Netherlands

Abstract

The Dutch civil law system has had a GAAR since 1925 that applies to direct taxes only. It allows the tax authorities to address a circumstance in which the taxpayer claimed a tax reduction by circumventing the law to enter a transaction substantially similar to one in which another taxpayer bore a higher tax burden. A parallel rule, fraus legis, which was resurrected in the mid-1980s, has diminished reliance upon the GAAR. The taxing authority may invoke fraus legis, a type of substance over form principle that allows redetermination of tax consequences of a transaction in order to achieve the result intended by the legislature. The principle applies only if the taxpayer enters a transaction to save a substantial amount of Dutch tax. If the legislature foresaw the potential for abuse and did not alter the law, fraus legis may not be invoked. Another tactic used by the legislature is to include specific anti-avoidance rules in relevant tax provisions. These rules, also known as targeted anti-avoidance rules (TAARs), increasingly foreclose reliance upon fraus legis principles.