Tax Avoidance through Controlled Foreign Companies under European Union Law with Specific Reference to Poland

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The current developments at the level of the EU and the OECD may lead the US to shift from implicitly encouraging their MNEs to avoid taxation via EU-based CFCs through check-the-box rules, or explicitly praising US MNEs for their tax avoidance’s practices in the EU through the voice of high positioned US politician, to more robust anti-avoidance legislative actions. In other words, it seems that the collaborative approach adopted by all or the vast majority of other OECD/G20/EU Member States is conducive to effective prevention of tax avoidance within as well as outside the EU. In this case, it seems rather unlikely that the US will stand apart. I would like to recommend an approach to designing effective CFC rules that ensures their compatibility with EU law. The way I see it, taxpayers’ abusive practices within the EU can now be prevented in line with the EU law by applying CFC rules to tax the “tax avoidance income” diverted to companies established within the EU under freedom of establishment or in a country, including a third country, under the principle of free movement of capital. This would most likely make it possible to combat tax avoidance schemes as analyzed in the article. I am convinced that the proposal to tax the “tax avoidance income” in order to prevent tax avoidance allows both Member States and non-Member States to adopt a collaborative approach, which is in fact facilitated by the OECD under the BEPS Project.256 That is to say, in my view, drafting CFC rules in a way that enables them in their application to attribute and tax exclusively the “tax avoidance income” of a foreign company would make them (i) compatible with EU law; (ii) secure a high level of effectiveness in preventing tax avoidance under EU law; (iii) be applicable in exactly the same fashion by EU/EEA and non-EU/EEA member states alike; and (iv) be applicable in exactly the same fashion to companies established within and outside the EU/EEA area. All may significantly enhance the collaborative and common approach of various states across the world in preventing CFC tax avoidance.

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