Controlled foreign company (CFC) legislation : the objectives behind Articles 7 and 8 of the Anti-tax Avoidance Directive and the challenges arising within the EU context

Abstract

The hard-law status of the Anti-Tax Avoidance Directive CFC rules has made them one of the main contemporary topics discussed by tax law enthusiasts. Member States have until the 1st of January 2019 to restructure their legal systems in a manner which is compliant to the Directive; if they fail to do so, measures may be taken against them by the Commission. While for some, it is solely a matter of reforming their existing CFC rules, for others, this entails the incorporation of entirely new rules within their tax legislation. Essentially, CFC laws have the effect of reattributing deferred tax to the tax base of the controlling shareholders. Thus, they ensure that there remains a balanced allocation of taxing powers between Member States. However, notwithstanding the good intentions behind them, Member States have to face a number of hurdles in implementing them effectively. These hurdles, which amongst others include compatibility with EU fundamental freedoms, and economic double taxation, have to be treated with the outmost seriousness, as if they are overlooked, the consequences which may follow may be detrimental to the internal market. This term paper seeks to give a detailed analysis of both the aims and challenges of these rules. It aims to inform others on how effective CFC rules may be reached to eliminate aggressive tax planning, without breaching EU Primary Law. If Member States are cautious in the way they implement these rules, this may yet turn out to be one of the most remarkable achievements in EU’s fight against wholly artificial arrangements that have the sole intention of obtaining a tax law advantage.