Germany

Abstract

The civil law doctrine of abuse of law has heavily influenced the development of Germany’s anti-avoidance law. In general, the notion of equality embedded in the German Constitution, dictating that all taxpayers pay their share of taxes in accordance with ability to pay, is disrupted when taxpayers are permitted to circumvent this obligation by entering abusive arrangements. A new GAAR was adopted in 2008 in order to provide a more effective definition of tax abuse. The GAAR applies when a taxpayer selects an inappropriate legal option which leads to unintended tax consequences for either the taxpayer or a third party. Evidence of nontax reasons for the chosen business structure avoids the operation of the GAAR. Amendment of the GAAR in recent years has not resolved questions of interpretation because the language has remained unchanged in large part. There are special rules to prevent the artificial creation of losses in certain tax shelter schemes.