A quest to identify
abusive tax avoidance and differentiate it from legitimate tax planning is very
challenging. The Court of Justice of the European Union (CJEU) is one of the
main actors in the jurisprudential arena that regularly contributes to
developing the concept of abuse by sketching its contours through general
principles of EU law with that of the prohibition of abuse of rights (Prohibition
of Abuse) at the forefront. While applying it, since 2007 and in the Test
Claimants case, the CJEU relied on a determination of transitions on an arm’s
length basis as one of important objective factors for identifying abusive tax
avoidance or concluding its lack thereof in transactions subject to the arm’s
length test. Since 2021 and the Lexel case, there could be an impression that
arm’s length transactions can never be considered abusive. However, since 2024
and the X BV case, the CJEU has provided information that has nuanced this
situation. It is clear that the conclusive test for the existence of abuse
under EU law requires demonstrating a lack of valid commercial reasons. This
article focuses on that complex and dynamic interplay between arm’s length and
Prohibition of Abuse with in-depth analysis of comparative elements.