The general anti-abuse rule in Estonian tax law: stretching the limits of the principle of legal certainty

Since 2019, income tax abuse cases in Estonia have been addressed under Section 5¹ of the Income Tax Act (Estonia) 2019, which introduced a general anti-abuse rule (iGAAR). Unlike its predecessor, the new rule has become infamous for its ambiguous wording, which allows the arrangements to be disregarded and provides considerable latitude in their treatment. It introduces an understanding of taxation based on the taxpayer’s intent and moves away from the principle of taxation depending on economic substance corresponding to the legal form. The authors argue that the new iGAAR may fall short of the minimum threshold set by the Estonian Constitution for the legal clarity of a legal norm. The analysis identifies several characteristics of iGAAR that indicate that it may indeed face such a problem.