Other Civil Doctrines - Income Tax - Ready Reckoner - Income Tax

Other Civil Doctrines Courts in many countries have tended to apply civil law doctrines to control general tax abuse. The main civil law doctrines used are: Abuse of Right ( Abus de Droit ) Several jurisdictions apply the form and purpose rules of abuse of right doctrine under Civil Law (Example: Austria, France etc). The abuse of right is the manipulation of the intention or spirit of the law. Courts typically disregard the legal form where transactions are solely undertaken to avoid tax. Abuse of Law ( Fraus Legis ) Many civil law countries apply the Roman law doctrine of fraus legis. A good example is The Netherlands. Fraus legis resembles the business purpose rule. Under this, the Court disregards any transaction entered for tax avoidance purposes and substitutes it by a normal transaction. Doctrine of Simulation Certain civil law countries, like Belgium, apply this doctrine to ensure substance over form . It arises when there is no real transaction or there is a hidden real transaction or relationship. In such cases tax authorities can disregard the simulated transaction and replace it with the real one. This principle resembles the sham transaction or doctrine of wrong label. Examples of simulation include sale and leaseback transactions where the respective rights and obligations of the parties are not transferred in substance.