Amendment Tax Ordinance, which entered into force 15 July 2016 introduced the law with a "no tax avoidance clause". The concept of "avoidance of taxation" is most important for the entire clause procedure. The legislator defined them in a very precise way (Article 119a-119f Tax Ordinance).
„Avoidance of taxation’ is an activity primarily carried out in order to achieve a tax advantage contrary to the subject matter and purpose of the tax law in question, and does not result in a tax advantage if the method of action was artificial (Article 119a(1) OP).
This provision incorporates the elements of the action which the legislator understands as ‘avoidance of taxation’ and these are: ‘artificial’ mode of action, ‘action done primarily to achieve a tax advantage’, ‘tax advantage’. It is not accidental to appear in the definition of tax avoidance.
It is the result of the decisions of the Constitutional Court, which challenged the constitutional compatibility of the provisions in the wording of the previous wording, first of all accusing them of a far-reaching and imprecise nature.
The shape of this provision is also the result of similar arrangements applied in European Union legislation (e.g. Directive 2016/1164 to 12 July 2016).
The elements of the definition of ‘avoidance of taxation’ referred to above are defined in the following Articles of Chapter 1 Chapter IIIA Tax Ordinance. Under Article 119c(1) Tax Ordinance The ‘artificial’ action has been clarified.
The Act states that the mode of action is considered to be artificial if, on the basis of the existing circumstances, it must be assumed that it would not have been applied by an entity acting sensibly and in accordance with legitimate objectives other than the attainment of a tax advantage contrary to the object and purpose of the provision of the tax law.
Under Article 119c(2) Tax Ordinance examples of ways of action that can be considered artificial, e.g. unwarranted sharing of operations, involving intermediaries are included.
In contrast to these examples, it can be seen that the attempt to define the concept of "artificial" action includes further vague wording. This is a "reasonable" entity.
Similar out of focus wording provides a recipe with Article 119d Tax Ordinance. This provision clarifies the concept of an action taken primarily to achieve the asset benefit which it considers to be such that the other economic or economic objectives of the activity indicated by the taxable person are not relevant.
When examining this provision, it is difficult to state clearly what grounds the tax authority should follow by deciding that the other objectives pursued by the taxpayer when undertaking the activity are ‘small’.
When examining these vague wordings, it must be assumed that reading their meanings will only be the subject of the case law of the administrative courts. The taxpayers must be patient because it will be a long-term process combined with long-term disputes with the tax administration. Properly prepared taxpayers will be able to observe the course of events with ease.