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13.1. GAAR and General Anti-Avoidance Measures

There are two general anti-avoidance provisions in Estonia:

  • The “abuse of law” principle provides that fictitious transactions shall not be taken into account for tax purposes, i.e., if a fictitious transaction is entered into in order to conceal another transaction, provisions concerning the concealed transaction apply to determine the tax liability; and
  • There is a “substance-over-form” principle, meaning that if it is evident from the content of a transaction or act that it is performed for the principal purpose of tax evasion, conditions which correspond to the actual economic content of the transaction or act will apply for tax purposes.

Effective 1 January 2019, Estonia introduced a new general anti-avoidance rule (GAAR) in line with the EU Anti-Tax Avoidance Directive (ATAD1). Under the new rules, an arrangement or a series of arrangements may be disregarded if the same were put into place for essentially obtaining a tax advantage that defeats the object or purpose of the tax law or an international agreement, and not for valid commercial reasons that reflect economic reality. Tax is levied on the amount that a resident company (or permanent establishment of a non-resident) would have received as income, or not incurred as a cost, had there been no such arrangement or series of arrangements.