid-ance. Accordingly, the legislator could introduce SAARs, TAARs or GAARs (spe-cial, targeted or general anti-avoidance rules):

SAARs thereby follow a ‘sniper approach’.33 They are provisions which are aimedat identifying, with precision, the type of transaction to be dealt with and pre-scribe, with precision, the tax consequences of such a transaction. A typical fea-ture of UK legislation is that it also includes TAARs. These rules are wider thanSAARs as they are formulated in terms of countering ‘avoidance’ within theframework of a whole set of (newly introduced) provisions.34 Last but not least,legislators may also want to introduce GAARs.35

3.2. Bringing GAARs into playThere is a wide spectrum of definitions of a GAAR.36 In most countries, a GAARtakes the form of a statutory rule, albeit with an extremely large range of construc-tions.37 For a rough orientation, it can be pointed out that authors seem to agreethat a GAAR is a broad and typically principle-based rule designed in way to em-power courts and tax authorities to challenge transactions which are aimed at taxavoidance and which violate the statutory requirements of the applicable tax law.38

It should be noted that this study is going to deal with the GAARs as implementedin Germany, the UK and as suggested by the EU.39 As GAARs try to establish theborderline between “abuse” and “use” of a law, this study therefore deals with issuesinvolving tax avoidance (tax abuse) and tax mitigation (tax planning or tax mini-mization).40 This study does therefore not deal with tax evasion.41 Last but not least,it should also be noted that the abbreviation “GAAR” stands for “General Anti-Avoidance Rule” or “General Anti-Abuse Rule”, whatever the reader prefers.42

33 Tiley/Loutzenhiser, Revenue Law 99.34 Tiley/Loutzenhiser, Revenue Law 99 argues that Sec 16A of the TCGA 1992 is a TAAR.35 See below section A.3.2.36 Krever in Lang/Rust/Schuch/Staringer/Owens/Pistone 1.37 Zimmer in Cahiers 37 et seq; van Weeghel in Cahiers 22 et seq. Krever in Lang/Rust/Schuch/Staringer/

Owens/Pistone 2 adds that in some countries lacking a statutory rule, a doctrinal approach based onlyon judicial interpretation might also be considered a GAAR.

38 van Weeghel in Cahiers 22; Zimmer in Cahiers 45 et seq; Krever in Lang/Rust/Schuch/Staringer/Owens/Pistone 4 et seq.

39 Regarding the reasons for this ‘selection’, see below section A.4. Also note that main section C is en-tirely devoted to an analysis of the various requirements inherent in the respective GAARs.

40 Regarding the concept of tax avoidance (tax abuse), see above section A.2.2.41 Regarding the concept of tax evasion, see above section A.2.1.42 The reader should also be reminded at this point that the UK GAAR is referred to as “General Anti-

Abuse Rule”. However, this is nothing but a political message. It does not come with any substantialchanges when compared with a “General Anti-Avoidance Rule”. See also below in more detail sectionC.2.2.2.3.


A. Introduction


4. The comparative approach and the research question“[N]o other feature of a tax law provides a better insight into a nation’s tax psyche than itsanti-avoidance rules. The intersection of general anti-avoidance rules (GAARs) […] withoperative provisions of tax laws reveal so much about all aspects of a country’s tax system:citizens’ tax morale, judicial perspectives on taxation and legal interpretation, drafters’ in-clinations for technical or principled drafting, legislators’ willingness to confront politicallysensitive issues or their inclination to delegate the tough decisions to administrators andcourts. A comparative analysis of the role of GAARs in tax systems (or the lack of anyGAAR) can thus offer unique perspectives on tax law across jurisdictions.”43

A reason for conducting comparative studies in tax law is the “eye-opening” effectthat leads to a better understanding of one’s own legal (and tax) system in disclos-ing structures that are conceded if looking from the traditional point of view ofthe national doctrine.44 In this sense, comparison leads to a better understandingof one’s own tax law. Comparative studies are also highly relevant from a scien-tific and practical point of view.45 Not only will there be more and more tax prac-titioners confronted with rules of foreign tax law but also will legislators have toacknowledge that other countries are often facing the same or at least similarproblems they are dealing with.46 Comparing different answers to the same ques-tions or problem may therefore not only bring about to a better understanding ofthe effects of each solution but may also help to improve the own system byadopting the foreign solution.47

This study aims at comparing the GAARs of Germany, the UK and the EU48. Thisselection is inspired by the general framework as set out by comparative lawscholars, who divided countries into several legal families to indicate broad simi-larities in legal traditions.49 Thuronyi thereby distinguishes between (i) commonlaw families, (ii) civil law families and (iii) the EU.50 Choosing to compare theGAARs of Germany, the UK and the EU already takes into account that eachGAAR falls within one legal family (i.e. common law for the UK, civil law for Ger-many and the EU as a separate legal family).

Dealing with tax avoidance from both the perspective of common law and civillaw takes the two dominant legal traditions of the Western World into account.51

43 Krever in Lang/Rust/Schuch/Staringer/Owens/Pistone 1.44 Glendon, Washington and Lee Law Review 1996, 973.45 Mössner in Sacchetto/Barassi 14.46 Mössner in Sacchetto/Barassi 20.47 Zitelmann, Deutsche Juristen-Zeitung 1900, 329; Mössner in Sacchetto/Barassi 14.48 Point of departure will be the GAAR as recommended to the Member States in the Commission Rec-

ommendation on Aggressive Tax Planning, C (2012) 8806 final, 6 December 2012 (which the authorrefers to as “EU GAAR”).

49 Thuronyi, Comparative Tax Law 7, 23 et seq; Zweigert/Kötz, Introduction to Comparative Law 73 etseq.

50 Thuronyi, Comparative Tax Law 43 et seq.51 von Mehren, The U.S. Legal System: Between the Common Law and Civil Law 1 et seq.


4. The comparative approach and the research question


Much has been said about the difference between common law and civil law ingeneral.52 Lord Cooper, who is as a high Scottish judge familiar with both com-mon law and civil law put forward:

“The civilian naturally reasons from the principles to instances, the common lawyer frominstances to principles. The civilian puts his faith in syllogisms, the common lawyer inprecedents; the first silently asking himself as each new problem arises, ‘What should wedo this time?’ and the second asking aloud in the same situation ‘What did we do lasttime?’. […] The instinct of the civilian is to systematize. The working rule of the commonlawywer is solvitur ambulando.”53

However, something more must be said when it comes to tax law: There is a fun-damental similarity between the UK and the German tax law and that is that bothtax systems are codified.54 Other differences, such as the drafting style of the tax-ing statutes,55 the autonomy of tax law from other branches of law,56 the rules onthe burden of proof57 or the proceedings before a court58 are therefore still impor-tant, but they may not hide the fact that judges from both jurisdictions will decidetax cases in light of a codified taxing statute.

The author’s selection of the three legal families also finds support in Thuronyi’sfurther recommendation, whereas a comparative study should focus on Germanyand the UK.59 Apparently, the German and the UK tax system are “archetypes forthe basic concepts [of tax law] and have been leaders in influencing the tax laws ofother countries in numerous aspects”.60 Hence, a comparison of the German andUK legal system “will reveal most of the basic contrasts that would arise from in-cluding other countries in the study”61 and will also be beneficial for other jurisdic-tions. Additionally, it also needs to be considered that both Germany and the UKare Members of the EU. In this context, it must be noted that Gassner already in

52 Zweigert/Kötz, Einführung in die Rechtsvergleichung 250 et seq; Merryman/Pérez-Perdomo, TheCivil Law Tradition 3 et seq, 27 et seq, 150 et seq; von Mehren, The U.S. Legal System: Between theCommon Law and Civil Law 1 et seq; Jones in Maisto 31 et seq; Riesenhuber, Utrecht Law Review2011, 117 et seq.

53 Cooper, Harvard Law Review 1950, 470 et seq.54 See also Krever in Achatz 355 et seq who elaborates on the taxation laws of civil code and common

law jurisdictions.55 Diplock, The Courts as Legislators 10 et seq; Nevermann, Justiz und Steuerumgehung 307 et seq; Pop-

kin, BTR 1991, 285; Hoffmann, BTR 2005, 205; McCarthy, BTR 2011, 286; Gammie, BTR 2013, 589.56 Thuronyi in Thuronyi xxviii; Jones in Maisto 31.57 Jones in Maisto 32.58 Jones in Maisto 32.59 Thuronyi, Comparative Tax Law 9. Thuronyi also adds the US as a third country. However, it should

be noted that the US does not employ a GAAR. See therefore Menuchin/Brauner in Lang/Rust/Schuch/Staringer/Owens/Pistone 763 with further references; Avi-Yonah/Pichhadze, SSRN, 4. How-ever, it should at least be noted that on March 30, 2010 President Obama signed the Health Care andEducation Reconciliation Act which includes a provision (Sec 1409) that codified the so called eco-nomic substance doctrine in Sec 7701(o) Internal Revenue Code.

60 Thuronyi, Comparative Tax Law 9.61 Thuronyi, Comparative Tax Law 9.


A. Introduction


1995 ‘invited’ future generations of lawyers to carry out comparative research inthe field of tax avoidance.62 The author gladly accepts this invitation.A comparison of the German, UK and EU GAAR is also interesting if one consid-ers the fact that Germany has a long-lasting history with its GAAR (its roots canbe traced back to the year 1919). The UK and the EU GAAR, on the other hand,were only introduced or recommended quite recently in a ‘BEPS-world’. How-ever, the topic of tax-avoidance is not entirely new in the UK or the EU. On thecontrary, the UK has a long-lasting history of judicially developed anti-avoidanceconcepts. Similarly, the ECJ has also been alluding to abuse and abusive practicesin its rulings for more than thirty years. Nonetheless, there are yet no cases whichare decided on grounds of the UK GAAR. With respect to the EU GAAR, its prac-tical importance should not be underestimated. Although it merely has the statusof a recommendation, several Member States already adopted a GAAR into theirtax code which is similar to the EU GAAR.63 The EU GAAR, in turn, can be foundin similar terms in legislative amendments made to secondary union law (e.g. theamendment made to the Parent-Subsidiary Directive).64 Furthermore, it will behighly interesting from a comparative point of view to examine thesimilaritiesand differences between the various legal families and to analyse what one juris-diction might learn from the experiences made in another jurisdiction.It can safely be said that there is barely a topic in tax law that has been more con-troversially discussed than that of tax avoidance. The developments in a BEPS-world show that these discussions will very likely continue. This study aims atcontributing to these discussions by entering new lands and by comparing thefundamental issues underlying the phenomenon of tax avoidance in Germany,the UK and the EU. Comparing statutory GAARs as well as the judicial ap-proaches towards tax avoidance is not only important for scholars or practition-ers but also for the legal culture. Eventually, this study aims at answering the fol-lowing research question:What is the value of the GAARs as implemented in the German and UK tax sys-tem and as suggested by the European Commission in terms of their effectivenessto counteract tax avoidance when compared with the judicially developed ap-proaches against tax avoidance and their compatibility with the principles of a so-phisticated legal culture?

62 Gassner in Cagianut/Vallender 89 writes: “[D]ie europäische Integration eröffnet eine weitere Dimen-sion meines Themas, nämlich die wirtschaftliche Betrachtungsweise und den Gestaltungsmissbrauchim Gemeinschaftsrecht, die über den deutschen Steuerrechtskreis hinaus eine rechtsvergleichende Be-trachtung der diversen europäischen Steuerrechtsordnungen notwendig macht: eine Aufgabe für vieleJuristengenerationen mehr als jene, die sich bisher in der Schweiz, in der BRD und in Österreich diesemThema aus der Sicht ihrer jeweiligen Rechtsordnung gewidmet haben!”.

63 Greece and Italy. Poland is currently considering implementing a GAAR patterned after the EUGAAR. See also below section C.2.3.2.3.

64 Regarding the Member States’ approach in implementing the Parent-Subsidiary-Directive, see alsobelow section C.2.3.2.4.


5. Structure of the study


5. Structure of the studyThis study is divided into three main sections: Section B lays the ground for thefurther analysis. It will deal with the approaches against tax avoidance as devel-oped by German, UK and European courts. This is crucial, as a GAAR can only beproperly understood and valuated if one also understands the judicially devel-oped anti-avoidance concepts.

Accordingly, section C will comprehensively deal with the statutory GAARs. Indoing so, the GAARs will be compared on the basis of their conditions for appli-cation. Irrespective of their different drafting style and their distinct historicalbackground, it is nonetheless observable that the respective GAARs pursue simi-lar ideas and have a similar core understanding. Accordingly, the comparison willbe structured along the various elements of the GAARs. Each GAAR askswhether an “arrangement” triggers a “tax” that is covered by the GAAR. Addi-tionally, each GAAR employs objective and subjective tests, requires the findingof a tax advantage and provides for measures to counteract the abusive results.

Eventually, section D is aimed at thinking this topic through to the end. After all,the value of a statutory anti-avoidance rule (i.e. the GAAR) can only be carved outwhen it is compared with the already existing judicial approaches against avoid-ance. Accordingly, the section will first of all compare the judicially developedanti-avoidance doctrines. A proper comparison will thereby emanate from theidea that the judicially developed approaches against tax avoidance in Germanyand the UK had a common starting point. Analysing and putting together the ju-risprudence of approximately 100 years on issues involving tax avoidance, thissection aims at identifying and explaining similarities, differences as well as theconsequences of the courts’ approach against tax avoidance. This analysis willthereby also bring the EU law developments into play. Eventually, section D aimsat putting the judicially developed approaches in relation with the statutoryGAARs. In doing so, the reasons for introducing (or suggesting) GAARs becomevisible. As a result, this will enable the author to draw a conclusion concerning thevalue of the GAARs as implemented by Germany and the UK and as suggested bythe Commission.



B. Judicial anti-avoidance

1. IntroductionThis first main section is devoted to an analysis of the judicial anti-avoidance ap-proaches as pursued by German, UK and European courts. This section willthereby lay the ground for the remaining two main sections. Key aspect of thisfirst main section thereby lies in the task of analysing how courts dealt (and deal)with issues involving tax avoidance. This is because an understanding of the judi-cially developed approaches in matters concerning tax avoidance is crucial: AGAAR can only be properly understood if one also understands the judicially de-veloped anti-avoidance concepts. Furthermore, an understanding of the judi-cially developed approaches to counteract abuse will also shed a light on the valueof GAARs.As a preliminary remark, it needs to be asked where the case law in matters of taxavoidance begins and where it ends. Bearing in mind that “tax avoidance” and“tax mitigation” are merely labels for a problem that involves having to ascertainthe scope of a provision, there will be an endless amount of cases that could be po-tentially examined. After all, whenever a court denies the deduction of expensesor deems a flow of income to be taxable or interprets a provision included in a Di-rective, it will typically do so without even mentioning the expressions “tax avoid-ance” or “tax mitigation”. These cases are then ‘merely’ ones where courts estab-lish the scope of the respective (tax) provision. However, there will also be ‘bor-derline cases’, i.e. cases that involve arrangements that courts believe to showsome specific characteristics which can be used to distinguish them from ‘genu-ine’ transactions. This is where tax avoidance comes into play.The cases dealt with in the following subsections tend to be such ‘borderline cases’.They have been selected because they openly discuss the issue of tax avoidance. Asfar as this is possible, the author decided to only deal with decisions issued by thehighest courts of each legal family, i.e. the BFH (which will in the further course bereferred to as “Federal Fiscal Court”), the House of Lords (from September 2009the UKSC, i.e. the United Kingdom Supreme Court) and the ECJ.In order to better understand the rationale behind the cases dealt with in thisstudy, it should also be mentioned that the style of the judgments given by judgessitting in courts in Germany, the UK and the EU deviates quite substantially.Roughly speaking, decisions issued by courts in the UK tend to be very lengthy interms of the amount of words used. This is partly owed to the fact that the Law


2. Judicial anti-avoidance in Germany


Lords (from September 2009 UKSC Justices) often gave (or give) separatespeeches as they decide cases by a simple majority. This is different from the deci-sions passed by the Federal Fiscal Court or the ECJ, which pass one uniform deci-sion. Accordingly, the decisions passed by the House of Lords (UKSC) are some-how comparable with the Opinions delivered by the Advocate Generals at theECJ or with (partly) dissenting opinions given by judges sitting in the ECHR. An-other factor that needs to be borne in mind is that judges in the UK have to oper-ate within a very complex tax system. This is owed to the fact that a ‘typical’ UKtax statute is very detailed in nature, being rule based rather than building onprinciples.65 A ‘typical’ German tax statute, in turn, tends to build on principlesand tends to be drafted in an open-ended way.66 Also the ECJ typically works in alegal environment with principle-based statutes (above all, the fundamental free-doms).

2. Judicial anti-avoidance in Germany2.1. IntroductionThe origins of the German GAAR can be traced back to the early 20th century.Section B.2.2. illustrates that the traditional view in those days was that civil lawprevails over tax law and that tax law is naturally connected with criminal law.Consequently, taxing statutes were interpreted literally and formally. SectionB.2.3. then explains that this condition needed to change drastically. In order toovercome the aftermaths of the First World War, the legislator had to enact a ma-jor tax reform to raise more revenue. In the end, nothing was as it was before.Law-making bodies were replaced, new courts were established and a new tax sys-tem was introduced. In this context, the legislator also introduced a GAAR andthe concept of the so called “economic perspective” (“wirtschaftliche Betrachtungs-weise”).67 Eventually, the tax reform was successful. Abuse was typically dealt withusing methods of interpretation. The GAAR did not play an important role in theearly years of its existence.

65 Freedman in Lang/Rust/Schuch/Staringer/Owens/Pistone 745.66 Thuronyi, Comparative Tax Law 18.67 The author admits that it is difficult to translate the expression “wirtschaftliche Betrachtungsweise”

into the English language without losing content. Thuronyi, Comparative Tax Law 147 tried to trans-late the expression with “economic construction”. However, this translation might suggest to a com-mon law (tax) lawyer that the concept of the “wirtschaftliche Betrachtungsweise” is a separate methodof statutory construction. However, this is what it is not. Rather, it is merely a form of teleological in-terpretation (which could be again confused with the expression “purposive interpretation”, as typi-cally used by a common law lawyer). The “wirtschaftliche Betrachtungsweise” being a form of teleo-logical interpretation, it can also not be translated with “substance-over-form approach” (see in thisrespect Gassner in Cahiers 120, 147 and below section D.2.3.4.2). Eventually, the author seeks tostrike a balance between a concept that has been given its own meaning over decades of discussionsand the language barrier by translating the expression into the English language but by adding theGerman expression in brackets.




Section B.2.4. then deals with the further developments. Hereby it will be shownthat principle-based statutes in combination with the concept of the economicperspective turned out to be a powerful tool in the fight against tax avoidance.Judges and tax authorities also started to apply the GAAR more frequently sincethe 1970s. These were also the times where scholars began to critically scrutinisethe courts’ jurisprudence from a methodological point of view. Finally, sectionB.2.5. deals with these considerations and introduces the reader into the conceptsof the so called “Innentheorie” and “Außentheorie”.68 These two theories describethe controversy with regard to the legal relevance of the GAAR. It is up to nowcontentious whether the GAAR is actually needed to counteract abuse.

2.2. The traditional view: Formal and literal interpretationThe traditional approach in interpreting tax law in Germany has its roots in thebeginnings of the 20th century. With not many taxes, charges or duties in force,the tax burden back then was rather low.69 Tax law was seen as a ‘follow-up law’ ofcivil law. There was the widely held view that civil law prevailed over tax law.70

Statutes triggering tax liability were therefore also linked to civil law.71 Courtshaving to deal with tax law oriented towards the case law employed in civil lawcases.72 Also, the then prevailing view considered tax law to be naturally con-nected with criminal law.73 As a consequence, legal terms used in taxing statuteswere interpreted literally and formally.74 Taxpayers therefore had considerableroom for manoeuvre to program the tax consequences resulting from the ar-rangements they entered into.75

Mitropa,76 a case that gained considerable recognition, illustrates this traditionalview quite vividly.77 It concerned a case where the Reich Fiscal Court (“Reichs-

68 One could try to translate Innentheorie with “inside theory” and Außentheorie with “outside theory”.However, just like the expression “wirtschaftliche Betrachtungsweise”, also these two theories cannotbe translated without losing content. However, the author believes that it is not particularly relevantfor a non-German speaker whether one speaks of Innentheorie (or inside theory) and Außentheorie(or outside theory). Accordingly, the author prefers to stick to the German expressions.

69 Bühler/Strickrodt, Allgemeines Steuerrecht 42 et seq who present a detailed list of all the taxes andlevies applicable at that time. See also Terhalle in Gerloff/Neumark/Wilhelm 278 et seq; Lütge in Lütge593 et seq.

70 Fischer in Hübschmann/Hepp/Spitaler, AO § 42 MN 2; Lion, Vierteljahresschrift für Steuer- und Fi-nanzrecht 1927, 132; Osterloh in Amatucci 87.

71 Ball, Steuerrecht und Privatrecht 63; Böckli in Höhn/Vallender 292.72 Gassner, Interpretation 17, 131 et seq; Fischer, SWI 1999, 79.73 Hensel in Krüger 231, 246, 288.74 Becker, StuW 1924, 160; Fischer in Hübschmann/Hepp/Spitaler, AO § 42 MN 2; Lion, Vierteljahress-

chrift für Steuer- und Finanzrecht 1927, 133; Gassner, Interpretation 17.75 Becker, StuW 1924, 155; Fischer in Hübschmann/Hepp/Spitaler, AO § 42 MN 3.76 RFH 16. 7. 1919, II A 142/19, RFHE 1, 126.77 Fischer in Hübschmann/Hepp/Spitaler, AO § 42 MN 1; Fischer, FR 2003, 1278; Becker/Riewald/Koch,

Reichsabgabenordnung 666; Palm in Brown 174.




finanzhof”) applied a formal way of thinking and did not consider any underlyingstatutory purpose. A stock company (“Aktiengesellschaft”) was founded in 1905.Initially, the company operated in the field of mining industry. A couple of yearslater, the shareholders changed the name of the company and relocated its seat.They also changed the company’s field of business and decided that it would en-gage in the acquisition and operation of trains. The tax authorities argued thatthese events amounted to a new foundation of a company as the companyfounded in 1905 allegedly remained to exist only for form’s sake. Accordingly,they wanted to levy a stamp duty. However, the Reich Fiscal Court argued that astamp duty will only be due according to tariff number 1 A of the Reich StampDuty Act (“Reichstempelgesetz”), where certain documents have been providedand where certain formalities have been complied with. Since these formal re-quirements were not met (there was no formal new foundation), the Reich FiscalCourt ruled that no stamp duty was due.

2.3.Major tax reform2.3.1. Adoption of the “economic perspective” and introduction

of a GAAR

The German tax system required for a drastic change due to (the end of) the FirstWorld War.78 In order to overcome the aftermaths of the war and due to the ter-rible financial situation of the State, the tax burden needed to be raised signifi-cantly.79 The legislator therefore had to dissolve tax law from civil law. It had tomake sure that tax authorities (and courts) could rely on a less formal tax system,so that they would interpret the laws more broadly. This fundamental paradigmshift towards an independent economic view was achieved through the imple-mentation of the Reich Tax Code (“Deutsche Reichsabgabenordnung”) of 13 De-cember 1919.80 This reform replaced the lawmaking bodies, established newcourts, created a sustainable, unified national tax system and brought the mainduties on a new basis.81 A modern Income Tax Act (strictly following the compre-hensive economic concept of income) and a Corporate Income Tax Act were in-troduced.82 In connection with this change, the legislature dissolved the new lawsto a great extent from civil law.83 Becker, the drafter of the Reich Tax Code, arguedthat Sections 4 and 5 Reich Tax Code would help so that the taxing statutes areapplied in touch with reality.84

78 Gassner, Interpretation 19; Beisse, StuW 1981, 4; Schön in Ault/Arnold 65.79 Bühler/Strickrodt, Allgemeines Steuerrecht 42 et seq; Terhalle in Gerloff/Neumark/Wilhelm 278 et

seq; Lütge in Lütge 593 et seq; Kruse, JbFSt 1975/76, 36.80 RGBl 1919, 1998.81 Gassner, Interpretation 18 et seq.82 Schön in Ault/Arnold 65.83 Becker, StuW 1924, 166 et seq; Gassner, Interpretation 18; Osterloh in Amatucci 87.84 Becker, StuW 1924, 147; Gassner, Interpretation 18.




Sec 4 Reich Fiscal Code contained the concept of the so called “economic perspec-tive” (“wirtschaftliche Betrachtungsweise”):85

Sec 4 Reich Fiscal CodeWhen interpreting tax legislation, its purpose, its economic significance and develop-ments in circumstances are to be taken into account.86

This short sentence laid the foundation for an unprecedented development of theGerman tax system.87 Becker, the ‘father’ of the Reich Fiscal Code was already ofthe opinion that combating tax avoidance is actually a question of statutory inter-pretation.88 Becker therefore also argued that a GAAR, i.e. “Sec 5 [Reich FiscalCode] is unnecessary”.89 However, legislative materials reveal that the members ofNational Assembly were of the opinion that a GAAR, serving as a deterrent, wasindispensable.90 Hence, it seems as if Sec 5 Reich Fiscal Code was incorporatedinto the reform for symbolical and political reasons.91

Sec 5 Reich Fiscal Code had the following wording:

Sec 5 Reich Fiscal Code(1) Where tax legislation is circumvented by abusing legal options, taxes are to be leviedin such a way as if the economic situation had been brought about in its appropriate legalstructure.92

(2) An abuse within the meaning of para 1 is given1. in cases, where the law subjects economic activities, facts and measures in their appro-priate legal structuring to a tax, though for tax avoidance an inappropriate, unusual legalform has been chosen or legal arrangements have been carried out, and2. given the circumstances and the kind of how it is proceeded or how it should be pro-ceeded, all the involved actors economically achieve essentially the same outcome whichwould have been achieved had a legal structure appropriate to the economic activities,facts and measures been chosen, and further

85 “Wirtschaftliche Betrachtungsweise” is a civil law concept similar to the common law concept of “sub-stance-over-form”. See also Gassner in Cahiers 120, 147 and see also below section D.2.3.4. wherethese two concepts are compared by way of giving examples.

86 Sec 4 Reich Fiscal Code: “Bei der Auslegung der Steuergesetze sind ihr Zweck, ihre wirtschaftliche Be-deutung und die Entwicklung der Verhältnisse zu berücksichtigen”.

87 Nevermann, Justiz und Steuerumgehung 229.88 Becker, StuW 1924, 154; Becker, StuW 1924, 441 et seq; see also Ball, Steuerrecht und Privatrecht 130

et seq, 151; Kruse, JbFSt 1975/76, 37 et seq; Fischer in Hübschmann/Hepp/Spitaler, AO § 42 MN 2.89 Becker, StuW 1924, 154 (“[…] ich persönlich hielte den § 5 [RAO] für entbehrlich”); Becker, StuW

1924, 441; Fischer in Hübschmann/Hepp/Spitaler, AO § 42 MN 2.90 Becker/Riewald/Koch, Reichsabgabenordnung 666; Fischer in Hübschmann/Hepp/Spitaler, AO § 42

MN 1.91 Schenke, Rechtsfindung 410 who derives from the legislative materials that the inclusion was largely

influenced by a personal intervention made by Matthias Erzberger (he was a German politician andReich Minister of Finance from 1919 to 1920).

92 Sec 5 (1) Reich Fiscal Code: “Wird ein gesetzlicher Tatbestand zur Umgehung eines Steuergesetzes unterMissbrauch von Rechtsgestaltungsmöglichkeiten vermieden, so sind die Steuern so zu erheben, als ob diewirtschaftliche Lage in der ihr angemessenen rechtlichen Gestaltung herbeigeführt worden wäre”.




3. possible legal disadvantages that the chosen legal structure brings with it, actually haveno or only little importance.93

2.3.2. Consequences of the reform2.3.2.1. Counteracting abuse using the GAAR

In the early years of its existence, the GAAR seems to have played an unimportantrole in counteracting abuse. Hensel pointed out that the the Reich Fiscal Court onlyapplied the GAAR seven times in the first three years of its existence.94 As if that werenot enough, Hensel also illustrated that five out of these seven cases could have beenencountered without having to invoke the GAAR:95 Apparently, three cases were re-lated with land transfer taxes and should have been counteracted by making use of aSAAR included in the Land Transfer Tax Act (“Grunderwerbsteuergesetz”) or byholding that the transactions were sham.96 Two cases had, according to Hensel, beenwrongly decided: One case was actually a sham transaction and the other one was notabusive and hence, should not have been covered by Sec 5 Reich Fiscal Code.97

There remain two cases where the tax would not have been due, hadn’t the Reich Fis-cal Court invoked the GAAR. One case concerned a hidden distribution of profitsvia an interposed corporation.98 The rejection of the so called “GmbH & Co KG”99 is

93 Sec 5 (2) Reich Fiscal Code: “Ein Missbrauch im Sinne des Abs. 1 liegt vor 1. in Fällen, wo das Gesetz wirtschaftliche Vorgänge, Tatsachen und Verhältnisse in der ihnen entspre-chenden rechtlichen Gestaltung einer Steuer unterwirft, zur Umgehung der Steuer ihnen nicht entspre-chende, ungewöhnliche Rechtsformen gewählt oder Rechtsgeschäfte vorgenommen werden, und2. nach Lage der Verhältnisse und nach der Art, wie verfahren wird oder verfahren werden soll,wirtschaftlich für die Beteiligten im wesentlichen derselbe Erfolg erzielt wird, der erzielt wäre, wenneine den wirtschaftlichen Vorgängen, Tatsachen und Verhältnissen entsprechende rechtliche Ge-staltung gewählt wäre, und ferner3. etwaige Rechtsnachteile, die der gewählte Weg mit sich bringt, tatsächlich keine oder nur geringe Be-deutung haben”.

94 Hensel in Krüger 282. In RFH 16. 7. 1920, II A 187/20, RFHE 3, 212, the Reich Fiscal Court claimedthat Sec 5 Reich Fiscal Code cannot be applied retroactively for claims that have become due alreadybefore the reform came into force.

95 Hensel in Krüger 283. 96 In RFH 26. 4. 1921, II A 412/20, RFHE 5, 247, the court claimed that the obligation of having to pay

property transfer tax cannot be based on Sec 3, 6 and 7 Land Transfer Tax Act “Grunderwerbsteuer”,but possibly on Sec 5 Reich Fiscal Code. In RFH 24. 6. 1921, II A 64/21, RFHE 6, 118 the court heldthat the tax might be due for two reasons: either there is a sham transaction or Sec 5 Reich FiscalCode is used. In RFH 13. 12. 1922, VI A 155/21, RFHE 11, 112 the court held that Sec 5 Reich FiscalCode cannot be applied for the benefit of the taxpayer when the taxpayer made a mistake and did notachieve the intended result of circumventing the law.

97 RFH 7. 2. 1922, V A 266/21, RFHE 8, 163; RFH 26. 9. 1922, V A 373/22, RFHE 10, 205.98 RFH 12. 11. 1920, I A 36/20, RFHE 4, 113.99 There are basically two forms of partnerships in Germany: the OG (“Offene Gesellschaft”) and the KG

(“Kommanditgesellschaft”). In the OG, all partners are fully liable for the partnership's debts, whereasin the KG there are general partners with unlimited liability (“Komplementär”) and limited partnerswhose liability is restricted to their fixed contributions to the partnership (“Kommanditisten”). TheGmbH & Co KG tries to combine the advantages of a partnership with those of the limited liability ofa corporation (“Gesellschaft mit beschränkter Haftung”). In order to do so, the sole general partner isa limited liability company and the limited partner is the natural person.




the other example:100 A taxpayer wanted to create a company by combining twodifferent legal forms of companies. With the help of Sec 5 Reich Fiscal Code, theReich Fiscal Court argued that the combination of the advantages of a partner-ship with those of the limited liability of a corporation is “unusual” and only cho-sen for tax avoidance purposes. The Reich Fiscal Court also held that the struc-ture had no commercial sense apart from saving taxes. However, taxpayers stillkept combining those two legal forms and became more creative in finding argu-ments supporting the commercial justification of this legal form.101 Soon the us-age of a “GmbH & Co KG” was ‘established practice’ and hence, no longer “unu-sual”. Accordingly, the Reich Fiscal Court changed its case law and held that theimplementation of a “GmbH & Co KG” was no longer abusive.102

Sec 5 Reich Fiscal Code has also almost not been used by the Reich Fiscal Courtafter Hensel’s publication in 1923. Eventually, there was another case dealing withthe “GmbH & Co KG”103 and a case where the Reich Fiscal Court held that Sec 5Reich Fiscal Code might be used in exceptional cases, where all the elements ofthe provision are fulfilled.104 In a third case, the Reich Fiscal Court held that theapplication Sec 5 Reich Fiscal Code is not unconditional and that taxpayers donot necessarily have to go the route that is most beneficial for the revenue.105

2.3.2.2. Counteracting abuse by way of interpretation (and other means)

The vast majority of cases dealing with abuse were decided in light of Sec 4 ReichFiscal Code. Of fundamental importance was the “imprecise, but functioning”concept of the economic perspective (“wirtschaftliche Betrachtungsweise”).106 Es-sentially, the finding of abuse has thereby been made a question of interpretation.Numerous cases aptly show that the Reich Fiscal Court made use of the wholerange of available techniques of interpretation, when dealing with tax cases.107 Inmost cases, the Reich Fiscal Court focused on a teleological interpretation of therespective statutes:

“According to Sec 4 AO, a provision may only be interpreted under consideration of itspurpose.”108

100 RFH 30. 6. 1922, II A 132/22, RFHE 10, 65. See also Hensel in Krüger 283; Nevermann, Justiz undSteuerumgehung 239 et seq.

101 Walz, Steuergerechtigkeit 323 et seq.102 Beginning with RFH 13. 3. 1929, I A 174-176/28, RStBl 1929, 329 and eventually with RFH 18. 2.

1933, I A 422/30, RStBl 1933, 375. See also Hofbauer, Die GmbH & Co. KG 18; Walz, Steuergerech-tigkeit 323 et seq; Nevermann, Justiz und Steuerumgehung 239.

103 RFH 24. 2. 1927, I B 83/26, RFHE 21, 92.104 RFH 15. 7. 1925, I A 24/25, RFHE 17, 109.105 RFH 3. 12. 1925, VI e A 188/24, RFHE 16, 15.106 Walz, Steuergerechtigkeit 214, 223; Nevermann, Justiz und Steuerumgehung 235.107 For an overview see Crezelius, Steuerrechtliche Rechtsanwendung 43 et seq.108 RFH 13. 3. 1925, II A 134/25, RFHE 16, 25: “Eine Vorschrift darf gemäß § 4 AO nur unter Berücksich-

tigung ihres Zweckes ausgelegt werden”.




“The legislator's clear intention was directed at the taxation of the income […].”109

Sometimes the court found, on a teleological interpretation of the respective pro-vision, that the wording of a law is decisive.110 Additionally, the Reich Fiscal Courtalso tried to carefully distinguish teleological interpretation from, e.g. historicalmeans of interpretation:

“In case of a doubtful wording, the interpretation of a legal provision also has to considerits historical development.”111

Sometimes, the Reich Fiscal Court claimed to even go “beyond the clear wording”of a statute just to find in a next step that the “purpose” of the law “requires an in-terpretation divergent from the clear wording”.112 The court also explicitly statedthat legislative gaps are to be closed via the mechanism of analogy,113 even to thedetriment of the taxpayer.114

However, the latter mentioned cases must be distinguished from cases where theReich Fiscal Court went beyond the boundaries of interpretation. Sometimes, thecourt even admitted that it went into the sphere of the legislator. In a case decided

109 RFH 4. 11. 1921, I A 89/21, RFHE 7, 159: “Die klare Absicht des Gesetzgebers war also auf die steuerli-che Erfassung auch der Bezüge […] gerichtet […]”.

110 RFH 5. 6. 1925, I B 20/25, RFHE 17, 142: “Ist der Wortlaut des Gesetzes eindeutig und steht fest, daßder Gesetzgeber den nach diesem Wortlaut normierten Rechtszustand tatsächlich vorschreiben wollte,darf der dem Gesetz unterworfene Richter die Rechtsnorm nicht in einem Sinne anwenden, der mitihrem Wortlaut nicht vereinbar ist, und an die Stelle der Regel, welche der Gesetzgeber, wenn auch viel-leicht aus mangelhafter Erkenntnis der Verhältnisse, aufgestellt hat, eine andere Regel, und zwar die-jenige setzen, welche der Richter als Norm aufgestellt hätte, wenn er zum Gesetzgeber berufen gewesenwäre”.

111 RFH 28. 6. 1933, IV A 203/32, RFHE 33, 343: “Bei zweifelhaftem Wortlaut ist für die Auslegung einerGesetzesvorschrift auch auf deren Entstehungsgeschichte Rücksicht zu nehmen”.

112 RFH 24. 2. 1925, I A 96/24, RFHE 16, 64: “Gleichwohl würde der Senat keine Bedenken tragen, auchgegenüber dem klaren Wortlaut dem Zwecke und der wirtschaftlichen Bedeutung des Gesetzes Geltungzu verschaffen, wenn diese erkennbar eine vom an sich klaren Wortlaut abweichende Auslegung ver-langen”.

113 RFH 7. 1. 1921, I D 3/20, RFHE 4, 243: “Hier liegt eine Lücke des Gesetzes vor, die nicht im Wege einerAuslegung des gesetzten Rechtes, sondern im Wege freier Fortbildung des Rechtes durch die Rechtspre-chung auszufüllen sein wird”.

114 RFH 23. 6. 1921, I D 1/21, RFHE 6, 292: “Wenn nun auch die Rechtsprechung bei Anwendung derSteuergesetze nicht nur auf Auslegung des gesetzten Rechtes beschränkt, sondern auch dazu berufen ist,vorhandene Lücken des Gesetzes im Wege freier Fortbildung des gesetzten Rechtes auszufüllen, so fin-det diese Aufgabe doch ihre Begrenzung darin, daß es sich eben um Ausfüllung von Lücken des Gesetzeshandeln muß. Soweit in Frage steht, ob ein bestimmter Tatbestand eine Steuerpflicht auslösen soll,kann die Ausfüllung einer Lücke des Gesetzes nur dann in Frage kommen, wenn der Gesetzgeber dieSteuerpflicht für den Tatbestand selbst angeordnet, aber diesen sie bedingenden Tatbestand nicht völliggenau umschrieben hat. Nicht dagegen darf der Richter einen anderen Tatbestand, der nach seiner An-sicht möglicherweise den Gesetzgeber hätte veranlassen können, die gleiche Steuer auch auf diesen Fallzu erstrecken, der Steuerpflicht unterwerfen. Das würde auf eine materielle Abänderung des geltendenRechts, nicht mehr auf bloße Ergänzung durch Ausfüllung einer Lücke hinauskommen, und solche Ge-setzesänderung ist jedenfalls bezüglich der grundlegenden Frage, auf welche Tatbestände die Steuerpfli-cht erstreckt werden soll, dem Gesetzgeber allein vorzubehalten”.




in 1929, the judges found it “unfortunate” that they had to “take over the compe-tencies of the legislator” in “cases of emergency” and that they had to go “beyondthe clear wording of a provision” where “the sense of justice mandatorily required adifferent solution.”115 It was no rarity that judges based their decisions on groundsof their own sense of justice.116 Cases like these reveal that the jurisprudencesometimes overstepped the mark.117 Hensel pointed out that the courts were fre-quently trying to compensate the legislator’s defective work by applying a “correc-tive” interpretation. In doing so, they were rather following a public sense of jus-tice or equity than accepting the badly drafted laws and hoping that the legislatorwould fix the problems.118

Also subject to criticism was the so called “typecasting approach” (“typisierendeBetrachtungsweise”).119 Under this approach, the Reich Fiscal Court did not haveto take into account the specific facts of a case but could simply impose taxes on afictitious fact pattern that would “typically” have happened.120 Those lines of caseswere therefore largely based on what judges found to be a reasonable, typicalcourse of action.121 The Reich Fiscal Court also found that there was no such prin-ciple as “in dubio contra fiscum” and held that the empire's budgetary plight andthe financial needs are legitimate aspects that must be taken into account by thecourt in the interpretation of a fiscal emergency ordinance.122

115 RFH 17. 10. 1929, I A a 35/29, RFHE 26, 55: “Der Reichsfinanzhof verkennt nicht die Notwendigkeit,auch gegenüber dem klaren Wortlaut einer einzelnen Gesetzesstelle eine Auslegung zu wählen, die demGrundgedanken des ganzen Gesetzes Rechnung trägt und eine vernünftige Entscheidung ermöglicht.Unter weiteren Gesichtspunkten bleibt es aber immer mißlich, wenn die Rechtsprechung die Befugnisseder Gesetzgebung gegen den Gesetzgeber übernimmt. Jedenfalls sollten solche Fälle nur Notfälle blei-ben. Um den Gesetzeswortlaut beiseite zu schieben, darf es nicht schon genügen, daß seit Erlaß des Ge-setzes ein Problem tiefer erfaßt ist und man nun eine bessere Lösung weiß; es muss vielmehr das Re-chtsempfinden zwingend die andere Lösung erfordern”.

116 RFH 4. 6. 1930, VI A 852/28, RFHE 27, 67: “Es wäre nach der Auffassung des Senats verkehrt undwürde der Bedeutung der höchstgerichtlichen Rechtsprechung für eine vernünftige Weiterentwicklungdes Rechts nicht entsprechen, wenn man einen für richtig erkannten leitenden Grundsatz allein deshalbaufgeben würde, weil man sonst in einem untergeordneten Punkte zu einem Gegensatz mit dem klarenWortlaut des Gesetzes käme. Man wird vielmehr in einem solchen Falle zu versuchen haben, der Geset-zesvorschrift, die einer Durchführung des für richtig erkannten Grundsatzes im Wege steht, eine gege-benenfalls auch dem Wortlaut entgegenstehende Auslegung zu geben, die eine Anpassung undEingliederung der Einzelbestimmung in den Rahmen des Gesetzes zuläßt”.

117 Hensel in Krüger 243; Lion, Vierteljahresschrift für Steuer- und Finanzrecht 1927, 184; Lion, StuW1931, 615; Gassner, Interpretation 20; Walz, Steuergerechtigkeit 223; Crezelius, Steuerrechtliche Re-chtsanwendung 232 et seq; Tipke, Steuerrechtsordnung I 205.

118 Hensel in Krüger 244.119 Lion, StuW 1931, 630; Gassner, Interpretation 70; Crezelius, Steuerrechtliche Rechtsanwendung 217.120 Lion, StuW 1931, 629 et seq.121 Lion, StuW 1931, 629; Gassner, Interpretation 61 et seq; Crezelius, Steuerrechtliche Rechtsanwend-

ung 209 et seq; Nevermann, Justiz und Steuerumgehung 236. For an example, see RFH 7. 5. 1930, VIA 67/30, RFHE 27, 22.

122 RFH 25. 3. 1931, VI A 627/31, RFHE 28, 197.


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