The CJEU in Hornbach-Baumarkt (Case C-382/16) considers the principle of proportionality in cases where the taxpayer’s arrangements are not on arm’s length terms, but there is nonetheless a commercial reason for making them. The CJEU’s judgment is that tax rules will be proportionate where they take account of those reasons, and that the taxpayer’s characteristics are relevant to assessment of commercial purpose. This appears to be at odds with the English courts’ interpretation of this line of case law. The relevance of the ruling is not confined to arm’s length cases but will also impact on other areas where commercial purpose is concerned.
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