General anti-abuse rule

What it means

The general anti-abuse rule, GAAR, is a provision of the Tax Code. Under it the tax office disregards a legal act or series of acts whose main purpose, or one of whose main purposes, is to obtain a tax advantage contrary to the object and purpose of the law, and which are not genuine.

An arrangement is not genuine if it was not put in place for valid commercial reasons reflecting economic reality. Tax is then assessed as if the arrangement had not taken place, or as if an arrangement that would be normal without the tax advantage had taken place.

GAAR complements specific rules such as the CFC rules, transfer pricing or thin capitalisation. Those target particular schemes, while GAAR catches everything else and derives from the EU Anti-Tax Avoidance Directive.

How it works in practice

The rule does not prohibit tax planning. A company may choose the more favourable of the lawful options as long as the transaction also has another, genuine business purpose. When designing structures such as a holding or an asset transfer, we therefore record and document the business reasons.

In a tax audit the tax office examines whether the transaction had economic substance: real people, activity, risks and money. A foreign company with no staff or office through which licences or services flow is a typical candidate for a GAAR review.

Where a structure is borderline, we recommend applying for a binding ruling before implementing it. The tax office gives its view on the facts described, and the company has certainty that it will not face a different interpretation at an audit, provided reality matches the description.

What to watch out for

GAAR is broad and its application depends on the specific circumstances. A transaction that meets every condition of the law on paper can still be disregarded if tax was the only reason for structuring it that way. Signed contracts alone are not enough.

Applying GAAR does not automatically mean a crime, but it leads to back tax with interest and a penalty. If a transaction conceals false information, such as fictitious services, it is no longer abuse of law but tax evasion with criminal consequences.