© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
B1. Abuse of law
CASE LAW PRINCIPLE​
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Purely artificial arrangements, devoid of economic substance, solely for purpose of tax advantage contrary to purpose
"[49] It should be recalled that the right to deduct VAT applies regardless of the purpose and outcome of the economic activity in question, and whether or not VAT due on previous transactions involving the goods concerned has been paid to the Treasury has no bearing on that right. Furthermore, taxable persons are generally free to choose the organizational structures or transactional arrangements they deem most appropriate for their economic activities and for limiting their tax burden. The principle prohibiting abusive practices, which applies to VAT, only prohibits purely artificial arrangements, devoid of economic substance, carried out solely for the purpose of obtaining a tax advantage, the granting of which would be contrary to the objectives of the VAT Directive (Order of 3 September 2020, Vikingo FÅ‘vállalkozó, C-610/19, EU:C:2020:673, paragraph 62 and the case law cited).
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[50] It follows that EU law precludes a national practice of classifying as "an exercise not in accordance with the purpose of that right" the choice of a taxable person to carry out an economic activity in a manner which enables him to benefit from a credit scheme and of refusing, on that ground, to that taxable person the benefit of the right to deduct input VAT paid, where there is no evidence of a purely artificial arrangement, devoid of economic reality, carried out for the sole purpose, or at least with the essential purpose, of obtaining a tax advantage the granting of which would be contrary to the objectives of the VAT Directive (see, to that effect, Order of 9 January 2023, ATS 2003, C-289/22, EU:C:2023:26, paragraph 42)." (Granulines Invest C-270/24)
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- Artificially creating the conditions for obtaining advantage contrary to the objectives of the legislation
"(3) Acts which are established to have as their purpose the obtaining of an advantage contrary to the objectives of the Community law applicable in the case by artificially creating the conditions required for obtaining that advantage shall result, as the case shall be, either in failure to obtain the advantage or in its withdrawal.
(4) The measures provided for in this Article shall not be regarded as penalties." (Council Regulation 2988/95, Article 4)
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STATUTORY PRINCIPLE​
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EXAMPLES​
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Non-tax examples​
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- Choosing to qualify as a lawyer in Member State with more favourable access rules and then relying on EU directive for mutual recognition not abuse of law
"[48] In that regard, it must be held that the right of nationals of a Member State to choose, on the one hand, the Member State in which they wish to acquire their professional qualifications and, on the other, the Member State in which they intend to practise their profession is inherent in the exercise, in a single market, of the fundamental freedoms guaranteed by the Treaties (see, to that effect, the judgment in Commission v Spain, C‑286/06, EU:C:2008:586, paragraph 72).
[49] Accordingly, the fact that a national of a Member State who has obtained a university degree in that State travels to another Member State, in order to acquire there the professional qualification of lawyer, and subsequently returns to the Member State of which he is a national in order to practise the profession of lawyer under the professional title obtained in the Member State where that qualification was acquired, constitutes one of the possible situations where the objective of Directive 98/5 is achieved and cannot constitute, in itself, an abuse of the right of establishment stemming from Article 3 of Directive 98/5.
[50] Further, the fact that the national of a Member State has chosen to acquire a professional qualification in a Member State other than that in which he resides in order to benefit there from more favourable legislation is not, in itself, as stated by the Advocate General in points 91 and 92 of his Opinion, sufficient ground to conclude that there is an abuse of rights.
[51] Further, that finding cannot be called into question by the fact that the submission of the application for registration in the register of lawyers qualified abroad held by the competent authority of the host Member State took place soon after the professional title was obtained in the home Member State. As stated by the Advocate General in points 93 and 94 of his Opinion, there is no provision in Article 3 of Directive 98/5 to the effect that the registration of a lawyer wishing to practise in a Member State other than that in which he acquired his professional qualification with the competent authority of the host Member State may be subject to the condition that a period of practical experience as a lawyer in the home Member State has been completed." (Torresi C-58/13)
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