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● State Aid / WTO● Direct taxation● VAT● Customs Duties, Excises

and other Indirect Taxes● Capital Duty

Edition 87 ● Overview 2010

EU Tax Alert

The EU Tax Alert is an e-mail newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more.To subscribe (free of charge) see: www.eutaxalert.com

European Tax Law

Overview 2010

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E U Ta x A l e r t Edition 87 ● Overview 2010 2

attorneys ● tax lawyers ● civil law notaries

• CJ ruling on compatibility of the Netherlands merger exemption with Merger Directive (Zwijnenburg)

• CJ concludes Italian tax rules on quantitative and territorial limits on deductibility of costs related to studies in non-resident university compatible with EU law (Zanotti)

• CJ considers Spanish tax on cross-border dividends incompatible with EU law (Commission v Spain)

• CJ dismisses Commission action against Portugal regarding discriminatory taxation of interest paid to non-resident financial institutions due to lack of proof (Commission v Portugal)

• CJ decides French rules regarding tax on immovable property owned by a Liechtenstein company compatible with the EEA Agreement (Établissements Rimbaud)

• CJ rules Luxembourg investment tax credit incompatible with the freedom to provide services

• Advocate General analyses compatibility of Portuguese 2005 tax amnesty legislation with EU law (Commission v Portugal)

• Advocate General holds Austrian treatment of foreign portfolio dividends partly compatible with the free movement of capital (Haribo and Salinen)

• Preliminary questions referred to CJ by the Portuguese Supreme Court on the concept of valid commercial reasons for the purpose of the anti-abuse provision under the Merger Directive (Foggia)

• Developments in the Netherlands: Amsterdam Court of Appeals refers question to the CJ for a preliminary ruling on corporate exit taxation (National Grid Indus BV)

• Preliminary ruling requested by the Hungarian Supreme Court on cross-border conversion of companies (VALE)

• Preliminary question referred to CJ on the scope of application of the abuse of rights principle in taxation matters (3 M Italia)

• Commission requests Germany to amend its anti-abuse provision on withholding tax relief

• Commission opens public consultation on double taxation problems in the EU

• Commission publishes report on removing tax obstacles to cross-border venture capital investment

Contents• Developments in 2010 regarding taxation of the

financial sector• Developments in 2010 regarding exit taxes on

companies

State Aid / WTO• CJ prevents stay of recovery order by national court

(CELF, en liquidation, and ministre de la Culture and de la Communication)

• General Court rules that State aid cannot be approved of if found to be discriminatory (British Aggregates)

• Advocate General addresses res judicata of settlement decision by national court (Commission v Slovakia)

• Commission investigates German loss carry-forward for ailing companies

• Commission approves of Finnish REIT regime

Direct taxation• EU Council publishes revised Code of Conduct for

the effective implementation of the EU Arbitration Convention on transfer pricing disputes

• ECOFIN Council reaches agreement on Directive on strengthened mutual assistance in the recovery of taxes

• EU Parliament calls for more binding tax cooperation to tackle banking secrecy and tax fraud

• EU Council publishes anti-abuse resolution on CFC and thin cap rules

• CJ finds Belgian transfer pricing rules compatible with EU law (SGI)

• CJ finds restriction by Netherlands legislation on cross-border loss relief compatible with EU law (X Holding)

• CJ considers that the Netherlands rules providing for option to be taxed as resident cannot form a justification of legislation which is incompatible with EU law (Gielen)

• CJ finds Hungarian vocational training levy incompatible with EU law (CIBA)

• CJ finds German gift tax rules incompatible with EU law (Mattner)



• CJ rules no specific timeframe applies to the transport of goods in order for the transaction to qualify as an intra-Community supply and acquisition for VAT purposes (X v Skatteverket)

• Debt collection includes services related to ‘debts’ that have not yet become due (AXA UK)

• Exemption for intra-Community supply of goods may be refused in case of fraud (R)

• CJ clarifies to which transaction the intra-Community transport should be ascribed (Euro Tyre Holding)

• Lease transactions in order to obtain a VAT financing advantage in principle do not constitute abusive practice (Weald Leasing)

• The use by a taxpayer of a disparity between the categorisation of lease transactions does not constitute abusive practice (RBS Deutschland Holdings )

• Commission refers seven Member States to the CJ over VAT grouping rules

Customs Taxes and Excise Duties• EU initials deal on bananas with Latin American

countries • EU Council adopts new directive on excise duties on

cigarettes• Green light from Trade Committee for safeguard

clause in EU-South Korea trade accord• EU and Japan agree to mutual recognition of each

other’s certified traders• WTO rules imposing duty by EU violates the

International Technology Agreement• CJ rules on infringement of EU law by not paying

customs duties payable on imports of armaments and material for civil and military use (Commission v Finland, Sweden, Germany, Italy, Greece and Denmark)

• CJ rules on the revision of an incorrect customs export declaration (Terex Equipment)

• CJ rules on the requirement of entry in the accounts of a customs debt (Direct Parcel Distribution Belgium)

• CJ rules on infringement resulting from fixed minimum retail prices for cigarettes (Commission v France, Austria and Ireland)

• CJ rules on the customs debt of seized and confiscated goods (Dansk Transport og Logistik)

• CJ rules on the limitation period of post-clearance recovery of a customs debt (Agra Srl)

• Commission sent four reasoned opinions to the Netherlands to change discriminatory tax rules

• Commission requests Germany to amend its discriminatory treatment of group companies

• Developments in Germany: Ministry of Finance issues guidance on application of CJ judgment in Deutsche Shell

• Developments in the Netherlands: Lower Court of Breda decides that Spanish investment fund is not entitled to full refund of Netherlands dividend withholding tax

• Developments in the Netherlands: Lower Court of Breda decides that Scottish pension fund is comparable to Netherlands pension fund, entitled to full refund of Netherlands dividend withholding tax and a compensation for damages

• Developments in the Netherlands: Advocate General Wattel with the Netherlands Supreme Court issues a new Opinion following the CJ judgment on X Holding

• Developments in the Netherlands: Lower Court of Haarlem decides under what circumstances Dutch dividend tax withheld for the account of a French Bank can be in breach of EU law

VAT• EU Council agrees on simplified rules for VAT invoicing • Period for applying for VAT refunds for foreign

entrepreneurs extended• CJ concludes Netherlands restrictions of the

deductibility of input VAT compatible with the VAT Directive (X Holding and Oracle Nederland)

• Fictitious intra-EU acquisition due to using VAT-number: no immediate right to deduct VAT due (X and Facet)

• Deduction of input VAT may not be refused on the basis of invoice requirements that are not listed in EU VAT law (Pannon)

• Limitation of refund of input VAT to financial services and insurance services in third countries is compatible with EU VAT law (Commission v UK)

• CJ rules provision of retail vouchers constitutes a supply of services for consideration (Astra Zeneca)

• CJ decides that deduction of input VAT may not be denied because of the fact that the taxpayer was not registered for VAT purposes at the time of the transactions (Nidera)



• CJ rules on the value of goods for customs purposes (Gaston Schul BV)

• CJ rules upon the refund arrangement in the Netherlands luxury car tax legislation (VAV)

• Secure trade and 100% scanning of containers• Punitive measures against US concerning additional

import duties for US products• New electronic system to monitor the movement of

excise goods• Commission has published a study on the minimum

rates and structures of excise duties on alcoholic beverages

Capital Duty• CJ rules on levy of Italian registration duty in case of

merely intended contribution and liability of civil law notary (Speranza)

• CJ rules levy of Spanish transfer tax on immovable property companies not at odds with Capital Duty Directive (Inmogolf)

• Preliminary questions referred to CJ on the compatibility of Italian annual duty with the Capital Duty Directive (Grillo Star Fallimento)

• Preliminary ruling request on whether capital contribution to cover estimated losses is subject to capital duty

• Commission requests Spain to abolish its transfer tax on certain contributions of capital



measures in response to the crisis. In that regard, it would be necessary to carefully assess the cumulative impacts of developing a broad set of reforms dealing with levies, deposit guarantee schemes and bank capital in order to avoid not only the increase of the cost of credit but also increased costs from being passed on to bank customers.

In addition, since the financial crisis, some countries have introduced levies on banks (or are in the process of doing so). The nature of such levies, however, varies from country to country. The Commission is of the view that a coordinated approach must be adopted in order to avoid distortions, overlaps and multiple taxation for banks which are involved in cross-border activities.

Considering the above concerns, the Commission is currently preparing a study in order to assess the possible impact of the introduction of a bank levy which should be presented in the short term.

(ii) Tax on the financial sectorThe second element under consideration in addition to the introduction of bank levies is a new taxation of the financial sector. On 7 October 2010, the Commission submitted a Communication (COM (2010) 549/5) which was accompanied by Commission’s Staff Working Document (SEC (2010) 1166/3). These documents are aimed at contributing to the debate on what should be the best alternatives to develop a taxation of the financial sector. In that regard, the Communication covered two different instruments: a Financial Transactions Tax (‘FTT’) and a Financial Activities Tax (‘FAT’).

The adoption of additional taxes on the financial sector is based on three main goals:(i) enhance the efficiency and stability of financial

markets and reduce their volatility and the harmful effects of excessive risk-taking;

(ii) ensure that the financial sector makes a fair and substantial contribution to public finances, as it is considered to bear an important responsibility for the occurrence and scale of the crisis; and

(iii) contribute to the fiscal consolidation of the aftermath crisis.

Developments in 2010 regarding taxation of the financial sectorOne of the most debated issues at EU level during the year of 2010, and which promises to continue during 2011, is the possible introduction of a new system of financial industry contributions at EU level. Already in February 2010, the EU Parliament favoured the implementation of taxation on the financial sector in order to dampen speculation and pay for the crisis. Subsequently, both the Commission and the ECOFIN Council released several Communications dealing with various developments on the subject. In general, two options have been being considered: (i) a bank levy; and (ii) tax on financial sector. The introduction of such taxation is part of one of the possible elements of a new component of the crisis management framework at EU level. This topic has already been the subject of debate at G20 summits and for that purpose, a report was prepared by the IMF which analysed some technical issues regarding the EU bank levy as well as the possibility of introducing either a financial transaction tax or a financial activities tax. More recently, the Commission itself has prepared a report on the subject.

(i) Bank levyOn 26 May 2010, the Commission presented a Communication – COM (2010) 254 – where it further developed the concept of a bank levy by setting up its major principles. The Commission considered two major aspects: (i) to reduce the probability of bank failure through stronger macro and micro-economic supervision, better corporate governance and tighter regulatory standards; and (ii) ensure that even if such failure should occur, sufficient resources would be available to achieve proper resolution. In this last regard, the establishment of resolution funds from private sector resources was viewed as an important part of this response. The underlying concept of this bank levy is the ‘polluter pays’ principle as the entities involved should pay for the costs of any future financial crisis and such contribution should aim to prevent and contain future financial crises.

It should be stressed that the ECOFIN Council, following the Commission’s concerns, had acknowledged that such levies would entail costs for banks, particularly in a period in which they are in the process of implementing additional



which takes place in financial centres but rather the remuneration and profit. Therefore, it presents fewer risks for being introduced at an EU level when compared to the FAT, as the risks of relocation are higher in the case of the FTT.

On the whole, the Commission considers that greater potential exists for a FAT at an EU level and will develop a comprehensive impact assessment of each one of the options referred to above in order to put forward proposals on policy actions in the summer of 2011.

Bruno da Silva

Developments in 2010 regarding exit taxes on companiesThe year 2010 has not yet brought a conclusive answer to one of the most intriguing and longest pending questions of European direct tax law, namely, whether or not national exit taxes on companies are compatible with the freedom of establishment under EU law. However, numerous developments took place in the past year which indicate that we are closer than ever to finally resolving a more than two-decade long uncertainty in this respect.

The uncertainty dates back to Daily Mail (Case 81/87), the first exit tax case decided by the Court of Justice (‘CJ’) in 1988. Although Daily Mail was a clear-cut exit tax case, the CJ gave its ruling with a reasoning related to company law. According to the most frequently cited paragraph of Daily Mail, ‘the Treaty regards the differences in national legislation concerning the required connecting factor and the question whether – and if so how – the registered office or real head office of a company – incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment...’ (para. 23). The Court essentially ruled that it is for the Member States to determine what conditions have to be met by companies to be incorporated in a given Member State and to be governed by the law of that Member State, as well as, the conditions under which those companies can continue to be governed by the law of their original incorporation. Consequently, it is the Member States’ national law that

It is precisely to address the three goals referred to above that several tax instruments have been analysed. In the Commission’s Communication, the focus was exclusively on assessing the impact of either the FTT or the FAT.

• FTTThe FTT is designed to tax the value of single transactions. It should have a wide coverage in order to include all financial transactions, in particular, the ones which are carried out by organized markets such as the trade of equity, bonds, derivatives, currencies, etc. The tax base is the gross transactions value. In that regard, it has a cumulative effect, as it is levied on the transactions rather than on the value added.

According to the Commission, the revenue potential and the FTT impact varies considerably in accordance with its product scope and coverage and the size of trading in a given jurisdiction. In all events and because the majority of financial transactions are conducted in a limited number of countries where trading activities are concentrated, the revenue will essentially be collected on those countries. Although the FTT does indeed have good potential for raising revenue since investors use central market places irrespective of where they are located, the Commission points out that the FTT should preferably be adopted at a global level rather than at an EU level as otherwise, there is the risk of re-location of the trading activities to other markets outside the EU.

• FATAnother alternative for the taxation of the financial sector is the FAT. The purpose of the FAT is to target specifically financial sector activities by taxing the sum of profit and remuneration of a financial institution. The FAT is not transaction-based but relies on the items of the financial statements of financial institutions. Therefore, in contrast to the FTT which taxes each financial market participant, the FAT taxes corporations. In addition, the FAT can be seen as a tax on the profits from net transactions, which is different from the FTT that is a tax on the gross transactions.

Considering its characteristics, the Commission considers that the FAT would not be concentrated geographically such as the FTT since its base it is not the trading activity



the Netherlands and Belgium with a formal request to change their respective laws on company exit taxes (EU Tax Alert edition no. 78, April 2010). At the same time, the procedure against Sweden was closed, as Sweden had amended its law to the Commission’s satisfaction. As to the other infringement procedures started in March 2010, by the end of the year the Commission brought the cases against Denmark and the Netherlands to the CJ (EU Tax Alert edition no. 86, December 2010). The year of 2010 brought similar developments, also with regard to the EFTA countries. Specifically, on 10 March 2010, the EFTA Surveillance Authority issued a letter of formal notice to Norway regarding its legislation which imposes immediate exit taxes levied on unrealized capital gains of companies that transfer their seat or assets and liabilities from Norway to other EEA States, and on unrealised capital gains on the shares of those companies. According to the EFTA Surveillance Authority, the comprehensive exit taxation on cross-border mergers and relocation of companies provided by Norwegian law, violate the freedom of establishment (Articles 31 and 34) and the free movement of capital (Article 40) under the EEA Agreement (EU Tax Alert edition no. 78, April 2010).

To demonstrate the type of national rules which are subject to these procedures and the arguments on the basis of which the Commission challenges them, it is worth looking at the case against Portugal, which is likely to be decided first by the CJ.Under the Portuguese tax legislation in force since 1 January 2006 (as from January 2010, Articles 83, 84 and 85 of the Portuguese Corporate Income Tax Code), the transfer of the seat and place of effective management of a Portuguese company to another Member State or the ceasing of activities of a permanent establishment in Portugal or the transfer of its Portuguese located assets abroad gives rise to the following consequences:• the basis of assessment for the year in which the event

takes place includes unrealized capital gains which correspond to the difference between the market value of the assets of the company at the date of the transfer and their net book value;

• shareholders are taxed by the difference between the market value of the company’s net assets at the date of the transfer and the acquisition price of the respective shareholdings.

decides which companies are actually entitled to invoke the right of establishment under EU law as legal persons falling within the personal scope of that freedom. In Cartesio (C-210/06), another landmark company law case decided at the end of 2008, the CJ reaffirmed this reasoning. Therefore, what we know now is that Member States are free to take the view, in line with the ‘real seat’ principle, that companies which are incorporated under their laws and which transfer their centre of administration to another Member State cease to exist under their jurisdiction. Thus, they may require such companies to liquidate. From a taxation point of view, liquidation entails the levy of taxes on all unrealized capital gains and reserves. Accordingly, taxing a company emigrating from a ‘real seat’ country is not in breach of the freedom of establishment. However, the question that has remained unanswered to date is whether or not a Member State that follows the incorporation principle, and thus, allows companies to transfer their centre of administration to another Member State while continuing to exist under the laws of the State of incorporation, may levy taxes on all unrealized capital gains and reserves at the time of such transfer in order to be able to tax the gains which accrued in its territory.

This question may be answered soon in view of the challenges that were launched in 2010 against the exit tax rules of several ‘incorporation’ Member States. The challenges were brought in two different front lines. First, the Commission initiated infringement procedures against several Member States on account of their company exit tax provisions. This was not unexpected, having regard to the Commission’s 2006 Communication (‘Exit taxation and the need for co-ordination of Member States’ tax policies’, COM(2006) 825 final) in which it expressed the view that the Court’s rulings on individual exit tax cases (C-9/02 De Lasteyrie du Saillant and C-470/04 N) should also apply to company exit taxes. Accordingly, already in 2008 the Commission had initiated infringement procedures against Sweden, Portugal and Spain. While Spain was referred to the CJ in November 2010 (EU Tax Alert edition no. 86, December 2010), the Portuguese case (C-38/10) has already been before the Court since the end of 2009 (EU Tax Alert edition no. 71, October 2009). The Commission extended the battle against other Member States in 2010. In March 2010, it sent reasoned opinions to Denmark,



cannot occur, however, irrespective of this, the immediate taxation at the time of the exit may well form an obstacle to the exercise of the freedom of establishment.

Finally, it has to be mentioned that further developments may also follow in 2011 with regard to the company law aspects of corporate emigration. As a follow-up to the Cartesio case, the Hungarian Supreme Court referred a question to the CJ in the VALE case (C-378/10) for a preliminary ruling, concerning the cross-border conversion of companies (EU Tax Alert edition no. 84, October 2010) from the point of view of the host State. In Cartesio, despite the final judgment, the CJ left a door open for companies to transfer their seat to another Member State without being liquidated even if the Member State of departure is a ‘real seat’ country. According to the CJ, this should be possible via cross-border conversion. Specifically, the CJ stated that the power of a Member State to define the connecting factor required of a company to be regarded as a company governed by the laws of that State ‘…cannot, …, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so’. (para. 112). Thus, the freedom of establishment does give a right to companies to cross-border conversion from the point of view of the home State. However, there is an important qualification to that, i.e. such right exists to the extent that cross-border conversion is possible under the laws of the host State. This formulation suggests that from the host State’s perspective, the decision on whether or not a Member State allows foreign companies to convert into national companies is still within the sovereignty of that Member State. As the VALE case approaches the issue from the perspective of the host State, the CJ’s answer in this case is expected to clarify a highly relevant issue still open under European company laws.

Thus, at the end of 2010, the exit tax scoreboard shows as follows: with regard to the EU one game has been won by a Member State (Sweden), four games are close to being finished (infringement cases pending before the CJ against Portugal, Spain, Denmark, the Netherlands), one game is pending in the second half (reasoned opinion sent

Considering that the taxation of the unrealised capital gains occurs only in the cases where the company transfers its registered office and place of effective management out of the Portuguese territory or when it transfers assets to another Member State (and not where the transfers occur within the Portuguese territory or the assets remain connected to a permanent establishment in Portugal), the Commission maintains that such provisions are in breach of the freedom of establishment set forth in Article 49 TFEU.According to the Commission, the possible justifications to be pointed out by Portugal for charging taxes on the exit of companies to other Member States do not comply with the principle of proportionality as interpreted by the CJ:• in regard to the need to ensure the rights of certain

persons (notably creditors, minority shareholders and tax authorities), the Commission considers that Portugal could determine the value of the unrealised capital gains which it seeks to keep within its fiscal sovereignty, but that should not lead to immediate tax payment nor to any other conditions related to the deferral of such payment;

• regarding the objective to ensure the effective fiscal supervision and combat tax avoidance, the Commission is of the view that such objectives are legitimate but can be pursued by less restrictive means using Council Directive 77/799/EEC of 19 December 1977, concerning mutual assistance by the competent authorities of the Member States in the area of direct taxation (the ‘Mutual Assistance Directive’) and the Recovery Claims Directive, recently amended further to the approval of the EU Council of 16 March 2010.

On the second front line, besides the Commission, a national court also raised doubts about the compatibility of company exit taxes with EU law. In particular, on 15 July 2010, the Amsterdam Court of Appeals referred a question to the CJ for a preliminary ruling on the exit taxation on companies in case of a transfer of their place of effective management to another Member State under Netherlands law (EU Tax Alert edition no. 82, August 2010). The specificity of this case is that it concerns the levying of exit tax on unrealized foreign exchange currency (FX) gains which, by definition, can only be taxed in the Member State where such gains appear in the books of the company. Thus, with regard to FX gains, double taxation problems



an environmental tax (‘aggregates levy’) imposed in Great Britain. On 9 September 2010, the General Court – the CFI’s successor – gave its new ruling (T-359/04).

It first pointed out that while the State aid provisions of the (then) EC Treaty leave a margin of discretion to the Commission in order to assess the compatibility of aid, it cannot declare aid compatible that violates specific obligations arising from other Treaty provisions. In this particular case, the (former) Articles 23 and 25 EC – prohibiting measures equivalent to customs duties – and Article 90 EC – on discriminatory internal taxation on trade – were invoked because Irish imports would be taxed in full, unlike products transported to the United Kingdom from Northern Ireland. The Court pointed out that the Treaty does not allow for the approval of aid in the form of tax discrimination in respect of products originating from another EU Member State. Given that the Commission did not examine the issue of tax discrimination and the possible violation of aforementioned provisions, the Court found that the Commission was not entitled to adopt a decision of no objection. As a result, the Commission will now probably decide to first open a full, formal investigation prior to deciding on the issue.

Advocate General addresses res judicata of settlement decision by national court (Commission v Slovakia)In his Opinion of 9 September 2010, Advocate General Cruz Villalón advised the CJ to set aside a Slovakian Regional Court decision disallowing the recovery of State aid after an amount of tax equivalent to EUR 11 Million (out of 16) had to be written off after the court approved a settlement agreement reached with creditors. The Commission ruled that State aid had been granted by the tax authorities given that it had a privileged position compared to private creditors and thus favoured Frumona, the debtor, by agreeing to the settlement with the other creditors. While the Commission’s June 2006 decision was appealed by Frumona, the tax office brought an action before the district court and – later – the regional court in order to ensure recovery.

This action was dismissed, because the previous court decision approving the settlement had the force of res judicata. The district court also pointed out that the

to Belgium), one game has been suspended (preliminary ruling request referred from a Netherlands court to the CJ), while as regards the EFTA countries, one game is pending in the first half (letter of formal notice to Norway). Inevitably, in 2011, we will have an answer from the CJ as to the status of company exit taxes under EU law. However, it is likely that finding a definite and conclusive solution to the exit tax puzzle which satisfies the interest of both the internal market and the Member States will be a quest for the long-term future.

Rita Szudoczky

State Aid / WTOCJ prevents stay of recovery order by national court (CELF, en liquidation, and ministre de la Culture and de la Communication)In its decision in the CELF case (C-1/09) of 11 March 2010, the Court of Justice of the European Union (‘CJ’) stated that the Court of First Instance’s (‘CFI’) annulment of a previous positive decision by the Commission does not allow a national court to stay its own decision on potential recovery of aid that has been granted unlawfully. This would render the protection of the competitor’s rights under Article 108(3) of the Treaty on the Functioning of the European Union (‘TFEU’) (former Article 88(3) EC) ineffective. In this particular case, the Commission took three positive decisions, each of which was subsequently annulled by the CFI. The CJ clarified that this was not an exceptional situation that may warrant a limitation of a recipient’s obligation to repay any such aid. On the contrary, this being rather unusual should have increased the recipients doubts in respect of the compatibility of the aid received, thus the CJ.

General Court rules that State aid cannot be approved of if found to be discriminatory (British Aggregates)On 22 December 2008, the then ECJ annulled a decision of the CFI in the so-called British Aggregates case dealing with an exemption of companies in Northern Ireland from



loss carry-over after a takeover, we wait with anticipation to see whether the rule will be deemed general in nature, making it non-selective.

Commission approves of Finnish REIT regime After a preliminary investigation of more than 14 months, the Commission has decided to approve a Finnish regime that exempts real estate investment trusts (‘REIT’) from corporate tax in order to stimulate investment in affordable rental housing. No single shareholder may own 10% or more in a qualifying REIT, a minimum of 80% of the REIT’s gross income must come from rents, and at least 90% of annual profits must be distributed as dividend.

From the 12 May 2010 press release, it seems that the Commission did not consider the regime as aid as it creates transparency, i.e. profits made by the trusts will be taxed at shareholders’ level comparable to the situation of direct investment in the real estate market by private investors. However, the Commission demanded of the Finnish government that it cancel its plans to allow for a provision that would allow for the reservation of 30% of a REITs profit for reinvestment, as it would give rise to incompatible aid.

Preliminary commentsWith this decision, the Commission indicates its willingness to accept regimes that provide full transparency for indirect investment, provided that the regimes do not lead to any delay in taxation such as the creation of a special tax reserve that might benefit specialised investment as in real estate. It should also be pointed out that the Commission’s ruling of non-aid instead of compatible aid effectively means that the ruling is not restricted to REITs with a particular public/social function as in the case at hand.

Commission’s recovery order did not entitle the tax authorities to demand repayment of the aid. Moreover, it argued that Frumona could not have known that it had received unlawful aid given that the tax authorities operated within the boundaries of Slovakian insolvency laws. Slovakian authorities therefore argued that, due to a lack of a legal basis for recovery after a court approved write-off, they needed their national court’s support in order to actually recover, pointing out that the Commission’s decision (being a ‘foreign’ decision) did not create any obligation at national law to repay for Frumona.

The Advocate General pointed out that it does not suffice for the Slovakian authorities to take all measures available to them in order to escape liability, as there is an obligation to actually recover aid. After an extensive discussion on overruling res judicata in State aid recovery cases, the Advocate General pointed out that Slovakian law might have offered other options to facilitate recovery which had not all been exercised by the authorities (such as possible review of the Court’s settlement decision given the State aid developments or recovery based on a separate legal title to recover arising from the Commission’s decision, in accordance with Slovakian law). As a result, Slovakia had failed to fulfil its obligation to recover according to the Advocate General (case C-507/08, Commission v Slovakia).

Commission investigates German loss carry-forward for ailing companiesOn 24 February 2010, the Commission opened a formal investigation into a non-notified German rule that would allow for a loss carry-forward after a takeover of an ailing company in order to facilitate its restructuring. Normally, such carry-forward would be limited or even fully blocked after a regular takeover. The rule was made permanent by the German Government at the end of 2009, after its introduction as a temporary measure in July 2009 with retroactive effect to January 2008. While the rule might violate the EU’s framework on rescue and restructuring aid given that healthy companies would be excluded from



capitalization approach under the arm’s length principle, and/or adjustments based on (domestic) anti-abuse legislation based on the arm’s length principle. Some Member States agreed to review their reservations once the OECD gives guidance on how to apply the arm’s length principle to thin capitalization of associated enterprises.

Admissibility of a caseOn the basis of Article 18 of the EU Arbitration Convention, Member States are recommended to consider that a case is covered by the EU Arbitration Convention when the request is presented in due time after the date of entry into force of accession by new Member States to the EU Arbitration Convention, even if the adjustment applies to earlier fiscal years.

Serious penaltiesWith regard to serious penalties covered by Article 8(1) EU Arbitration Convention, whereby access to the EU Arbitration Convention may be denied, Member States are recommended to clarify or revise their unilateral declarations in the Annex to the EU Arbitration Convention in order to better reflect that a serious penalty should only be applied in exceptional cases like fraud.

Starting point of the three-year period deadline for submitting a request The three-year period starts from the date of the first tax assessment notice or equivalent which results or is likely to result in double taxation. As far as transfer pricing cases are concerned, Member States are recommended to adopt this definition also to determine the three-year period provided under double tax treaty provisions based on Article 25(1) of the OECD Model Tax Convention.

Starting point of the two-year period deadline for submitting a case The two-year period starts from (i) the date of the tax assessment notice, i.e. a final decision of the tax administration on the additional income, or equivalent; or (ii) the date on which the competent authority receives the request and the minimum information, as defined in the revised Code of Conduct.

Direct taxationEU Council publishes revised Code of Conduct for the effective implementation of the EU Arbitration Convention on transfer pricing disputesOn 30 December 2009, the EU Council published in the EU Official Journal a revised Code of Conduct for the effective implementation of the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/436/EEC) of 23 July 1990 (the ‘EU Arbitration Convention’). The revised Code of Conduct follows the Commission’s Communication COM(2009) 472 final of 14 September 2009 (see EU Tax Alert, edition no. 73, December 2009) and addresses some of the operational problems that the EU Joint Transfer Pricing Forum (‘JTPF’) identified in the original Code of Conduct, as follows.

Scope of the EU Arbitration ConventionThe EU Arbitration Convention covers:• all EU transactions involved in triangular transfer

pricing cases among Member States, i.e. a case where, in the first stage of the EU Arbitration Convention procedure, two EU competent authorities cannot fully resolve any double taxation arising in a transfer pricing case when applying the arm’s length principle because an associated enterprise is situated in (an)other Member State(s); and

• any thin capitalization cases, i.e. profit adjustments arising from financial relations, including a loan and its terms, and based on the arm’s length principle.

Several Member States – Bulgaria, the Czech Republic, the Netherlands, Greece, Hungary, Italy, Latvia, Poland, Portugal and Slovakia – made reservations on the latter point, considering to fall outside the scope of the EU Arbitration Convention adjustments to the amount of the loan and/or the deductibility of the interest based on a thin



• each case to be dealt with on its merits in terms of charging or repaying interest (possibly during the mutual agreement procedure).

Accession of new Member States to the EU Arbitration ConventionMember States will endeavour to sign and ratify the conventions on accession of new Member States to the EU Arbitration Convention as soon as possible and in all events, no later than two years after their accession to the EU.

ECOFIN Council reaches agreement on Directive on strengthened mutual assistance in the recovery of taxesDuring its meeting held in Brussels on 19 January 2010, the Council of Economic and Finance Ministers (‘ECOFIN’) examined a package of measures aimed at improving tax governance and clamping down on tax evasion in Europe. The Council reached agreement on a general approach, pending the opinion of the European Parliament, on a draft directive aimed at strengthening mutual assistance between Member States in the recovery of taxes. The directive will be adopted at a forthcoming ECOFIN meeting, once the Parliament’s opinion is available.

The other measures in the package comprise:• a draft directive aimed at enlarging the scope of

Directive 2003/48/EC on the taxation of savings interest;

• a draft directive aimed at strengthening cooperation between the Member States in the field of direct taxation;

• a draft agreement with Liechtenstein on measures to combat tax fraud; and

• a draft decision authorising the Commission to negotiate anti-fraud agreements with Andorra, Monaco and San Marino, as well as a new anti-fraud agreement with Switzerland.

Mutual agreement procedures under the EU Arbitration ConventionA mutual agreement should be reached as promptly as possible, by any appropriate means (e.g. including face-to-face meetings), within two years of the date on which the case was first submitted to one of the competent authorities, and in complex situations, it may be appropriate to agree to a short extension. The mutual agreement procedure should not impose any inappropriate or excessive compliance costs on the person requesting it, or on any other person involved in the case. The revised Code of Conduct has established special provisions concerning EU triangular cases, depending on whether the competent authorities decide to start one bilateral procedure, more than one bilateral procedure in parallel, or a multilateral procedure. The revised Code of Conduct also set some rules on the practical functioning of the mutual agreement procedure and its transparency, as well as on procedures and deadlines concerning the exchange of position papers.

Proceedings during the second phase of the EU Arbitration ConventionSeveral points pertaining to the functioning of the EU Arbitration Convention were clarified as regards rules on the establishment and functioning of the advisory commission and on the criteria for establishing the independence of arbitrators.

Tax collection and interest charges during cross-border dispute resolution proceduresWhen a case is being dealt with under the EU Arbitration Convention, Member States are recommended to take all necessary measures to ensure that the suspension of tax collection during cross-border dispute resolution procedures under the EU Arbitration Convention can be obtained by enterprises engaged in such procedures, under the same conditions as those engaged in a domestic appeal/litigation proceedings, although these measures may imply legislative changes in some Member States. Furthermore, Member States are recommended to apply one of the following approaches:• tax to be released for collection and repaid without

attracting any interest, or• tax to be released for collection and repaid with

interest, or



Administrative cooperation in the field of taxation and against tax fraud The EU Parliament sent a clear message supporting the Commission’s proposal to introduce a general system of automatic exchange of information between Member States for all taxes, except VAT and excise duties, which are already subject to similar rules. The EU Parliament introduces technical improvements allowing for a more efficient lifting of bank secrecy, and gives powers to the Commission, under the control of the Council and Parliament, to clarify the scope of the information to be exchanged in the case of loopholes, and reinforces the personal data protection provisions.

Carousel VAT fraud Carousel VAT fraud is one of the most serious forms of tax fraud connected to cross-border transactions within the EU and is currently depriving Member States of billions of euros in tax revenue. There is evidence that sophisticated fraudsters could be targeting the system of greenhouse emission trading. The Commission proposed to apply the reverse-charge mechanism to the transactions involving emission allowances. The EU Parliament’s legislative resolution supports the Commission’s proposal, whilst introducing amendments aiming at reducing the administrative burden on businesses.

Assistance in recovery of tax claims The EU Parliament has expressed a clear support for a proposal that will bring significant improvements helping to substantially increase the rate of cross-border claim recovery throughout the EU. The EU Parliament also asked for an appropriate follow-up system for cases where a Member State refuses the assistance and removes the threshold proposed for exchanging information concerning refunds of taxes.

EU Council publishes anti-abuse resolution on CFC and thin cap rulesThe EU Council has published a preliminary version of the resolution on the coordination of anti-abuse provisions within the EU, as adopted by the ECOFIN Council on 8 June 2010. The resolution recommends that, when applying cross-border CFC and thin capitalisation rules within the EU not applicable in similar domestic situations, Member States adopt the following guiding principles.

Agreement on strengthened mutual assistance in the recovery of taxesNational provisions on tax recovery are limited in scope to national territories, and fraudsters have taken advantage of this to organise insolvencies in Member States where they have debts. Member States, therefore, increasingly request the assistance of other Member States to recover taxes, but existing provisions have only allowed a small proportion of debts to be recovered.

The draft directive is aimed at better fulfilling the Member States’ needs with regard to the recovery of taxes, providing an overhaul of Directive 76/308/EEC (codified by Directive 2008/55/EC), on the basis of which the Member States have engaged in mutual assistance since 1976, aimed at clamping down on tax evasion. The draft directive is intended to provide for an improved assistance system, with rules that are easier to apply, including rules as regards information held by banks and other financial institutions, and to provide for more flexible conditions for requesting assistance, requiring the spontaneous exchange of information.

EU Parliament calls for more binding tax cooperation to tackle banking secrecy and tax fraudOn 10 February 2010, the EU Parliament adopted a resolution on good governance that condemns tax havens and calls for the automatic exchange of tax information, as well as three other legislative resolutions on tax fraud and recovery of tax claims.

Good governance in tax matters This resolution deals with the broad issue of tax cooperation in the EU and comes as a follow-up to several initiatives both in the EU and at international level. The resolution condemns tax havens, urges Member States to prioritise the fight against them and calls for a public register to increase transparency regarding companies’ dealings with tax havens. It puts a strong emphasis on the need to promote the automatic exchange of information and put an end to banking secrecy. The resolution also requests that more be done on VAT-related fraud and proposes the use of incentives and sanctions to improve tax governance.



The Commission welcomed the initiative as a good example of how a coordinated approach of Member States can bring tangible results on very complex and sensitive tax issues. The draft Resolution provides a better understanding of the concept of ‘wholly artificial arrangements’ in the area of direct tax. It also provides information to stakeholders as to how Member States wish to ensure that their CFC and thin capitalisation rules comply with the TFEU obligations and protect their tax bases from undue erosion due to aggressive tax planning.

CJ finds Belgian transfer pricing rules compatible with EU law (SGI)On 21 January 2010, the CJ rendered its judgment in the SGI case (C-311/08) regarding the compatibility of the Belgian transfer pricing rules with Articles 49, 54 and 63 TFEU (former Articles 43, 48 and 56 EC) and, as appropriate, Article 18 TFEU (former Article 12 EC).

Belgian tax law provides that exceptional or gratuitous (i.e. non-at arm’s length) benefits granted by a resident company to a non-resident company with which the resident company is directly or indirectly related, are automatically added to the taxable base of the company granting the benefits. However, exceptional or gratuitous benefits granted in identical circumstances by a resident company to another resident company with which the latter is directly or indirectly connected, are not added to the taxable base of the company granting the benefits.

After having determined that the Belgian transfer pricing rule at stake only had to be investigated in the light of Articles 49 and 54 TFEU (formerly Article 43 and 48 EC), given the circumstances of the case at hand, the CJ ruled that the transfer pricing rule did indeed constitute a restriction of the freedom of establishment. After all, resident companies granting non-at arm’s length benefits to related non-resident companies are treated less favourably than resident companies granting non-at arm’s length benefits to related resident companies. Moreover, non-resident companies might be dissuaded from investing or acquiring a participation in resident companies.

For the application of CFC rules, a non-exhaustive list of indicators suggesting that profits may have been artificially diverted to a CFC includes, in particular, the following: 1. there are insufficiently valid economic or commercial

reasons for the profit attribution, which therefore does not reflect economic reality;

2. incorporation does not essentially correspond with an actual establishment intended to carry on genuine economic activities;

3. there is no proportionate correlation between the activities apparently carried on by the CFC and the extent to which it physically exists in terms of premises, staff and equipment;

4. the non-resident company is overcapitalized, i.e., it has significantly more capital than it needs to carry on its activity;

5. the taxpayer has entered into arrangements which are devoid of economic reality, serve little or no business purpose or which might be contrary to general business interests, if not entered into for the purpose of avoiding tax.

With respect to thin capitalisation rules, which should respect the arm’s length principle, the assessment will be on a case-by-case basis. A non-exhaustive list of indicators suggesting an artificial transfer of profits includes, in particular, the following: 1. the level of debt to equity is excessive; 2. the amount of net interest paid by the company

goes beyond a certain threshold of the earnings before interest and taxes (‘EBIT’) or of the earnings before interest, taxes, depreciation and amortization (‘EBITDA’);

3. a comparison between the equity percentage of the company to that of the group worldwide appears to prove that the debt is excessive.

The resolution also stresses the fact that administrative cooperation can be of key importance in ensuring the effectiveness of anti-abuse measures and therefore, underlines the importance of Member States’ assistance to each other for the purposes of detecting and combating abusive schemes.



subsidiary is not in conflict with EU law, due to the fact that the profits of that non-resident subsidiary are not subject to the Netherlands tax legislation.

In 2003, X Holding B.V., a company resident in the Netherlands, requested to be included in a fiscal unity for corporate income tax purposes with its subsidiary F, a company resident in Belgium. The Netherlands tax authorities refused the fiscal unity, since F did not meet the applicable requirements that it was either resident in the Netherlands for tax purposes, or that it had a permanent establishment in the Netherlands. According to X Holding B.V., the refusal to allow a (cross-border) fiscal unity is incompatible with EU law.

The CJ ruled that the fact that only domestic subsidiaries may be included in a fiscal unity whereas foreign subsidiaries cannot, in principle, constitutes a restriction on the freedom of establishment protected under Article 49 in conjunction with Article 54 TFEU. The CJ, however, ruled that – due to the fact that the parent company is at liberty to include or exclude a subsidiary in the fiscal unity – acceptance of the possibility to include non-resident subsidiaries in the fiscal unity would offer the parent company the opportunity to choose freely in which EU Member State the subsidiary’s losses would be taken into account. For that reason, the refusal of a cross-border fiscal unity is justified in view of the need to safeguard the allocation of the power to impose taxes.

Preliminary commentsPractically, all the CJ’s considerations seem to be focussed on whether or not cross-border loss relief should be allowed. Unlike Advocate General Kokott in her Opinion (see EU Tax Alert, edition no. 73, December 2009), the CJ does not specifically address the opportunities a fiscal unity offers for tax neutral reorganization, transfer of assets and internal transactions. The Advocate General followed the approach that the justification of the discrimination in the Netherlands fiscal unity legislation should be tested on an element-for-element basis. It is not fully clear whether the CJ adheres to this view. It could be that the CJ did not discuss these elements, since such elements did not play a role in the case at hand.

Nevertheless, the CJ ruled that the restriction could be justified by (i) the need to maintain the balanced allocation of the power to tax between the Member States; and (ii) the need to prevent tax avoidance, taken together. According to the CJ, the allocation of the power of taxation could seriously be undermined if resident companies would be allowed to transfer their profits to related non-resident companies by way of non-at arm’s length benefits. In that case, Belgium could be forced to renounce its right to tax profit arising from activities carried out in Belgium. Furthermore, although the Belgian transfer pricing rule is not specifically aimed at wholly artificial arrangements, the CJ decided that it could still be justified by the need to combat such arrangements. Without this transfer pricing rule, the risk exists that, by means of wholly artificial arrangements, income transfers may be organised by resident companies to related non-resident companies established in Member States applying the lowest rates of taxation or in Member States in which such income is not taxed.

Hence, according to the CJ, the Belgian transfer pricing rule pursues legitimate objectives which are compatible with the TFEU and constitute overriding reasons in the public interest. Furthermore, the CJ considered that the rule is appropriate to attain those objectives. In order to determine whether or not the rule goes beyond what is necessary, the CJ referred to the national courts but gave some guidelines. Whether or not a rule is aimed at wholly artificial arrangements should be verified on the base of objective data. Moreover, the taxpayer needs to have the possibility to prove the opposite and the corrective tax measure must be limited to the non-at arm’s length benefit itself. Whether or not these requirements are met by the transfer pricing rule at stake is for the national courts to decide.

CJ finds restriction by Netherlands legislation on cross-border loss relief compatible with EU law (X Holding)On 25 February 2010, the CJ delivered its judgment in the X Holding case (C-337/08). The CJ ruled that the fact that the Netherlands tax regime makes it possible for a parent company to form a fiscal unity for corporate income tax purposes with its resident subsidiary but does not allow the formation of such a fiscal unity with a non-resident



take into account both the number of hours worked in the Netherlands and abroad to meet that threshold. In addition, the CJ noted that the Netherlands legislation did not concern the taxpayer’s personal and family circumstances. Therefore, in respect of the deduction at issue, the situation of a non-resident self-employed individual was comparable to that of a resident self-employed individual, in the light of the CJ’s judgment in the Gerritse case (C-234/01). Accordingly, the CJ deemed the provision at issue discriminatory given that, unlike residents, non-resident self-employed individuals could not take into account the number of hours worked abroad, in order to claim the deduction.

The CJ then further examined whether the discriminatory treatment of non-residents could be justified by the option to be taxed as a resident taxpayer, which was available to non-residents. The CJ indicated that the fact that a national scheme which restricts the freedom of establishment is optional does not mean that it is not incompatible with EU law, based on paragraph 162 of its judgment in the Test Claimants in the FII Group Litigation case (C-446/04). According to the CJ, the option was not capable of neutralizing the discriminatory treatment of non-residents.

Preliminary commentsAlthough it is interesting to see that the CJ considers the Netherlands provision at issue in breach of the freedom of establishment, the most important part seems to be where the CJ notes that the option to be taxed as a resident taxpayer cannot justify the discriminatory provision. This is a very important decision, as quite often the view has been circulated informally that the option could justify infringements. The option itself is quite difficult to apply, inter alia, due to the administrative burden and a disadvantageous claw back measure. As an aside, that also justifies the question of whether the provision in itself is in accordance with EU law.

In all events, the option to be taxed as a resident taxpayer cannot justify an infringement, according to the CJ. This can lead to the follow-up question, whether that sheds new light on potential infringing provisions in, for instance, the Personal Income Tax Act 2001 (Wet inkomstenbelasting 2001). This, of course, is to be determined on a case-

In December 2009, the Netherlands government announced plans to limit the deductibility of permanent establishment losses. Such plans could be reconsidered in the light of this CJ judgment. The recent fall of the Netherlands government may have the side effect that such measures will be postponed until a new government has been installed.

CJ considers that the Netherlands rules providing for option to be taxed as resident cannot form a justification of legislation which is incompatible with EU law (Gielen)Following the Opinion of Advocate General Colomer dated 27 October 2009, the CJ issued its judgment in the Gielen case (C-440/08) on 18 March 2010. The CJ considered that the Netherlands rules providing for the option to be taxed as resident cannot form a justification for legislation which is incompatible with EU law.

A non-resident self-employed individual (the ’Interested Party’), who was a resident of Germany, had a permanent establishment in the Netherlands. Although in the relevant tax year the Interested Party had spent more than 1,225 working hours in his business, he had spent less than 1,225 hours in his permanent establishment located in the Netherlands. In his tax return filed in the Netherlands, the Interested Party deducted an amount, which is granted to entrepreneurs who spend more than 1,225 working hours in their business. The tax inspector refused to grant this deduction, since the taxpayer had spent less than 1,225 working hours in the Netherlands. The Interested Party disagreed with this approach.

Following litigation, the Netherlands Supreme Court referred the preliminary questions of whether this difference of treatment was precluded by Article 49 TFEU (former Article 43 EC) and whether a restriction (if present) can be removed, as a non-resident can opt to be taxed as a resident taxpayer.

The CJ ruled that the Netherlands legislation resulted in a different treatment of non-residents, as non-resident entrepreneurs were required to work for at least 1,225 hours in the Netherlands in order to benefit from the deduction for the self-employed, whereas residents could



convention. The CJ concluded that such a factor cannot constitute, in itself, a restriction contrary to the freedom of establishment.

Nevertheless, the CJ agreed with Advocate General Sharpston’s Opinion that the Hungarian legislation possibly places a Hungarian company that operates cross-border in a disadvantageous position, as compared to a company based exclusively in Hungary, with regard to the possibility of using the offset facility in respect of that part of its workforce that is based in another Member State. According to the CJ, this last point pivots on the interpretation of the Hungarian legislation, which is ultimately a matter for the national court. Even though no possible justification was advanced by the Hungarian Government or envisaged by the referring court, the CJ examined the justifications based on the coherence of the tax system and reduction of tax revenue. The CJ concluded that the Hungarian legislation is able to deter a Hungarian company that operates in another Member State from taking advantage of the freedom of establishment under Articles 49 and 54 TFEU, amounting to an unjustified restriction of that freedom.

CJ finds German gift tax rules incompatible with EU law (Mattner)On 22 April 2010, the CJ rendered its judgment – without an Advocate General’s Opinion – in the Mattner case (C-510/08). This case concerns the calculation of the German gift tax due on the gift of immovable property located in Germany, which varies according to whether either the donor or the donee is resident or non-resident in Germany at the date of the gift.

The facts of the case are as follows. Ms Mattner, a German national who has lived in the Netherlands for more than 35 years, acquired by gift from her mother, who is also a German national and has lived in the Netherlands for more than 50 years, a piece of land on which a house had been built, in Düsseldorf (Germany), worth EUR 255,000. The Finanzamt claimed gift tax in the amount of EUR 27,929 from Ms Mattner in respect of the gift she had received. That figure was obtained by deducting an allowance of EUR 1,100 from the value of the land and applying a rate of 11% to the resulting taxable value. However, had Ms Mattner or her mother been resident in Germany at the

by-case basis, but it can be said that certain exemptions granted only to resident taxpayers are suspect. Caution has to be applied, however, as in general, comparability between non-resident individuals and resident individuals only seems present if the taxpayer’s personal and family circumstances are not concerned (if personal circumstances are concerned, the 90% Schumacker criterion applies). In Parliament, the Gielen case has already attracted attention, as Parliament member De Nerée tot Babberich has asked the Minister of Finance to provide feedback on the potential implications of the Gielen case to the Personal Income Tax Act 2001 (Tweede Kamer 29 maart 2010, 2010Z05544).

CJ finds Hungarian vocational training levy incompatible with EU law (CIBA)On 15 April 2010, the CJ rendered its judgement in the CIBA case (C-96/08). Under the Hungarian rules, trading companies established in Hungary have to pay vocational training levy on the total amount of wage costs, both in Hungary and abroad. The question in this case is whether the disputed rule is compatible with the principle of freedom of establishment (Articles 49 and 54 TFEU) where such vocational training levy is imposed on workers employed through a branch in the Czech Republic, where the tax and social security obligations with regard to such workers are met.

The judgment rendered by the CJ deviates from Advocate General Sharpston’s Opinion of 17 December 2009 (see EU Tax Alert, edition No. 75, January 2010), in which the CJ held that the potential double taxation borne by CIBA is a fiscal disadvantage resulting from the exercise in parallel by two Member States of their fiscal sovereignty, based on its judgments in Kerckhaert and Morres (C-513/04) and Block (C-67/08). According to the CJ, the potential double taxation alleged by CIBA does not alone constitute a restriction prohibited by the TFEU. Contrary to the Advocate General, the CJ held that the possible lack of opportunity for CIBA’s workers employed in the Czech Republic to benefit from training financed by the Hungarian fund for the employment market is merely the consequence of the taxation and spending powers exercised by Hungary, in the absence of a double taxation



CJ ruling on compatibility of the Netherlands merger exemption with Merger Directive (Zwijnenburg) On 20 May 2010, the CJ rendered its judgement in the Zwijnenburg case (C-352/08). This case concerns the interpretation of the anti-abuse provision in the Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (the ‘Merger Directive’).

The case, which revolved around the transfer of an enterprise from father to son, can be summarized as follows. BV 1, a company owned by the father, leased a building to BV 2, a company indirectly owned by the son. The building leased to BV 2 formed a functional unity with a building already owned by BV 2. In order to integrate both businesses, BV 2 had the intention to transfer all its assets (including the building) to BV 1 in exchange for shares. At a later stage, the son would acquire the father’s shares in BV 1. BV 2 applied for the merger exemption, i.e. roll-over relief with respect to the transfer of assets pursuant to the Dutch implementation of the Merger Directive, as well as for an exemption from real estate transfer tax with respect to the building. The tax authorities denied the requests of BV 2, stating that the merger exemption did not apply as the main motive of the transaction was the avoidance of real estate transfer tax. As a result, BV 1 sold the building to BV 2 subject to real estate transfer tax.

The Dutch Supreme Court noted that it was unclear whether the denial of the application of the merger exemption was in accordance with the Merger Directive and decided to refer the preliminary question to the CJ on 31 July 2008, i.e. whether Article 11(1)(a) of the Merger Directive, the anti-abuse provision, can be explained such that the facilities of the Merger Directive can be denied where a series of legal transactions is aimed at preventing the levying of a tax which falls outside of the scope of the Merger Directive.

A first observation concerns the jurisdiction of the CJ, since the preliminary question referred to a provision of national law which applies within a purely national context. In line with established case law, such as the Leur-Bloem case

date of the gift, Ms Mattner would have been able to claim the allowance of EUR 205,000, as a result of which the taxable value would have been limited to only EUR 50,000 and the tax due would, subject to a 7% rate, have been EUR 3,500 instead of EUR 27,929. Ms Mattner objected to this assessment before the Tax Court of Düsseldorf, seeking to obtain the benefit of the EUR 205,000 allowance. On 4 November 2008, the referring court brought the matter before the CJ.

The CJ observed that a situation in which a person resident in the Netherlands makes a gift of land in Germany to another person also resident in the Netherlands cannot be regarded as a purely domestic situation, thus, it falls within the scope of the free movement of capital under Article 63 TFEU. The CJ dismissed the analysis of the case under the TFEU provisions on the free movement for workers or the freedom of establishment. The CJ held that the German legislation at issue constitutes a restriction on the free movement of capital as it makes the application of an allowance against the taxable value of the immovable property concerned dependent on the place of residence of the donor and the donee on the date of the gift, imposing the greater tax burden on the gift between non-residents.

Contrary to the submissions of the Finanzamt and the German Government, the CJ held that difference in treatment cannot be justified on the ground that residents and non-residents are in objectively different situations. The German legislation, in principle, regards both the recipient of a gift between non-residents and the recipient of a gift involving at least one resident as taxpayers for the purposes of charging gift tax on gifts of immovable property in Germany. By treating gifts to those two classes of persons in the same way, except in relation to the amount of the allowance the donee may benefit from, the national legislature accepted that there was no objective difference between them in regard to the detailed rules and conditions of charging gift tax which could justify a difference in treatment. The CJ rejected the justifications submitted by the Finanzamt and the German Government based on overriding reasons in the general interest and concluded that the German gift tax rules at stake violated the free movement of capital protected under Article 63 TFEU.



involving a company merger, to avoid the levying of a tax such as real estate transfer tax, where that tax does not fall within the scope of application of that Directive.

CJ concludes Italian tax rules on quantitative and territorial limits on deductibility of costs related to studies in non-resident university compatible with EU law (Zanotti) On 20 May 2010, the CJ rendered its judgment in the Zanotti case (C-56/09), without an Opinion from Advocate General Kokott. The question in this case was whether the Italian income tax law (Article 15(1)(e) of Decree No 917 of the President of the Republic of 22 December 1986 and of Point 1.5.1 of Circular No 95 of the Ministry of Finance of 12 May 2000), which imposes a cap on the deductibility of costs related to studies in non-resident universities while allowing such tax deduction in respect of tuition fees payable to Italian State universities offering similar courses, is in conflict with EU law.

Mr Zanotti is an Italian citizen who came to the Netherlands in 2003 to pursue a master program in international tax law at Leiden University. Mr Zanotti tried to deduct the tuition fees paid to the University in his Italian tax return for fiscal year 2003. The Italian Revenue allowed a deduction up to the maximum amount set for the corresponding costs of attending similar courses at the national State University nearest to the taxpayer’s residence for tax purposes. Amongst others, Mr Zanotti argued before the Italian Regional Tax Commission of Rome that the restrictions imposed by the Italian legislation are precluded by the freedom to provide services (Article 56 TFEU) and the right of EU citizens to move and reside freely within the EU (Article 21 TFEU). In turn, the Italian court referred a preliminary question to the CJ on 9 February 2009 (see EU Tax Alert, edition 66, May 2009).

The CJ held that national legislation which allows taxpayers to deduct from gross tax the costs of attending University courses provided by Universities situated in that Member State but excludes generally that possibility for University tuition fees incurred at a private University established in another Member State is incompatible with EU law. Conversely, if the national legislation allows a partial deduction up to the maximum amount set for

(C-28/95), the CJ considered that it did have jurisdiction in this case, since the Dutch legislature had decided, when transposing the provisions of the Merger Directive, to apply the tax treatment provided for by that Directive also to purely internal situations, with the result that domestic and cross-border restructurings are subject to the same tax treatment.

The CJ considered that the Merger Directive applies without distinction to all mergers, divisions, transfers of assets or exchanges of shares, irrespective of the reasons for those operations, whether financial, economic or fiscal. However, the reasons for the proposed transaction are important in the implementation of Article 11(1) of the Merger Directive. Under this article, Member States may refuse to apply, or may withdraw the benefit of, all or any part of the provisions of that Directive, inter alia, where the exchange of shares has tax evasion or tax avoidance as its principal objective or as one of its principal objectives. That same provision also provides that the fact that the operation is not carried out for valid commercial reasons, such as the restructuring or rationalisation of the activities of the companies participating in the operation, may constitute a presumption that the operation does have such an objective. According to the CJ, Article 11(1)(a) of the Merger Directive should be interpreted restrictively, since it sets out an exception.

From the reference to the restructuring or rationalisation of the activities of the companies participating in the operation in question, in which case there can be no presumption of tax evasion or tax avoidance, the CJ concluded that the provision was clearly limited to mergers and other reorganizational operations and that it was applicable only to taxes arising from those operations. It concluded that only the taxes expressly referred to in the Merger Directive (i.e. corporate income tax and personal income tax) can fall within the scope of Article 11(1)(a) the Merger Directive. In addition, the CJ found nothing in the Merger Directive to suggest that it intended to extend the facilities of the Directive to other taxes, such as real estate transfer tax, which is a tax levied on the acquisition of real property.

The CJ concluded that Article 11(1)(a) of the Merger Directive is to be interpreted as meaning that the favourable arrangements of that Directive may not be withheld from a taxpayer who has sought, by way of a legal stratagem



5% in the case of domestic participation against 20% in the case of cross-border dividend distributions to parent companies located in other Member States. In analysing the case, the CJ started by considering that the Spanish tax law imposed a difference in the treatment between companies resident in Spain and those in other Member States which had between 5% and 20% shareholding in a Spanish distributing company. Such different treatment is a restriction to the free movement of capital (Article 63 TFEU).

The CJ then analysed the justifications raised by Spain: (i) the different treatment provided to companies resident in another Member State was due to the different situation of those companies, and (ii) the disadvantages arising from such different treatment could be neutralised by double tax conventions concluded by Spain. As regards the first argument, the CJ observed that as from the moment that Spain chose to impose a charge to tax on the income of both residents and non-resident shareholders, their situation became comparable, in particular, with regard to the risk of economic double taxation. Therefore, non-resident recipients could not be treated differently from resident recipients. Regarding the second argument raised by Spain, the CJ reaffirmed the principles already stated in Amurta (C-379/05) and, in particular, in Commission v Italy (C-540/07).

The CJ reaffirmed that it was indeed possible to neutralize a restriction by concluding a double tax convention with another Member State. However, it was necessary that such a convention compensated the differential treatment arising under national legislation by providing a credit for the full amount of the tax withheld at source. In that regard, the CJ observed that the majority of the conventions concluded by Spain provided only for the ordinary credit method (rather than a full credit). Therefore, the difference in the treatment provided by Spanish legislation may only be neutralised where the dividends from Spain were taxed or sufficiently taxed in the other Member State in order to allow the offset of the Spanish withholding tax. That meant that the neutralization of such different treatment was dependent not on Spain but on the (domestic) tax legislation of the other Member State. In accordance therewith, the CJ observed that the

the corresponding costs of attending similar courses at the national State University nearest to the taxpayer’s residence for tax purposes (i.e. quantitative and territorial limits), that legislation does not constitute an obstacle to the freedom to provide services and the right of EU citizens to move and reside freely within the EU. The Court had previously held in the Schwarz and Gootjes-Schwarz case (C-76/05) that, in order to avoid an excessive financial burden, it is legitimate for a Member State to limit the amount deductible in respect of tuition fees to a given level, corresponding to the tax relief granted by that Member State, taking account of certain values of its own, for attendance at educational establishments situated in its territory.

CJ considers Spanish tax on cross-border dividends incompatible with EU law (Commission v Spain)On 3 June 2010, the CJ gave its judgment in the Commission v Spain case (C-487/08). The case concerns Spanish taxation of cross-border dividends.

According to Spanish law, dividends distributed by domestic subsidiaries to its parent companies resident in Spain are exempt from withholding tax on distribution provided that: (i) the participation was held for a continuous period of at least one year; and (ii) at least 5% direct or indirect shareholding is held in its subsidiary. In addition, such income is also exempt when received by the parent resident company as it is allowed to deduct the dividends in whole received from its taxable base. On the other hand, in the case of a parent company resident in another Member State, a withholding tax is charged unless the regime provided under Council Directive 90/453/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (the ‘Parent-Subsidiary Directive’) applies. At the time of the facts, such regime required (amongst others) a 20% shareholding for the withholding tax exemption to be applicable.

The Commission brought an action against Spain since it considered to be a breach of the free movement of capital the fact that the exemption of withholding tax on domestic and cross-border distributed dividends is subject to different minimum shareholding thresholds:



The CJ considered however, following AG Kokott opinion on the case (see EU Tax Alert edition 78, April 2010), that the Commission had not followed the rules on the burden of proof, which require the submission of all the facts which allow to unequivocally conclude in accordance with the terms argued by the Commission. Namely, according to the CJ view, the Commission could have furnished, inter alia, statistical data or information concerning the level of interest paid on bank loans and relating to the refinancing conditions in order to support the plausibility of its calculations. It considered that the Commission failed to produce conclusive evidence capable of establishing that the figures put forward in support of its arguments are in fact borne out by the actual facts and that the arithmetical example on which it relies is not purely hypothetical. The CJ decided to dismiss the Commission’s action.

CJ decides French rules regarding tax on immovable property owned by a Liechtenstein company compatible with the EEA Agreement (Établissements Rimbaud)On 28 October 2010, the CJ delivered its judgment in the Ėtablissements Rimbaud case (C-72/09) regarding the compatibility of a French tax on the market value of immovable property situated in France and owned by legal persons with the free movement of capital set out in Article 40 of the Agreement on the European Economic Area (‘EEA’). The CJ held that Article 40 EEA does not preclude tax legislation of a Member State which exempts from the contested tax companies having their seat in an EU Member State whereas, in respect of companies having their seat in an EEA country which is not a Member State of the EU, makes the exemption conditional either on the existence of a convention for administrative assistance or a tax treaty with a non-discrimination clause between the Member State and the EEA country. Similar to Advocate General Jääskinen (see EU Tax Alert edition no. 79, May 2010), the CJ found that the French rules at issue were justified by the overriding general interests of combating tax evasion and safeguarding the effectiveness of fiscal supervision.

As to the facts of the case, Établissements Rimbaud SA (‘Rimbaud’) had its seat in Liechtenstein (which has been an EEA country since 1 May 1995) and owned immovable

conventions concluded by Spain did not in all cases allow for the difference in treatment arising from the application of national legislation to be neutralised.

In addition, Spain argued that although no double tax convention had been concluded with Cyprus, its domestic law provided for a domestic exemption, meaning that no double taxation would arise in such case. Also here, the CJ referred to previous case law (Amurta) by stating that in all events, a Member State could not rely on the unilateral advantages granted by other Member State to avoid the obligations under the Treaty and that, in all events, an exemption would not neutralise the restriction caused by the Spanish taxation. In line with its settled case law, the CJ concluded that the Spanish legislation at stake was in breach of the free movement of capital provided by Article 63 TFEU.

CJ dismisses Commission action against Portugal regarding discriminatory taxation of interest paid to non-resident financial institutions due to lack of proof (Commission v Portugal) On 17 June 2010, the CJ gave its judgment in the Commission v Portugal case (C-105/08).This case concerns the provisions on the taxation of outbound interest payments.

As a rule, non-resident lenders are subject to a 20% withholding tax which is levied on the gross income paid by entities located in Portugal. In the case of Portuguese resident financial institutions, however, there is a withholding tax exemption on the interest payments which are taxed exclusively on the net interest at the normal Portuguese corporate income tax rate of 25%. The case was brought by the Commission, which considers these provisions to be in breach of the freedom to provide services and the freedom of capital set forth in Articles 56 and 63 TFEU. The Commission in order to sustain its reasoning submitted arithmetical examples, which in its view, prove that non-resident institutions were subject to an unfavourable treatment when compared with resident ones.



in the case of ELISA France was not able either to rely on the Mutual Assistance Directive vis-à-vis Luxembourg due to an exception under the Directive, that situation cannot be assimilated to the case where the Directive does not apply at all.

In conclusion, in the absence of a general system for the exchange of information, the right of a taxpayer that is resident in an EEA country to produce evidence, which the French tax authorities would have to consider on a case-by-case basis before they deny a tax exemption, does not have to be recognized.

CJ rules Luxembourg investment tax credit incompatible with the freedom to provide services On 22 December 2010, the CJ delivered its decision in the Tankreederei I case (C-287/10).On 10 June 2010, the Luxembourg tribunal had referred a preliminary question to the CJ regarding the compatibility of the Luxembourg investment tax credit set out in article 152 bis of the Luxembourg income tax law (‘LIR’) with EU law. Article 152 bis LIR provides for an investment tax credit in two components: (a) a credit for increasing investment; and (b) a credit for global investment. The following are excluded from the benefit of the investment tax credit, (i) buildings and such items as mineral deposits, (ii) assets written-off over a period of less than three years, (iii) most motor vehicles, (iv) second-hand assets (in most circumstances), and (v) assets not ‘put to use’ in the territory of Luxembourg (except for vessels exploited in international traffic by licensed Luxembourg shipping companies). Exclusion (v) is the object of the dispute. In the case at hand, a Luxembourg company exploited two boats destined for the river traffic in the ports of Antwerp and Amsterdam. The two boats were booked as assets in the balance sheet of the company and were used within the framework of an activity fully taxable in Luxembourg. For the years 2000 to 2003, the company requested the application of the investment tax credit set

property in France. On that basis, it was, in principle, liable to pay the 3% immovable property tax introduced by Article 990D of the French Tax Code. The French tax authorities recovered the disputed tax from Rimbaud for the years 1988 to 1997 and then for the years 1998 to 2000, which the taxpayer challenged in the ensuing legal proceedings.

The CJ had already examined the disputed French tax provisions in an EU context in the ELISA case (C-451/05) where the CJ considered the provisions a disproportionate restriction on the free movement of capital under Article 63 TFEU (then Article 73b EC). Accordingly, the main question raised in this case was whether or not the same restriction exists under Article 40 EEA which provides for the free movement of capital between EEA countries in similar terms to those of Article 63 TFEU between EU Member States.

The CJ stated that the French rules constituted for legal persons established in Liechtenstein a restriction on the free movement capital under Article 40 EEA just as they did for companies of other Member States under Article 63 TFEU. In ELISA, the CJ ruled that this restriction could not be justified between EU Member States on general interest grounds, as the French legislation did not allow a company established in another Member State which was outside the scope of administrative assistance mechanisms and tax treaty protection to provide the documentary evidence which might have been necessary for the French tax authorities to assess the taxpayer’s situation. Therefore, the disputed legislation went further than necessary to fight tax evasion and maintain an effective supervision of the tax system.

However, the CJ pointed out that this case law cannot be transposed to the movements of capital between EU Member States and non-member States, even if the latter are EEA countries. This is due to the difference of the legal context between EU Member States on the one hand, and EU Member States and non-EU member EEA countries on the other. Most importantly, Directive 77/799 of 19 December 1977, concerning mutual assistance by the competent authorities of the Member States in the area of direct taxation (‘Mutual Assistance Directive’) does not apply between EU Member States and non-EU member EEA countries, among those, Liechtenstein. Even though



No justification based on overriding reasons in the public interest was accepted by the Court. The CJ pointed out that considering the claimant was a Luxembourg resident taxpayer, the right of Luxembourg to tax the service activities would not be jeopardised should the condition set out in article 152 bis LIR not exist. The CJ concluded that the restriction set out in article 152 bis LIR, pursuant to which the benefit of a tax credit for investments is denied to an undertaking which is established solely in Luxembourg on the sole ground that the capital goods, in respect of which that credit is claimed, are physically used in the territory of another Member State, is incompatible with the freedom to provide services set out in Article 56 TFEU. Since article 152 bis LIR was held incompatible with the freedom to provide services, the CJ did not analyse whether Article 152 bis LIR was also incompatible with the free movement of capital.

The decision of the CJ in this case is very much in line with the Jobra case (C-330/07).

Advocate General analyses compatibility of Portuguese 2005 tax amnesty legislation with EU law (Commission v Portugal)On 17 June 2010, Advocate General Mengozzi issued his Opinion in the Commission v Portugal case (C-20/09). This case concerns the Portuguese 2005 tax amnesty legislation.

In 2005, the Portuguese Parliament approved a tax amnesty for undeclared funds held abroad under the Regime Especial de Regularizacao Tributária (‘RERT’). The aim of this tax amnesty was to tackle tax evasion and tax fraud by creating an incentive, limited in time (until 31 December 2005), for Portuguese resident individuals to voluntarily legalize their tax situation regarding the failure to declare taxable income held abroad. For that purpose, it provided the possibility of said resident individuals to file a confidential statement with the disclosure and subsequent regularization of the undeclared funds held abroad.

The consequence of that regime is that it required the resident individuals to pay a penalty corresponding to 5% of the value of the investments. However, a reduced rate

out in article 152 bis LIR. The tax administration denied the claim based on the wording of article 152 bis LIR, which requires that the investment be made for the purposes of a Luxembourg establishment on a permanent basis and must be ‘put to use’ only on the Luxembourg territory. The taxpayer brought the case before the Luxembourg tribunal arguing that by denying the benefit of the investment tax credit, the company would receive a less favourable tax treatment than that granted to companies carrying out the same activity within the Luxembourg territory. As such, the company argued that the provision of article 152 bis LIR is incompatible with the freedom to provide services set out in Article 56 TFEU (formerly Article 49 EC). The Tribunal held that article 152 LIR conditions the benefit of the investment tax credits to investments physically ‘put to use’ in Luxembourg and referred a preliminary question to the CJ as follows:‘Do Articles 56 TFEU (formerly Article 49 EC) and 63 TFEU (formerly Article 56 EC) preclude the provisions of the first paragraph of Article 152 bis of the amended Law of 4 December 1967 on income tax, insofar as, under those provisions, Luxembourg taxpayers are granted a tax credit for investments only if the investments are made in an establishment situated in the Grand-Duchy and are intended to remain there on a permanent basis, and only if they are physically used on Luxembourg territory?’ The CJ first determined that (i) article 152 bis LIR makes the grant of a tax advantage (i.e. tax credit) dependent on the physical use of the investment concerned in the national territory (Luxembourg), and (ii) classified the activities performed by the Luxembourg-resident taxpayer as services within the meaning of Article 57 TFEU. The CJ further held that article 152 bis LIR applies a less favourable tax regime to investments used in the territory of other Member States, in which the undertaking concerned is not established, than to investments that are used in national territory. Such disadvantage is likely to discourage national undertakings from providing, in other Member States, services that require the use of capital goods situated in those other Member States. The CJ concluded that article 152 bis LIR constitutes a restriction to the exercise of the freedom to provide services.



In addition, Advocate General Mengozzi observed that the reasons submitted by the Portuguese government that the different applicable rates were justified to provide a higher compensatory indemnification for the legalization of the investments regarding public bonds issued by other Member States was in itself an objective of a purely economic character: to compensate the decrease of tax revenue in a Member State (Portugal). Therefore, and following the settled case law of the CJ, such an objective could not justify a restriction to the free movement of capital.

Third, Portugal argued that some OECD reports of 2000 (‘Improving Access to Bank Information for Tax Purposes’ and ’Improving Access to Bank Information for Tax Purposes: progress report’) could justify such different tax treatment. Advocate General Mengozzi limited himself to stating that such reports in any circumstance would not allow Member States to restrict the fundamental freedoms. In addition, they were mere recommendations which did not oblige Member States to adopt a particular behaviour.

Therefore, Advocate General Mengozzi concluded that the RERT constitutes a restriction to the free movement of capital provided in Article 63 TFEU. The same conclusion was reached regarding Article 40 EEA, since Portugal had not provided any specific reason that could justify such restriction under the EEA Agreement, considering the different legal context of the free movement of capital between Member States and those third States.

Advocate General holds Austrian treatment of foreign portfolio dividends partly compatible with the free movement of capital (Haribo and Salinen)On 11 November 2010, Advocate General Kokott issued her Opinion in the joint cases Haribo and Salinen (C-436/08 and C-437/08). The cases deal with issues of taxation of foreign portfolio dividends received by domestic corporate taxpayers under Austrian law.

According to Austrian law applicable in the relevant years, dividends received by one company resident in Austria from another were not subject to Austrian corporation tax due to the Austrian participation exemption regime

of 2.5% applied to regularized Portuguese government bonds and to any amount of other investments reinvested in Portuguese government bonds at the occasion of the regularization procedure. The Commission considered that the difference of applicable rates (2.5% against 5%) constituted a breach of the free movement of capital provided by Article 63 TFEU, as well as Article 40 EEA since it also affected EFTA countries, as it dissuaded the regularization of investments other than in Portuguese government bonds.

The Advocate General first considered a restriction to the free movement of capital to exist as the measure at stake dissuaded investments in government bonds issued by other Member States, as in that case, the applicable rate would be 5%. He went on to analyse the justifications raised by the Portuguese State on such restrictive measure.

First, Portugal argued that Council Directive 2003/48/EC of 3 June 2003 on the taxation of savings income in the form of interest payments (the ’Savings Tax Directive’) allowed a difference between bonds issued by public bodies and those issued by private entities. Advocate General Mengozzi considered that, even if that Directive would allow such difference, it could not justify a difference in treatment between bonds issued by the Portuguese government and similar (government) bonds issued by the other Member States.

Second, Portugal claimed that such restriction would be justified by the need to fight evasion and tax fraud. In that regard, Advocate General Mengozzi observed that such objective could justify a restriction to the free movement of capital. However, he considered that in the case at stake, the Portuguese government was not able to demonstrate that the difference between the tax rates of the domestic bonds and the ones issued by other Member States was absolutely necessary to attain that objective. In fact, he observed that all the remaining RERT provisions were applicable irrespective of the place where the capital was invested.



reason, Haribo and Salinen were also unable to claim a foreign tax credit. Haribo and Salinen brought their cases to the Lower Tax Court of Linz, which in the course of the proceedings, referred several questions to the CJ with respect to the different tax treatment of dividends depending on the State of source.

In her Opinion, Advocate General Kokott addressed the compatibility of the Austrian treatment of portfolio dividends arising in (i) an EU Member State, (ii) an EEA (non-EU) State and (iii) in (non-EU/EEA) third countries with the free movement of capital under Article 63 TFEU (formerly Article 56 EC).

With respect to portfolio dividends arising in an EU Member State, the question arose whether or not the fact that such dividends are regularly subject to double taxation because neither exemption nor credit can be obtained due to the difficulties that the taxpayers face in proving the amount of foreign tax paid can be regarded as a restriction on the free movement of capital. The Advocate General concluded that this did indeed constitute a restriction which needed to be justified. Under the justification analysis she discussed the comparability of domestic dividends with foreign (EU) dividends with respect to the different methods of relieving economic double taxation. She pointed out that according to previous decisions of the CJ, in particular, the FII Group Litigation case (C-446/04), in principle, Member States are free to apply either the exemption or the credit method to avoid double taxation. The Advocate General is of the opinion that both methods are sufficiently equivalent if the tax rate for foreign source dividends is not higher than the tax rate for domestic dividends and the foreign tax paid is credited against the domestic tax up to the amount of the domestic tax due. According to the Advocate General, the fact that the credit method is accompanied with a higher administrative burden for the taxpayer can, as such, not be regarded as a prohibited unequal treatment, even if it is almost impossible for the taxpayer to provide the necessary evidence regarding the foreign taxes paid. Furthermore, the Advocate General submitted that unconditional application of the exemption method would lead to the consequence that Austria could not ensure that the dividends are taxed once at the Austrian tax rate. Accordingly, foreign source dividends would be treated more favourably than domestic dividends. In summary,

which applied irrespective of the size of the shareholding on which dividends were paid. In the case of foreign (not Austrian) source dividends, the participation exemption only applied to major shareholdings of at least 10% (until 2003: 25%). It did not apply to portfolio dividends below that minimum threshold, unless the portfolio dividends were distributed by a company resident in an EU/EEA Member State and conditions similar to those under the Parent-Subsidiary Directive were met. In the case of dividends coming from an EEA State, an additional condition had to be satisfied. Those portfolio dividends were exempt only if Austria had concluded an agreement on the exchange of information with the source State. Instead of the participation exemption, a credit was granted for the foreign tax paid if it could not be proven that the foreign distributing company (EU/EEA) was subject to a tax comparable to the Austrian corporate income tax. A foreign tax qualified as comparable if it was not more than 10 percentage points lower than the Austrian corporate income tax. The rules placed the burden of proof with respect to the foreign tax paid on the taxpayer. No relief of economic double taxation was granted on (non-EU/EEA) third country portfolio dividends.

Haribo Lakritzen Hans Riegel BetriebsgmbH (‘Haribo’) and Österreichische Salinen AG (‘Salinen’), both companies resident in Austria, had made investments in tax transparent investment funds. The funds had invested part of their capital in shares in non-Austrian corporations, resident either in other EU Member States or in non-EU Member States. Due to the tax transparency of the funds, the dividends distributed by these companies were subject to corporate income tax in the hands of Haribo and Salinen. The shareholdings of Haribo and Salinen in the companies were clearly under the relevant thresholds and thus, did not qualify for the Austrian participation exemption.

The Austrian tax authorities refused to exempt the dividends distributed by companies resident in EU/EEA Member States and third countries, as Haribo and Salinen did not meet all conditions laid down in the law due to difficulties in evidencing the foreign tax paid. For the same



by incorporation, into the fourth holding company, Foggia SGPS. One of the incorporated holding companies had incurred considerable losses in the amount of EUR 3,500,000.00. Following the requirements set forth in the Portuguese Corporate Income Tax Code (‘CITC’), Foggia SGPS submitted an application to the Ministry of Finance for the transfer of those tax losses of the incorporated company. The granting of such authorization for the transfer of losses under restructuring transactions is subject to certain conditions, amongst which, the existence of valid commercial reasons.

The request submitted by Foggia SGPS was denied by the Ministry of Finance. According to its understanding, there was no evidence of valid commercial reasons for the transaction from the perspective of the acquiring company (even if the merger did indeed have a positive effect in terms of the overall cost structure of the group as it would allow to reduce the administrative and management costs). In fact, considering that the acquired company had developed almost no activity as a holding company, had no financial holdings and its net value was almost irrelevant when compared to that of the acquiring company, the positive effects of the merger were insignificant from the perspective of the acquiring company Foggia SGPS. Therefore, the only interest in the transaction was, according to the Ministry of Finance, to be permitted to transfer the substantial amount of losses.

Foggia SGPS appealed this decision. Considering that ‘valid commercial reasons’ is an EU concept, the Portuguese Supreme Court decided to refer the case to the CJ, raising for that purpose two questions:1. What is the scope and range of Article 11(1)(a) of

the Merger Directive, notably the meaning of the terms ’valid commercial reasons’ and ’restructuring or rationalisation of the activities of the companies participating in the operations‘ covered by the Merger Directive.

2. Whether it is line with such provision the understanding followed by the Portuguese tax authorities that the lack of valid commercial reasons should be evaluated from the perspective of the acquiring company (Foggia SGPS), to whom there was no apparent commercial interest in the acquisition since the acquired company

the Advocate General concluded that the Austrian rules regarding portfolio dividends from EU Member States constituted a justified restriction on the free movement of capital and as such, were not in breach of that freedom.

With respect to portfolio dividends from EEA (non-EU) States, the Advocate General concluded that the extra condition, that Austria must have concluded an agreement on the exchange of information for the participation exemption to apply, violates the free movement of capital.

According to the Advocate General, the fact that Austria does not provide either for an exemption or for a credit regarding portfolio dividends from (non-EU/EEA) third countries constitutes a restriction of the free movement of capital. In her view, such restriction cannot be justified. Moreover, the Advocate General is of the opinion that portfolio dividends from third countries and portfolio dividends from EU/EEA Member States have to be treated alike.

Preliminary questions referred to CJ by the Portuguese Supreme Court on the concept of valid commercial reasons for the purpose of the anti-abuse provision under the Merger Directive (Foggia) On 10 March 2010, the Portuguese Supreme Court referred a case to the CJ concerning the interpretation of the anti-abuse provision provided in Article 11(1)(a) of the Merger Directive, which currently corresponds to Article 15(1)(a) of Council Directive 2009/133/EC of 19 October 2009 (codified version). The case is now pending before the CJ as the Foggia case (C-126/10) and it concerns the meaning of the expressions ‘valid commercial reasons’ and ‘restructuring or rationalisation of the activities’ of companies participating in operations covered by the Merger Directive’.

The facts of the case refer to 2003 and are relatively straightforward: a Portuguese bank had four Portuguese holding companies (under the form of an SGPS – Sociedade Gestora de Participacoes Sociais). Such bank decided to eliminate part of those holding companies and, for that purpose, three holding companies merged,



was deemed to have been realised. The corporate income tax assessment was based, inter alia, on the assumption that interested party tried to avoid exit taxation by means of abuse of law (fraus legis).

The Lower Court of Haarlem had decided that abuse of law was indeed present, and that exit taxation should be applied.

Following appeal, the Court of Appeals concluded that abuse of law was present. The Court considered the currency exchange gain taxable due to the transfer of the place of management. However, the Court questions whether this exit taxation on companies is allowed under the freedom of establishment of Article 49 TFEU. Although a number of judgments of the CJ exist on exit taxes levied from individuals (Lasteyrie and N cases), and there have been a few CJ judgments on Treaty access for companies transferring their seat (Daily Mail and Cartesio), the answer to aforementioned question is unclear. The Court has therefore referred the question to the CJ for a preliminary ruling.

Preliminary ruling requested by the Hungarian Supreme Court on cross-border conversion of companies (VALE)On 28 July 2010, the Hungarian Supreme Court referred a question to the CJ for a preliminary ruling in the VALE case (C-378/10), concerning the compatibility with the freedom of establishment of the Hungarian company laws which preclude the conversion of a company of another Member State to a Hungarian company.

In the case at hand, an Italian company, VALE COSTRUZIONI S.r.l. (‘VALE’), intended to transfer its seat to Hungary while terminating all its activities in Italy as well as its legal existence under Italian law. In other words, with changing its seat VALE intended to become a Hungarian company operating under the name of VALE Építési Kft., governed by Hungarian company laws. In its application for registration to the Hungarian court of registration, it requested that VALE COSTRUZIONI S.r.l. be indicated as a legal predecessor of VALE Építési Kft. The court of registration rejected the application on the ground that the Act on the Registration of Companies does not permit the registration of a foreign company as

had developed no activity has a holding company, had no financial holdings and would consequently transfer only substantial losses, even if it is recognized that the merger had a positive effect in terms of the costs structure of the group.

Preliminary commentsThe outcome of this case is expected to be most interesting. First, because the CJ will be required to deal with the concept: what should be the meaning of the anti-abuse provision provided in Article 11(1)(a) (currently Article 15(1)(a)) of the Merger Directive. In addition, it will be most relevant to analyse the approach the CJ takes in such analysis, namely whether the CJ will follow somehow the approach elected by the Portuguese tax authorities (i.e. that valid commercial reasons should be evaluated in the perspective of the acquiring company (Foggia SGPS) and not in the perspective of the whole group), or whether it will take a different approach. This is relevant since the interpretation followed by the Portuguese tax authorities may not be limited to a Portuguese level but may also be followed by tax authorities in other Member States.

Developments in the Netherlands: Amsterdam Court of Appeals refers question to the CJ for a preliminary ruling on corporate exit taxation (National Grid Indus BV)On 15 July 2010, the Amsterdam Court of Appeals referred a question to the CJ for a preliminary ruling on the exit taxation on companies in case of a transfer of their place of effective management to another Member State.

National Grid Indus BV, the interested party, transferred its place of effective management to the United Kingdom. In such a case, according to Netherlands tax law, corporate income tax has to be levied on the hidden profit reserves of a company (article 15c and/or 15d of the Corporate Income Tax Act 1969). At the time of migration, the interested party had a receivable in British pounds on a group company. Due to currency exchange developments, this receivable had increased in value by more than NLG 22 million. Prior to migration, tax had not yet been levied on this amount as the currency exchange result had not been realised. As a result of the transfer of the place of effective management, this unrealised currency exchange result on the receivable



4. Is the host State entitled to decide on the application for registration of a company carrying out an international conversion according to the provisions of the host State’s company laws concerning the conversion of national companies requiring the company to fulfil all the conditions (e.g. drawing up balance sheet and asset inventory) that the host State’s company laws require with regard to domestic conversions or, is the host State obliged, on the basis of Articles 43 and 48 EC, to distinguish international conversions from domestic conversions, and if so, to what extent?

Preliminary commentsThis case can be considered a continuation of the Cartesio case (C-210/06) where, also in the context of Hungarian company laws, the CJ held that the freedom of establishment does not guarantee a right for a company of a Member State to transfer its real seat (i.e. centre of administration) to another Member State while retaining its legal personality under the laws of the Member State of incorporation. However, in an obiter dictum the CJ also stated that the power of a Member State to define the connecting factor required of a company to be regarded as a company governed by the laws of that State and the conditions under which the company may maintain that status “…cannot, …, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so.” (para. 112). Thus, the freedom of establishment does give a right to companies to cross-border conversion from the point of view of the home State. However, there is an important qualification to that, i.e. such right exists to the extent that cross-border conversion is possible under the laws of the host State. This formulation suggests that from the host State’s perspective, the decision on whether or not a Member State allows foreign companies to convert into national companies is still within the sovereignty of that Member State. The CJ’s answer to be given in the VALE case is expected to clarify this highly relevant issue still open under European company laws.

a legal predecessor of a Hungarian company. After the case reached the Supreme Court, the latter asked the CJ whether the Hungarian company laws that do not allow a company of another Member State to convert into a Hungarian company are compatible with the freedom of establishment set out in the former Articles 43 and 48 EC (now Articles 49 and 54 TFEU).The Hungarian Supreme Court, in particular, asks:1. Does the host Member State have to have regard to

Articles 43 and 48 EC when a company incorporated in another Member State (home Member State) transfers its seat to the host Member State while, at the same time, the company is cancelled from the registry of the home Member State due to the transfer of seat and, the owners of the company adopt new articles of association according to the laws of the host Member State and pursuant to the latter law the company applies for its registration in the host Member State’s registry of companies?

2. If the answer to the first question is affirmative, do Articles 43 and 48 EC have to be interpreted in a way that they preclude the host Member State from maintaining legislation or practice which prevents a company duly constituted in another home Member State from transferring its seat to the host State and continuing to operate under the laws of the latter?

3. In answering the second question is it relevant on what ground the host Member State denies the company of being registered, with particular regard to the case where the company in the articles of association adopted in the host State indicates the company constituted in, and cancelled from the registry of the home State as its legal predecessor and it requests to register the latter in the host State’s registry as its own legal predecessor?

In the case of intra-Community international conversion, when deciding on the application for registration of a company, is the host State obliged, and if so, to what extent, to take into account the act of the home State by which it registered the transfer of the seat of the company in its own registry of companies?



On 25 March 2010, a law decree was issued which provides that a tax litigation procedure pending before the Italian Supreme Court at the time when the conversion law of the same decree entered into force (26 May 2010) concerning a claim older than ten years, can be settled with the payment of 5% of the value of the litigation by the taxpayer. 3M paid such amount to settle the litigation and urged the application of the tax amnesty to the case concerned.

In the context of the above, the Italian Supreme Court asks the CJ the following questions:‘1. Does the abuse of rights principle in taxation matters, as defined in cases C-255/02 Halifax and Others [2006] ECR I-1609 and C-425/06 Part Service [2008] ECR I-897, constitute a fundamental principle of Community law only in the field of harmonised taxes and in matters governed by secondary Community law provisions, or does it extend, as a category of abuse of fundamental freedoms, to matters involving non-harmonised taxes, such as direct taxes, where the tax relates to transnational financial matters, such as the acquisition by a company of rights of usufruct over the shares of a second company established in another Member State or in a non-Member State?

2. Irrespective of the answer to the first question, is there a Community interest in provision being made by the Member States for adequate anti-avoidance measures in the field of non-harmonised taxes, and is such an interest thwarted by the failure to apply — in the context of a tax amnesty measure — the abuse of rights principle which is also recognised as a rule of national law and, if so, are the principles that may be inferred from Article 4(3) of the Treaty on European Union infringed?

3. Do the principles governing the single market impliedly preclude not only extraordinary measures in the form of a total waiver of a tax claim, but also an extraordinary measure for concluding tax disputes whose application is limited in time and conditional upon payment of only part of the tax due, which is considerably less than the full amount?

Preliminary question referred to CJ on the scope of application of the abuse of rights principle in taxation matters (3 M Italia)On 23 August 2010, the Italian Supreme Court referred a preliminary question to the CJ in the 3 M Italia case (C-417/10) regarding the scope of application of the principle of abuse of rights and other questions with regard to the status of amnesties that affect tax disputes pending before national courts under EU law.

BackgroundThe US company Minnesota Mining and Manufacturing Co. (‘Minnesota Mining US’) gave the usufruct of the shares it held in the Italian company 3M Italia Finanziaria S.p.A. (‘3M’) to another US company, Shearson Lehman Hutton Special Financing Inc. (‘Shearsons US’). In turn, Shearson US gave the usufruct on the 3M shares to another Italian company, Olivetti & C. S.p.A. (‘Olivetti’). As a consequence, upon the payment of dividends, 3M withheld the 10% non-final withholding tax applicable to dividends paid to domestic parent companies, instead of the 32.4% final withholding tax applicable to dividends paid to foreign parent companies. Following an assessment, and on the basis of some unusual features of the usufruct in place, the Italian tax administration argued that the transaction was fictitious and only aimed at obtaining undue fiscal advantages. On these grounds, it required the payment of the higher withholding tax applicable to dividends paid to foreign parent companies as well as interest and penalties for non-compliance with the withholding agents’ obligations by 3M.

Not recognizing the abusive intent of the parties that concluded the usufruct contracts, and especially that of 3M, and arguing that the anti-abuse provision applied by the tax administration only refers to the fictitious interposition of persons and not to general abusive behaviours, both the Italian Tax Court of First Instance of Naples and the Tax Court of Appeal of Campania revoked the assessment of the tax administration. The tax administration and the Ministry of Finance appealed to the Italian Supreme Court against the judgment of the court of appeal.



underlined that the Commission does not criticize the aim of the anti-abuse measure but solely the disproportionate requirements imposed on foreign companies in order to prove the existence of a ‘genuine economic activity’.

Commission opens public consultation on double taxation problems in the EUOn 27 April 2010, the Commission launched an online public consultation to ask individuals, companies and tax advisers for information on double taxation problems they have encountered when operating across borders within the EU. The aim of the public consultation is to clearly identify the nature of the problems that EU taxpayers are facing and the extent to which many individuals and companies are encountering the problem of being taxed on the same income or profits in two or more different Member States.

The consultation concerns all direct taxes – income taxes, corporate taxes, capital gains taxes, withholding taxes, inheritance taxes and gift taxes. The consultation will run until 30 June 2010, after which, the Commission will publish a summary of all contributions received. It will also analyse the replies in detail and use them in preparing possible initiatives for EU action in the field of direct taxation.

Commission publishes report on removing tax obstacles to cross-border venture capital investment On 30 April 2010, the Commission published a report which outlines the double taxation problems that arise when venture capital is invested cross-border, as well as possible solutions. Venture capital is a vital source of growth for small and medium enterprises (‘SMEs’). Therefore, facilitating venture capital investment within the EU is crucial for good economic growth. The report sets out the findings and recommendations of an independent group of EU tax experts, which was set up by the Commission in 2007 to look at how to remove the main tax barriers to cross-border investment in venture capital. Two main problems are identified in the report, and possible solutions are recommended.

4. Do the principle of non-discrimination and the rules governing State aid preclude the system for concluding tax disputes at issue in the present case?

5. Does the principle of the effective application of Community law preclude extraordinary procedural rules of limited duration which remove the power to review legality (in particular concerning the correct interpretation and application of Community law) from the court of last instance, which is under an obligation to refer questions of validity and interpretation requiring a preliminary ruling to the Court of Justice of the European Union?’

Commission requests Germany to amend its anti-abuse provision on withholding tax reliefOn 18 March 2010, the Commission formally requested Germany to change its anti-abuse provision on withholding tax relief. The request takes the form of a reasoned opinion, i.e. the second step of the infringement procedure provided for by Article 258 TFEU. If it does not receive a satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the CJ.

The aim of the German anti-abuse provision is to prevent that taxpayers who are not entitled to a withholding tax relief (exemption or refund) can obtain such a relief by means of setting up a foreign company for this sole purpose. With this objective, the German anti-abuse provision denies the tax relief if any of the following conditions are met: • there is no economic or other relevant reason to

establish the foreign company; or• the foreign company does not earn more than 10% of

its gross income from its own economic activity; or• the foreign company has no adequate business

premises for its activities.

The Commission is of the opinion that the contested measure is disproportionate, in particular as regards the second condition listed above, where the possibility to produce proof to the contrary does not exist. Therefore, the German measure goes beyond what is necessary to attain its objective of preventing tax evasion. It should be



The requests are in the form of ’reasoned opinions’ under the EU infringement procedures of Article 258 TFEU. In all cases, the Commission considers the tax rules in questionto breach the free movement of capital.

(i) Substantial interests held by foreign companiesThe Commission has requested the Netherlands to change legislation that exempts domestic companies from tax on their income from substantial interests, but which taxes companies established elsewhere in the EU and EEA on income from substantial interests not forming part of the business capital. The Commission considers this rule contrary not only to EU law on the free movement of capital (Article 63 TFEU), but also to EU law on the freedom of establishment (Article 49 TFEU),and to the Parent-Subsidiary Directive .

(ii) Taxation of interests held by non-resident charitiesThe Commission has requested the Netherlands to change its tax rules under which resident charities which do not run an enterprise are exempt from corporation tax, whereas similar non-resident charities are not. Dutch companies which are not engaged in an enterprise but which receive income from substantial interests in Dutch companies or from debt claims on companies in which they hold shares, are exempt from corporation tax. However, foreign charities have to pay tax on such income received from Dutch companies. The Commission considers these rules contrary to EU law on the free movement of capital.

(iii) Taxation of real estate income for non-resident charitiesThe Commission has requested the Netherlands to change its tax rules which discriminate against foreign charities that have real estate in The Netherlands. Under the Dutch rules in question, domestic charities and church organisations, which are not involved in any enterprise, are exempt from taxation on income from real estate in The Netherlands. However, non-resident foreign charities and church organisations are subject to tax on any income from property they may have in the Netherlands. The Commission considers these rules contrary to EU law on the free movement of capital.

First, the local presence of a venture capital fund manager in the Member State in which an investment is made may be treated as a taxable presence (i.e. a permanent establishment) of the fund or of the investors in that Member State. This could lead to double taxation if the return on the investment is also taxed in the country or countries of location of the fund or the investors. The EU tax experts proposed that a venture capital fund manager should not be considered as creating a taxable presence for the fund or investors in the Member State where the investment is made. This would reduce double tax problems for cross-border venture capital investment.

Second, it was found that venture capital funds may currently be treated in very different ways for tax purposes by the different Member States. A fund may, for example, be treated as transparent in one Member State and non-transparent in another. Again, this can lead to double taxation. The EU tax experts therefore suggested that Member States should agree on a mutual recognition of the tax classification of venture capital funds.

The Commission is to present the report to the Member States’ tax authorities for input into the ongoing work of looking at how to improve the Internal Market for SMEs. The Commission will now consider how best to follow up on the findings in the report, in line with its broader agenda to eliminate double taxation in the EU.

Commission sent four reasoned opinions to the Netherlands to change discriminatory tax rulesOn 30 September 2010, the Commission sent four separate requests to the Netherlands to change discriminatory tax rules under EU infringement procedures. These requests concern the following: (i) taxation of substantial interests held by foreign

companies;(ii) taxation of interests held by non-resident charities; (iii) taxation of real estate income for non-resident

charities;(iv) levy of succession and gift duties on country estates.



Exciting times for foreign investors and or domestic investors with foreign country estates, with the very welcome chance to file requests for refund of taxes paid in the past. In cases where this might apply, taking into account the Dutch statutes of limitation, our advise would be to foreign and domestic investors to safeguard their EU law rights as soon as possible.

Commission requests Germany to amend its discriminatory treatment of group companiesOn 30 September 2010, the Commission formally requested Germany to amend its legislation regarding its discriminatory treatment of groups of companies formed in other Member States or EEA countries but having its place of effective management in Germany. The request takes the form of a reasoned opinion.

According to German legislation, in order for companies to qualify for joining the tax group regime (Organschaft) they must fulfil a double requirement: they must have both their seat and their place of effective management in Germany. This means that a company which was formed in another country and moves its effective management to Germany becoming a German tax resident, can still not benefit from the tax group regime. In that regard, it is placed at a disadvantage in the sense that it cannot offset the losses and profits within the group members, as well as other related advantages to the tax group regime. The Commission is of the view that this rule breaches the freedom of establishment provided in Article 49 TFEU.

Developments in Germany: Ministry of Finance issues guidance on application of CJ judgment in Deutsche ShellOn 23 November 2009, the German Ministry of Finance issued official guidance on the application of the CJ judgment in Deutsche Shell (C-293/06). In this judgment, the CJ ruled that a currency loss must be considered deductible in the home State of a company upon the repatriation of start-up capital granted to its permanent establishment in another Member State.

It is noted in this guidance that the CJ judgment only relates to a specific legal issue regarding the termination of a Permanent Establishment (‘PE’) situated in an EU/EEA Member State. It is the obligation of the taxpayer to

(iv) Succession and gift duties on country estatesThe Commission has requested the Dutch authorities to change the rules which full or partially exempt country estates (Natuurschoon) located in the Netherlands from succession or gift duties, but which impose 100% duties on inherited or gifted country estates in other Member States and EEA countries. The Commission considers such provisions to be discriminatory and contrary to EU rules on the free movement of capital.

The Netherlands has been granted two months to reply. If there is no satisfactory response within this deadline, the Commission may refer the Netherlands to the CJ.

Preliminary commentsThe Commission is closely monitoring legislation of the various EU Member States. In our view, a very sound development. Within the EU, one of the main goals is to establish an internal market without boundaries, infringements and discriminations, ultimately leading to a level playing field for all investors across the EU. The Commission rightly acknowledges, that one of its roles is to stimulate the achievement of this goal.

The Netherlands legislation under (i), (ii) and (iii) clearly provides, under circumstances, an exemption of taxation for domestic investors (companies, and charities in the form of foundations, associations and church institutions), whereas its foreign (EU) counterparts will suffer taxation in cases where no bilateral tax treaty provides relief. For the Netherlands legislation under (iv), only the ownership of Netherlands country estates is treated beneficially. In the eyes of the Commission, all of them are restrictions of the free movement of capital principle. Foreign investors (and foreign assets) are treated less favourably than domestic investors (and domestic assets).

If the Netherlands were to wait and see what happens, this could ultimately mean paying a visit to the CJ in Luxembourg. In respect of the legislation under (i), (ii) and (iii), considering CJ cases such as Stauffer, Verkooijen, Denkavit Internationaal, Aberdeen Fininvest, etc, chances are rather high that the CJ would consider the Dutch legislation in breach of EU law.



These cases have indicated that in order to be comparable, entities do not have to be identical. The CJ has used an economic approach in the past. Despite the fact that it is not yet fully clear how an individual comparison should be made, rejecting comparability solely on the basis of the distribution obligation seems rather thin.

Developments in the Netherlands: Lower Court of Breda decides that Scottish pension fund is comparable to Netherlands pension fund, entitled to full refund of Netherlands dividend withholding tax and a compensation for damagesOn 3 March 2010, the Lower Court of Breda gave its decision on the right to a full refund of Netherlands dividend withholding tax for a Scottish pension fund.

The interested party, a Scottish pension fund, held shares in Netherlands companies and received dividends in the years 2002 and 2004 on which dividend tax was withheld. The interested party did not have legal personality according to Scottish law, and was not subject to taxation on its profits. In 2007, the interested party requested a refund of the dividend tax withheld in the years 2002 and 2004.

According to Netherlands law, a Netherlands pension fund is entitled to a refund of dividend tax for a period of 3 years after the year in which the dividend was distributed. Netherlands pension funds, whether organised as a company or an association have, in principle, legal personality.

The tax inspector first rejected the refund for both years, claiming that the statute of limitation had lapsed. After objection was filed, the reasoning for the 2004 request was changed to the argument that the interested party did not have legal personality. In 2009, the tax inspector allowed an ex-officio refund of the dividend tax withheld in 2004. The interested party appealed this decision: it also asked for the 2002 refund and requested compensation for damages (statutory interest calculated on the amount of the refund) for both 2002 and 2004.

prove that in a specific case a currency loss occurred. If such evidence is provided, a currency loss resulting from the repatriation of the start-up capital of a PE situated in another Member State must be taken into account for determining the taxable base of the domestic company at the time of the effective termination of the foreign PE.

Developments in the Netherlands: Lower Court of Breda decides that Spanish investment fund is not entitled to full refund of Netherlands dividend withholding taxOn 22 March 2010, the Lower Court of Breda issued its judgement on the right to full refund of Netherlands dividend withholding tax to a Spanish investment company. The interested party was a Spanish investment fund, that was subject to Spanish profit tax at the rate of 1%. The interested party had invested in Netherlands companies and held portfolio participations in those companies of less than 5%. On dividends received, dividend tax was withheld at a rate of 25% which was reduced to 15%. The interested party requested an additional refund of the 15% effectively withheld, based on EU law.

The Lower Court of Breda rejected the request for the refund of dividend withholding tax. The Lower Court noted that the interested party could not be compared with a Netherlands investment fund within the meaning of article 28 of the Corporate Income Tax Act 1969, as the interested party was not subject to a distribution obligation. A Netherlands investment fund would have been subject to such distribution obligation. Furthermore, as the interested party is subject to taxation on its profits, according to the Lower Court, there is no restriction to the free movement of capital. Had it been established in the Netherlands, there would also be no entitlement to such refund on the basis of article 10 Dividend Withholding Tax Act.

Preliminary commentsThis could be regarded as a highly questionable decision of the Lower Court. No reference is made to CJ judgements such as Aberdeen (C-303/07), Denkavit Internationaal (C-170/05), Persche (C-318/07) and Stauffer (C-386/04).



The CJ ruled that the fact that only domestic subsidiaries may be included in a fiscal unity whereas foreign subsidiaries cannot, in principle, constitutes a restriction on the freedom of establishment protected under Article 49 in conjunction with Article 54 TFEU. The CJ, however, ruled that – due to the fact that the parent company is at liberty to include or exclude a subsidiary in the fiscal unity – acceptance of the possibility to include non-resident subsidiaries in the fiscal unity would offer the parent company the opportunity to choose freely in which EU Member State the subsidiary’s losses would be taken into account. For that reason, the refusal of a cross-border fiscal unity is justified in view of the need to safeguard the allocation of the power to impose taxes.

On 7 July 2010, Advocate General Wattel with the Netherlands Supreme Court, issued a new Opinion, following the CJ judgment of 25 February 2010. In this new Opinion, Advocate General Wattel concluded that he agreed with the final judgment of the CJ, but not fully with its reasoning. According to the AG, a foreign subsidiary not subject to Netherlands taxation is objectively not comparable with a domestic subsidiary subject to Netherlands taxation. Therefore, he is of the opinion that no discrimination can be considered present (no difference in treatment of comparable situations). The CJ did consider objectively comparable situations present for the question of discrimination, but denied the same comparability for purposes of the justification ground. Thus, the CJ could conclude that the balanced allocation of taxing powers may justify the discrimination. Although the AG disagrees with the CJ’s reasoning on this point, he does agree with the outcome.

Furthermore, AG Wattel concluded that the CJ’s judgment is not only relevant to the question of cross-border loss compensation (which is only one element of the Dutch fiscal unity), but also to the other advantages belonging to the fiscal unity regime (no application of thin cap, tax free reorganisations, obligation to file one tax return), i.e. the complete fiscal unity regime as a whole. Otherwise, according to the AG, the risk of cherry picking would become too high.

In conclusion, AG Wattel advises the Supreme Court to deny the appeal of X Holding BV.

The Lower Court of Breda decided that the 2002 request had been filed outside of the statute of limitation, and should be disregarded. In respect of the 2004 request, the Lower Court decided that the Scottish pension fund was objectively comparable to a Netherlands pension fund, irrespective of the fact that a Scottish pension fund has no legal personality. Not granting the refund to the interested party makes it less favourable to invest in the Netherlands for non-resident pension funds. The Court considered that a forbidden restriction of the free movement of capital was present. It also confirmed that the interested party had suffered damages as a result of the initial rejection of the 2004 refund request, and that it had a right to compensation in the amount of statutory interest calculated on the amount of the refund had it been received earlier.

Developments in the Netherlands: Advocate General Wattel with the Netherlands Supreme Court issues a new Opinion following the CJ judgment on X HoldingOn 25 February 2010, the CJ delivered its judgment in the X Holding case (C-337/08) (see EU Tax Alert edition no. 77, March 2010). The CJ ruled that the fact that the Netherlands tax regime makes it possible for a parent company to form a fiscal unity for corporate income tax purposes with its resident subsidiary but does not allow the formation of such a fiscal unity with a non-resident subsidiary is not in conflict with EU law, due to the fact that the profits of that non-resident subsidiary are not subject to the Netherlands tax legislation.

In 2003, X Holding BV, a company resident in the Netherlands, requested to be included in a fiscal unity for corporate income tax purposes with its subsidiary F, a company resident in Belgium. The Netherlands tax authorities refused the fiscal unity, since F did not meet the applicable requirements that it was either resident in the Netherlands for tax purposes, or that it had a permanent establishment in the Netherlands. According to X Holding BV, the refusal to allow a (cross-border) fiscal unity is incompatible with EU law.



Before making this actual comparison, the Lower Court first continued from a formal perspective, that article 15 of the Netherlands General Tax Act grants the formal right to challenge the Netherlands dividend tax withheld for the account of SA. The Court considered a 5-year statute of limitation reasonable for such claims. Based on the filing dates of these ‘article 15’ requests on behalf of SA, the Court further investigated the years 2003-2008.

For the years 2003-2007, SA received a tax credit in France for the Netherlands dividend withheld, even though the double tax treaty between France and the Netherlands did not oblige France to do so. Nevertheless, according to the Lower Court, these tax credits sufficed to neutralize any restriction of the free movement of capital caused by the Netherlands. According to the Court, timing differences in this respect are the result of incomparable situations (i.e. a fully domestic situation with one authority, and a cross border situation with two competent authorities).

For the year 2008, SA did not receive a tax credit in France due to losses it incurred. Based on this, the Court investigated whether a forbidden restriction of the free movement of capital was present by comparing 15% dividend tax on the gross dividend in the cross border situation, versus 25.5% levy of corporation tax on the net dividend with the possibility to fully credit the 15% dividend tax in the domestic situation. The Court put the burden on SA to prove that the 25.5% levy of corporation tax on the net dividend was lower than the 15% dividend tax on the gross dividend. According to the Court, SA did not provide sufficient evidence to prove this position. The Lower Court rejected the refunds for all the years requested by SA.

Preliminary commentsIt is good to receive confirmation that the Lower Court explicitly accepts article 15 of the General Income Tax Act as a formal means of effectuating claims for refund of dividend tax based on EU law. The Court found a 5-year recovery period a reasonable statute of limitation. It is, however, not to be excluded that this term should be longer based on EU law.

Developments in the Netherlands: Lower Court of Haarlem decides under what circumstances Dutch dividend tax withheld for the account of a French Bank can be in breach of EU law On 3 August 2010, the Netherlands Lower Court of Haarlem gave its decision in which it decided under what circumstances Dutch dividend tax withheld for the account of a French Bank can be in breach of EU law. These proceedings were initiated by Loyens & Loeff on behalf of the French Bank.

During the years 2000-2008, the Netherlands levied dividend tax at a rate of 15% (after reduction under the applicable double tax treaty) for the account of the bank resident in France and incorporated under French law (‘SA’) on dividends distributed by Netherlands’ companies. SA invested in Netherlands’ shares, being minority interests, as part of its derivatives trading activities in France.

According to the Lower Court, the EU law comparison should be made between SA and a bank resident in the Netherlands and incorporated under Netherlands’ law holding Netherlands’ shares for derivatives trading activities in the Netherlands. Making this comparison, it has to be acknowledged that the bank resident in the Netherlands would have had the possibility to obtain a full credit (including a refund) of the Dutch dividend tax withheld, taking into account that it would be subject to Netherlands corporation tax.

On a pure dividend tax level comparison, there would have been no difference in treatment, but taking corporation tax into account, a difference may occur: while SA will be taxed at 15% dividend tax on the gross dividend, a bank resident in the Netherlands will be subject to a 25.5% levy of corporation tax on the net dividend with the possibility to fully credit the 15% dividend tax. The Lower Court of Haarlem dismissed the argument brought by the Dutch tax inspector that in the Truck Center case (C-282/07) the CJ considered such differences in line with EU law. The Lower Court was then asked to compare the differences in both tax rate and tax base (i.e. level of effective taxation), and thus to take into account the possibility to deduct costs.



better communication between Member States. The new Directive has to be implemented by all Member States by 31 December 2012, with effect as of 2013 at the latest.

Period for applying for VAT refunds for foreign entrepreneurs extendedThe EU Member States have come to an agreement to extend the period during which entrepreneurs can apply for VAT refunds with regard to the year 2009 in other EU Member States by six months. Entrepreneurs are, therefore, allowed to file such requests up to and including 31 March 2011. This extension results from the various problems EU taxpayers have experienced with the new method of asking a refund of foreign VAT.

CJ concludes Netherlands restrictions of the deductibility of input VAT compatible with the VAT Directive (X Holding and Oracle Nederland)On the basis of a Netherlands Royal Decree on the Exclusion of Input Tax Credit (the ‘BUA’), input VAT is not deductible insofar as it relates to business gifts or gifts to personnel if no consideration is received or if the consideration received is lower than the cost price. For some time, it has been questioned whether the BUA is compatible with EU VAT law. On 15 April 2010, the CJ gave the decisive answer in the joined cases X Holding (C-538/08) and Oracle Nederland (C-33/09).

X Holding BV purchased passenger cars from car dealers and deducted all of the input VAT. It retained the cars for a limited period, after which it sold them. It paid on declaration the VAT charged on the supply of each car. After subsequent review, the tax authorities did not agree that X Holding BV had deducted all of the input VAT on the ground that most of the cars had not been used for business purposes but for the private use of staff.

The Oracle Nederland case concerns the provision of food and drinks to personnel, business cards or other gifts given to persons who were not entitled to deduct input VAT, accommodation arranged for recreation opportunities given to personnel. Oracle lodged a complaint that it had a right to deduct the input VAT relating to those expenses.

The Lower Court of Haarlem rightly dismissed the argument that in the Truck Center case (C-282/07) the CJ considered differences in tax base in line with EU law. The CJ merely compared the differences in tax rates of dividend tax and corporation tax in the Truck Center case, and did not (as it was not asked to do so) take the differences in tax base into the equation.

The reasoning of the Lower Court as regards the neutralization of the restriction by credits received in France, seems in breach of CJ cases Commission v Italy (C-540/07) and Commission v Spain (C-487/08), where only a full credit based on the bilateral tax treaty was considered sufficient to neutralize such restrictions caused by the source State. Such obligation to grant a full credit in France was not present in the double tax treaty in the case at hand. To put the burden of proof on the taxpayer, although it is the source State which decides to levy taxes on the gross dividend in the cross border situation, and on the net dividend in the domestic situation, can be explained by the CJ decision in Commission v Portugal (C-105/08). It must be noted, however, that in that judgment, the CJ does seem to acknowledge broad examples supported by statistical information as sufficient proof of the presence of a restriction.

VATEU Council agrees on simplified rules for VAT invoicing On 13 July 2010, the Council, in the formation of Economic and Finance Ministers, agreed on a Directive for simplifying the VAT invoicing requirements with regard to electronic invoicing. The Directive aims to harmonize the rules. On the basis of the new rules, the tax authorities will have to accept e-invoices under the same conditions as paper invoices, and legal obstacles to the transmission and storage of e-invoices have to be removed. Furthermore, new rules have been adopted with respect to simplified invoicing for certain traders. Finally, some provisions are included that will have advanced consequences on the cooperation between Member States to fight VAT fraud. In that respect, the Directive contains rules for a



Fictitious intra-EU acquisition due to using VAT-number: no immediate right to deduct VAT due (X and Facet)On 22 April 2010, the CJ gave its judgment in the combined cases X (C-536/08) and Facet (C-539/08). In both cases, the subject is the ‘fictitious’ intra-Community acquisition in a Member State due to Article 28b A, second paragraph, first section of the Sixth EU VAT Directive. That provision lays down that an intra-EU acquisition is deemed to take place in the country in which the customer has been issued its VAT number if the customer has not proven that VAT is levied correctly in the Member State where the goods are actually acquired. In both cases, the Netherlands Supreme Court asked the CJ if VAT levied based on Article 28b A, second paragraph, first section of the Sixth EU VAT Directive can be deducted immediately based on Article 17 of the Sixth EU VAT Directive.

In a rather short decision, and without an opinion of the Advocate General, the CJ considered that the subject provision has to be regarded as a correction mechanism to prevent an intra-Community acquisition from not being taxed. Due to the nature of the provision being a correction mechanism, the CJ declared that there was not an immediate right to deduct any VAT arising from this provision. Otherwise, the correction mechanism would in fact have no effect at all. Therefore, in order to be able to deduct the VAT resulting from Article 28b A, second paragraph, first section of the Sixth EU VAT Directive, a taxpayer should prove that the acquisition is taxed in an ordinary way.

Deduction of input VAT may not be refused on the basis of invoice requirements that are not listed in EU VAT law (Pannon) On 15 July 2010, the CJ rendered its decision in the Pannon Gép Centrum Kft (‘Pannon’) case (C-368/09). Pannon, a Hungarian company, concluded contracts to carry out repairs to a bridge and to carry out storm sewer construction work. The work was subsequently subcontracted. When the work was completed, Pannon issued a certificate of completion and invoices to its clients. At the same time, the subcontractor issued invoices relating to the work it had carried out to Pannon.

In both cases, the Netherlands Supreme Court referred questions to the CJ. The Court indicated that on the basis of the standstill clauses of Article 11, fourth paragraph of the Second EU VAT Directive and Article 17, sixth paragraph of the Sixth EU VAT Directive Member States are, in principle, allowed to maintain a national statutory provision, such as the BUA, which was enacted before the Directives entered into force. The Courts was uncertain, however, whether the exclusions indicated in the BUA were adequately defined, whereas an adequate definition is a requirement for such an exclusion to be in line with EU law. Furthermore, the Court asked whether the deduction of input VAT could be excluded insofar as the goods or services were not used for business purposes. Finally, in the Oracle Nederland case, the referring Court indicated that an existing exclusion to the right of deduction had been amended after the entry into force of the Sixth VAT Directive. This amendment was designed to restrict the scope of that exclusion, but the scope of the exclusion could be extended in an individual case by the nature of the amended scheme.

Without going into much detail, the CJ ruled that all of the categories of expenditure must be considered to be adequately defined and therefore, such derogation from the EU VAT rules was allowed. Furthermore, the CJ answered that national legislation, which was enacted before the Sixth VAT Directive entered into force, may provide that VAT paid on the acquisition of certain goods and services is only deductible in proportion to their use for business purposes. Finally, on the third question, the CJ ruled that Article 17, sixth paragraph of the Sixth EU VAT Directive does not preclude an amendment, after the entry into force of that Directive, to an existing exclusion from the right of deduction if that amendment is designed to restrict the scope of that exclusion. This also applies if it cannot be ruled out that the scope of that exclusion might be extended in an individual case because of the nature of the amended scheme.



Limitation of refund of input VAT to financial services and insurance services in third countries is compatible with EU VAT law (Commission v UK) On 15 July 2010, the CJ gave its judgment in the Commission v UK case (C-582/08). In this case, the European Commission challenged the UK limitation to refund input VAT to non-EU taxpayers performing financial and insurance services to other non-EU parties. UK VAT law prescribes that taxable persons established in third countries are not allowed to deduct input VAT if they carry out financial and insurance transactions in third countries. The provision is based on a literal interpretation of Article 2, first paragraph of the Thirteenth EU VAT Directive according to which VAT is deductible insofar as goods or services are used for the purposes of transactions contained in Article 17, third paragraph, under a and b of the Sixth EU VAT Directive. No express reference is made to the financial and insurance services as indicated under c of the latter article. According to the European Commission however, financial and insurance transactions should be read into Article 2, first paragraph, of the Thirteenth EU VAT Directive because such an obligation is inherent in the logic of the VAT system.

Advocate General Jääskinen issued his Opinion on 20 May 2010, concluding that the UK method was not incompatible with the EU legislation.

The CJ considered that the UK legislation was consistent with the clear and precise wording of the Thirteenth EU VAT Directive. Furthermore, it considered that it cannot be derived from the history of EU legislation that the UK approach would not comply with the EU system. Moreover, even if that were the case, the CJ considered that it was not up to the CJ to judge in line of the system when the Directive itself is clear in its wording. Accordingly, the CJ concluded that the UK legislation in this matter complies with EU regulations and consequently dismissed the action of the Commission.

Following an inquiry, the Hungarian tax authorities found that the completion dates mentioned on the invoices issued by the subcontractor preceded the dates mentioned on the certificates of completion and invoices issued by Pannon. Subsequently, Pannon and the subcontractor informed the tax authorities that the invoices issued by the subcontractor were not correct. The subcontractor handed out credit notes and issued new invoices on which the correct completion dates were mentioned. However, according to the tax authorities, Pannon could not deduct input VAT on the basis of the corrected invoices, because the numbering had not been sequential. As a consequence, the tax authorities ordered Pannon to repay the input VAT that had been deducted on the basis of the incorrect invoices. Furthermore, a fine and penalty for late payment were imposed. In the following proceedings, the Baranya county court decided to refer preliminary questions to the CJ, asking whether EU VAT law precludes national legislation, or a practice based on such legislation, which denies the right to deduct VAT where the invoice relating to the services supplied to the taxable person initially contained an error and the subsequent correction of that error does not comply with all the conditions set by the applicable national rules.

The CJ ruled that only the details listed in Article 226 of the EU VAT Directive have to be mentioned on invoices issued pursuant to Article 220 of that Directive, and that Member States may not make the right to deduct input VAT dependent on compliance with conditions relating to the content of invoices which are not expressly laid down by that provision of the EU VAT Directive. In this regard, the CJ indicated that all formal and material conditions had been satisfied in the case at hand, because Article 226 of the EU VAT Directive imposes no requirement that corrected invoices and credit notes cancelling incorrect invoices must be sequential.



Furthermore, the CJ decided that the consideration for the provision of the vouchers corresponded with the (part of the) cash remuneration that the employees waived.

CJ decides that deduction of input VAT may not be denied because of the fact that the taxpayer was not registered for VAT purposes at the time of the transactions (Nidera)On 21 October 2010, the CJ rendered its judgment in the Nidera case (C-385/09), concerning the deduction of input VAT where the taxpayer was not registered for VAT purposes at the time of the transaction.

Nidera Handelscompagnie BV (‘Nidera’) purchased goods in Lithuania, and subsequently exported those goods outside the EU. At the time of the transactions, Nidera was not registered for VAT purposes in Lithuania. Afterwards, Nidera obtained a VAT registration and applied for a refund of the input VAT paid on the purchased goods in Lithuania. The Lithuanian tax authorities denied the deduction of the input VAT on the ground that the goods, which had already been sold, would no longer be used for VAT taxable activities. According to the tax authorities, Nidera had to be registered for VAT purposes in Lithuania at the time the transactions had taken place if it wanted to reclaim the input VAT. The Tax Disputes Commission was uncertain about this matter and decided to refer preliminary questions to the CJ.

First, the CJ established that the necessary independence has been conferred to the Tax Disputes Commission in order for it to qualify as a court or tribunal within the meaning of Article 267 TFEU (then Article 234 EC), and that the Commission meets the other criteria laid down by the CJ. That analysis cannot be called into question by the fact that the Commission forms part of the organisational structure of the Ministry of Finance and that it is required to submit annual reports to it. Therefore, the CJ concluded that the reference for the preliminary ruling was admissible.

As for the substance of the case, the CJ indicated that, in accordance with Article 167 of the EU VAT Directive, the right of deduction arises at the time when the deductible tax becomes payable. The right to deduction is only

CJ rules provision of retail vouchers constitutes a supply of services for consideration (Astra Zeneca)On 29 July 2010, the CJ rendered its judgment in the Astra Zeneca case (C-40/09). Astra Zeneca, a company active in the pharmaceutical industry, offered its employees to exchange part of their salary for other benefits such as retail vouchers for certain shops. If employees choose for such exchange, they received a nominal voucher of GBP 10 whereas the cash salary was diminished with an amount between GBP 9.25 and GBP 9.55.

Astra Zeneca claimed that it was not required to charge VAT on the provision of the vouchers, because the vouchers were not provided for consideration. On the other hand, the company considered that it was entitled to deduct the VAT resulting from the acquisition of the vouchers, because it concerned business overheads costs.

The Commissioners for Her Majesty’s Revenue and Customs (‘HMRC’) did not agree that Astra Zeneca was entitled to deduct the input VAT on the purchase of the vouchers, because the vouchers were not used for taxable transactions. Moreover, if Astra Zeneca was entitled to deduct the input VAT on the vouchers, the Commissioners were of the opinion that the company also had to account for output VAT on the vouchers provided to the employees on the ground that the vouchers were provided for consideration (deduction from the salary receivable in cash), or that the vouchers were made available to the employees for purposes other than business purposes.

The VAT and Duties Tribunal in Manchester decided to refer preliminary questions to the CJ on whether the provision of the vouchers constituted a supply of services for consideration. In this regard, the CJ indicated that any transaction that does not constitute a supply of goods is regarded as a supply of services. As a consequence, the provision of the vouchers constituted a supply of services as indicated in Article 6, paragraph 1 of the Sixth EU VAT Directive insofar as the vouchers did not immediately transfer the right to dispose of property within the meaning of Article 5, paragraph 1 of the Sixth EU VAT Directive.



Furthermore, the Swedish tax authorities took the view that the transport of the boat would begin as soon as the boat was delivered to X, and that the place of acquisition would be Sweden, considering that the transport of the boat would end there. In the proceedings that followed, the Swedish Revenue Law Commission referred preliminary questions to the CJ.

The CJ indicated that the rules on the new means of transport aim to prevent distortions of competition between the Member States which are liable to result from the application of different VAT rates. Without these rules, new means of transport would tend to be purchased in Member States with a low VAT rate to the detriment of the other Member States. In this regard, the CJ pointed out that neither the provisions on the intra-Community supply nor the provisions on the intra-Community acquisition in the VAT Directive require that the transport of goods must be commenced or completed within a specific period of time in order for those provisions to be applicable. Otherwise, this would give purchasers the option of choosing the Member State where the acquisition of a new means of transport would be taxed according to the most favourable rates and terms, as a result of which the Member State of final destination (in this case Sweden) would lose tax revenue. Therefore, the CJ ruled that the classification of a transaction as an intra-Community supply or acquisition cannot be made dependent of a specific timeframe during which the transport of the goods must be commenced or completed. Moreover, if a Member State levies VAT on the grounds that a transaction cannot be regarded as an intra-Community supply due to non-compliance with specific transport timeframe provisions laid down in national law, that Member State must grant reimbursement of the tax thus charged in order to avoid double taxation when the Member State of arrival of the goods correctly levies VAT on the intra-Community acquisition.

The CJ, therefore, indicated that it was necessary to assess all objective evidence in order to determine whether the goods purchased have actually left the Member State of supply, and if so, in which Member State the final consumption will take place. In this regard, account should be taken of the relevant facts and circumstances

subject to the single formal requirement that the taxable person is disposed of a correctly drawn up invoice. Even though an obligation for taxable persons exists to state when their activities commence, change or cease, such obligation in no way authorises Member States to defer or deprive the taxable person of the exercise of the right to deduct input VAT.

As a consequence, the CJ concluded that a taxable person who meets the substantive criteria for the right to deduct, and who identifies himself as a taxable person within a reasonable period of time following the completion of the transactions that give rise to the right of deduction, cannot be prevented from exercising his right to deduct input VAT on the ground that he had not been identified as a taxable person before using the goods purchased in the context of his taxable activity.

CJ rules no specific timeframe applies to the transport of goods in order for the transaction to qualify as an intra-Community supply and acquisition for VAT purposes (X v Skatteverket)On 18 November 2010, the CJ rendered its decision in the X v Skatteverket case (C-84/09).

X, a private individual resident in Sweden, intended to acquire in the UK a new sailboat for private use. The sailboat qualifies as a means of transport within the meaning of Article 2 paragraph 1 (b) of the VAT Directive. X planned to use the sailboat for recreational purposes for three to five months in the UK or in a Member State other than Sweden, and to sail the boat there for more than 100 hours, after which, the sailboat would be sailed to its final destination in Sweden. In order to clarify the tax consequences of the intended acquisition, the Swedish tax authorities provided X upon request with a ruling as to whether the acquisition would be taxable in Sweden.

According to the Swedish tax authorities VAT would be due in Sweden on the acquisition of the sailboat, because the boat would not have been used for more than three months or sailed for more than 100 hours at the time of X acquiring ownership of it. The fact that those conditions would no longer be fulfilled as soon as the boat reached Sweden would have no bearing on that assessment.



The CJ considered that the services rendered by Denplan encompassed various actions, but that those actions were not separate services. Therefore, the services must be regarded as a single transaction for VAT purposes. Furthermore, the CJ indicated that the purpose of the services rendered by Denplan was to ensure that the dentists receive the payments from their patients by being responsible for the recovery of those debts and by managing those debts. According to the CJ, such services, in principle, fall within the exemption of Article 13B(d) paragraph 3 of the Sixth EU VAT Directive considering that the services constitute transactions concerning payments, and that the services are covered by the term ‘debt collection and factoring’. In this regard, the CJ indicated, contrary to claims submitted by the Commission, that it is irrelevant when the debts become due. Therefore, under ‘debt collection and factoring’ within the meaning of article 13B(d) paragraph 3 of the Sixth EU VAT Directive should also be understood services with regard to ‘debts’ that have not yet become due and that will be paid on the due date.

Exemption for intra-Community supply of goods may be refused in case of fraud (R) On 7 December 2010, the Grand Chamber of the CJ rendered its judgment in the R case (C-285/09) concerning the question whether or not an intra-Community supply of goods may be denied of an exemption in circumstances where the supply of goods to another Member State has actually taken place, but when the supplier concealed the identity of the true purchaser in order to enable the latter to evade VAT payment on the corresponding intra-Community acquisition.

R, a Portuguese national, was the manager of a German company engaged in the luxury car trade that sold more than 500 vehicles a year, mostly to car dealers established in Portugal. By issuing false invoices in the name of fictitious purchasers, some of which were aware of the use of their business name while others were not, R concealed the identity of the true purchasers of the vehicles. This enabled the Portuguese car dealers to sell the vehicles to private final purchasers in Portugal without declaring and paying VAT on the intra-Community

of each specific case, such as the amount of time spent on transporting the goods in question, the place of residence of the purchaser, the presence or absence of links between the purchaser and the Member State of supply or another Member State, and the intentions of the purchaser. Moreover, the CJ indicated that the transport does not have to be carried out immediately after its supply, that it does not have to be uninterrupted and that the goods can be used before or during said transport. Finally, the assessment of whether a means of transport is new should be made at the time of supply of the goods in question, and not at the time of arrival of those goods in the Member State of destination.

Debt collection includes services related to ‘debts’ that have not yet become due (AXA UK) On 28 October 2010, the CJ gave its judgment in the AXA UK case (C-175/09).

AXA UK PLC (‘AXA’) is the representative member of a VAT group which includes Denplan. The main service rendered by Denplan is the operation of payment plans between dentists and their patients. Under those plans, dentists provide patients with a particular level of dentistry care on a continuing basis for payment of a fixed monthly charge. Denplan collects the monthly payments and informs the dentists of the patients from which it has not received payments and subsequently contacts those patients in order to receive the payments. Finally, after subtracting a service fee from the amounts received for the services rendered, Denplan pays the amounts to the dentists. The Commissioners for HMRC were of the opinion that the fees charged by Denplan to the dentists had to be regarded as consideration for the supplies of services subject to VAT. AXA, on the other hand, claimed that the fees were exempted from VAT on the basis that they constituted consideration for financial services failing within Article 13B(d) paragraph 3 of the Sixth EU VAT Directive. In this regard, the referring court asked the CJ whether this exemption was applicable to the services rendered by Denplan.



CJ clarifies to which transaction the intra-Community transport should be ascribed (Euro Tyre Holding) On 16 December 2010, the CJ rendered its judgement in the Euro Tyre Holding case (C-430/09). The case concerns the question of how one should determine, in the case of a chain of supplies, to which of the supplies the intra-Community transport should be ascribed where the transport of the goods is effected by or on behalf of the person who acts both in the capacity of purchaser for the first supply and in the capacity of vendor in the second supply.

Euro Tyre Holding BV (‘ETH’), a Dutch company whose activities consist of the supply of spare parts for cars and other vehicles, sold tires under ex warehouse conditions to two Belgian companies called Miroco BVBA (‘Miroco’) and VBS BVBA (‘VBS’). On the basis of these conditions, ETH delivered the goods in its warehouse in the Netherlands, and the transport took place on behalf of and at the risk of the purchasers. In the sales agreement, Miroco and VBS had informed ETH that the goods would be transported to Belgium. Therefore, ETH invoiced without VAT. Miroco and VBS in their turn sold the goods to another Belgian company, Banden Decof NV (‘Decof’), under the conditions that the transport to Decof was on behalf of and at the risk of Miroco or VBS. The goods were collected by a representative of Miroco or VBS from the warehouse of ETH in the Netherlands and transported directly to Decof in Belgium. The representative supplied ETH with a declaration that the goods were being transported to Belgium. The Dutch tax authorities denied the application of the zero VAT rate by ETH for the intra-Community supply of the goods to Belgium, which point of view was approved by the Court of Appeal on the grounds that the intra-Community transport had taken place between Miroco or VBS and Decof. ETH appealed on a point of law against this judgment to the Dutch Supreme Court, which, in turn, requested a preliminary ruling from the CJ, seeking guidance as to which of the supplies the intra-Community transport at issue should be ascribed.

acquisitions in Portugal. Furthermore, if R did know who the final purchasers were, he sent the vehicle registration documents to those purchasers directly, and deliberately included the inaccurate description on the invoices that the taxation had taken place pursuant to Paragraph 25a of the Law on turnover tax (‘UStG’), which provision refers to second-hand vehicles. The foregoing manipulations allowed R to sell the vehicles at a lower price and to make more substantial profits. Criminal proceedings were brought against R before the Mannheim Regional Court in Germany, which court sentenced him to three years imprisonment for tax evasion. According to the Regional Court, the deliberate abuse of the rules justified the refusal of the tax exemption on the intra-Community supplies as a result of which R had committed tax evasion. R appealed against this judgment on the grounds that the supplies were real intra-Community supplies due to the fact that the vehicles had actually been transported to Portugal. As a result, there was never any loss of tax revenue in Germany, and therefore, no tax evasion in Germany. In this regard, the Federal Court of Justice decided to refer preliminary questions to the CJ.

According to the CJ, it is for the Member States to lay down the conditions subject to which intra-Community supplies are to be exempt for the purpose of ensuring the correct and straightforward application of those exemptions and of preventing any evasion, avoidance, or abuse. The presentation of false invoices or false declarations and any other manipulation of evidence can prevent the correct collection of VAT and compromises the proper functioning of the common system of VAT. Consequently, the CJ indicated that EU law does not prevent Member States from treating the issuing of irregular invoices as tax evasion and that Member States are allowed to refuse the exemption for intra-Community supplies in such cases. The principles of fiscal neutrality, legal certainty, or protection of legitimate expectations do not have an effect on this conclusion, because those principles cannot legitimately be invoked by a taxable person who has intentionally participated in tax evasion and who has jeopardised the operation of the common system of VAT.



therefore unconnected, precluded the UK tax authorities from applying a national provision on the basis of which the consideration received for the leases could be set at open market value.The UK tax authorities were of the opinion that the transactions constituted abusive practice and disallowed Weald Leasing the deduction of the VAT incurred on the purchase of the equipment. Eventually, the case was put before the Court of Appeals of England and Wales (Civil Division), which Court decided to stay the proceedings and referred preliminary questions to the CJ.

According to the CJ, the lease transactions do not lead to a tax advantage which is contrary to the purpose of the provisions of the Sixth EU VAT Directive. Taxable persons may choose to lease equipment instead of buying that equipment if that results in a VAT financing advantage, provided that the VAT on the leasing terms is duly and fully paid. It is for the national Court to determine whether the terms of the leasing transactions are contrary to the provisions of the Sixth EU VAT Directive and the national legislation transposing it.Furthermore, the CJ indicated that the principle of abusive practices also applies, contrary to the argument put forward by Weald Leasing, to a national provision which was adopted on the basis of Article 27 of the Sixth EU VAT Directive and forms part of the national legislation implementing that Directive. Therefore, the national Court will also have to determine whether the involvement of Suas in the transactions resulted in an abusive practice. If the national Court should conclude that certain contractual terms of the leasing transactions or the intervention of Suas constituted an abusive practice, that Court will have to redefine those transactions disregarding the existence of Suas and/or by varying or disregarding those contractual terms.Finally, the CJ indicated that the fact that Weald Leasing did not engage in leasing transactions outside of the transactions at issue in the case at hand should have no effect on the outcome.

According to the CJ, an overall assessment of the specific circumstances must be made in order to determine which of the two supplies fulfils all the conditions for an intra-Community supply. In this regard, the collection of the goods by the representative of Miroco and VBS, which collection should be ascribed to the first supply, must be regarded as the transfer of ownership of the goods to Miroco and VBS. The CJ indicated, however, that this did not necessarily mean that the intra-Community transport should be ascribed to the first supply, because the second transfer of ownership (to Decof) can also take place before the intra-Community transfer of the goods. Account must be taken of the intention of Miroco and VBS at the time of purchase, provided that it was supported by objective evidence. Considering that Miroco and VBS had expressed their intention to transport the goods to Belgium and presented their Belgian VAT number, the CJ indicated that ETH was entitled to consider that the transactions constituted intra-Community supplies, provided that the right to dispose of the goods as owner has been transferred to the purchaser acquiring the goods in the Member State of destination of the intra-Community transport.

Lease transactions in order to obtain a VAT financing advantage in principle do not constitute abusive practice (Weald Leasing)On 22 December 2010, the CJ gave its judgement in the Weald Leasing case (C-103/09). Weald Leasing Ltd (‘Weald Leasing’), its parent company Churchill Management Ltd (‘CML’) and its sister company Churchill Accident Repair Centre (‘CARC’) were all members of the Churchill Group. CML and CARC predominantly rendered VAT exempt insurance services as a result of which they were entitled to recover only 1% of the incurred VAT on costs. In order to obtain a VAT financing advantage, Weald Leasing purchased new equipment and leased this equipment to Suas Ltd (‘Suas’), a company owned by the VAT consultant of the Churchill Group and his wife, which company on its turn leased the equipment to CML and CARC. By doing so, CML and CARC avoided being confronted with non-deductible VAT on the purchase of the equipment, and instead, had to pay VAT on the lease rentals. The involvement of Suas, being a third party and



in which it has categorised a commercial transaction, the right to deduct input VAT paid in another Member State cannot be denied on the basis of that categorisation. As for the question of whether there could be an abusive practice by RBSD, the CJ indicated that the two parties involved in the various transactions were legally unconnected, that the transactions were not artificial in nature, and that they were carried out in the context of normal commercial operations. The fact that the services were rendered by a company established in the one Member State to a company established in another Member State cannot be regarded as constituting an abusive practice. The CJ concluded that taxable persons were free to choose the organisational structures and the form of transactions which they considered to be the most appropriate for their economic activities and for the purposes of limiting their tax burdens.

Commission refers seven Member States to the CJ over VAT grouping rulesOn 24 June 2010, the Commission decided to refer the Netherlands, Ireland, Finland, Sweden, the United Kingdom, the Czech Republic and Denmark to the CJ because those Member States, according to the Commission, have failed to respect their obligations under EU law as regards VAT grouping rules. It concerns the third stage of the infringement procedure as indicated under Article 258 TFEU.

Customs Duties, Excises and other Indirect TaxesEU initials deal on bananas with Latin American countries On 15 December 2009, ambassadors from the EU and Latin American countries agreed to end a 15-year dispute over EU banana imports. In the deal, seen as a boost for the Doha Round of world trade talks, the EU will gradually

The use by a taxpayer of a disparity between the categorisation of lease transactions does not constitute abusive practice (RBS Deutschland Holdings ) On 22 December 2010, the CJ rendered its judgment in the RBS Deutschland Holdings case (C-277/09). RBS Deutschland Holdings GmbH (‘RBSD’), a German company, carried out car leasing services to the UK based Vinci plc (‘Vinci’). In this regard, RBSD had first acquired the cars from Vinci Fleet Services (‘VFS’), a subsidiary of Vinci, in the UK. The rental payments on the car leases were not subject to VAT in the UK, because the leases qualified as a supply of services under UK VAT law and were, therefore, taxable in Germany. However, under German VAT law, the lease transactions qualified as the supply of goods as a result of which the services would be taxable in the UK. Hence, neither Germany nor the UK levied any VAT with respect to the leases. The UK tax authorities refused RBSD the deduction of VAT incurred for the purchase of the cars from VFS on the grounds that the goods were not used for transactions subject to output VAT, and subsequently, that RBSD had engaged in an abusive practice. The Court of Session (Scotland) referred preliminary questions to the CJ.

The CJ indicated that Member States are required to grant taxable persons the right to deduct input VAT on goods used for transactions carried out in another country, when the input VAT on those goods would have been deductible if the transactions had been carried out in the Member State concerned. Considering that the leasing services would have been taxable in the UK if RBSD had been a company established in the UK, and that RBSD would, under those circumstances, have been allowed to deduct the VAT incurred on the purchase of the cars, the UK tax authorities may not refuse the deduction of the input VAT by RBSD given that the company is established in Germany. In this regard, the CJ emphasized that the right to deduct does not depend on whether output VAT has been levied with respect to the lease transactions. Therefore, when a Member State has not levied VAT because of the manner



tobacco gradually into line with those for cigarettes. The outcome of a fourth four-yearly review of tobacco taxation under directives 92/79, 92/80 and 95/59, it is aimed at modernising and simplifying the rules and making them more transparent.

The new directive includes the following provisions:• Cigarettes: the EU Council decided to increase, by

1 January 2014, the monetary minimum excise rate to EUR 90 per 1000 cigarettes and the proportional minimum to 60% of the weighted average sales price, from EUR 64 per 1000 and 57% at present;

• Transitional period for cigarettes: the new rules allow for transitional arrangements until 1 January 2018 for Member States that have not yet achieved, or only recently achieved, the current minimum rates, namely Bulgaria, Greece, Estonia, Latvia, Lithuania, Hungary, Poland and Romania;

• Quantitative restrictions for cigarettes: the directive allows Member States not benefiting from the transition to impose a quantitative limit of at least 300 cigarettes on the number of cigarettes that may be brought into their territory from member states applying transitional arrangements. It also allows member states applying those arrangements, once their rates have reached EUR 77 per 1000 cigarettes, to apply quantitative limits with regard to member states whose rates have not yet reached an equal monetary level;

• Fine-cut tobacco: the EU Council decided to increase the minimum excise duty requirements for fine-cut tobacco as follows: member states will comply with either a proportional minimum or a monetary minimum, amounting to 40% of the weighted average sales price and EUR 40 per kg on 1 January 2011, 43% and EUR 47 /kg on 1 January 2013, 46% and EUR 54 /kg on 1 January 2015, 48% and EUR 60 /kg on 1 January 2018 and 50% and EUR 60 /kg on 1 January 2020.

Green light from Trade Committee for safeguard clause in EU-South Korea trade accordOn 23 June 2010, the EP International Trade Committee approved draft legislation implementing a safeguard clause in the EU-South Korea free trade agreement (‘FTA’). MEPs want the European Parliament and any

cut its import tariff on bananas from Latin America from EUR 176 per tonne to EUR 114. In response, the US has agreed to settle its related dispute with the EU. The EU has also offered to mobilise up to EUR 200 million for the main African and Caribbean banana-exporting countries to help them adjust to stiffer competition from Latin America.

Continued EU support for African and Caribbean producersBananas from African, Caribbean and Pacific countries (‘ACP’) will continue to enjoy duty free and quota free access to the EU under separate trade and development agreements. The deal offers these countries two important outcomes:

‘Tropical’ and ‘Preference Erosion’ productsIn parallel, the EU, ACP and Latin American countries have agreed on an approach to the so-called ‘tropical’ and ‘preference erosion’ products, which they will jointly promote in the context of the on-going DDA negotiations. ‘Tropical products’ will be subject to deeper tariff cuts, and tariff cuts for ‘preference erosion’ products of interest to ACP countries will be conducted over a relatively longer period.

Dispute with the US also settledIn parallel, the EU and the US have initialled a deal in which the US agrees to settle its World Trade Organization (‘WTO’) dispute on bananas with the EU.

A new process for approving the agreementOnce the EU Council approves the banana agreement, it will sign the deal with Latin American countries. It will also sign a settlement agreement with the US. Then, to comply with the recently ratified Lisbon Treaty, the European Parliament must give its consent before the Council can conclude the deals.

EU Council adopts new directive on excise duties on cigarettesOn 8 February 2010, the EU Council adopted a directive updating EU rules on the structure and rates of excise duties on cigarettes and other tobacco products. The directive is intended to ensure a higher level of public health protection by raising minimum excise duties on cigarettes, whilst bringing the minimum rates for fine-cut



from the lower duties. As a result, the EU imposed duties ranging from 6% to 14% on the three products. EU imports of the three products from all suppliers totalled around USD 11 billion in 2007.

CJ rules on infringement of EU law by not paying customs duties payable on imports of armaments and material for civil and military use (Commission v Finland, Sweden, Germany, Italy, Greece and Denmark)On 15 December 2009, the CJ gave its judgment in the Commission v Finland, Sweden, Germany, Italy, Greece and Denmark cases (C-284/05, C-294/05, C-372/05, C-387/05, C-409/05, C-461/05, C-239/06). The cases concern the non-payment of duties on imports of armaments and material for civil and military use.

The Commission asked the CJ to declare that Finland, Sweden, Germany, Italy, Greece and Denmark were in breach of their obligations under the Community Customs Code and under various regulations by refusing to pay as own resources of the Community customs duties levied when armaments were imported (and, in respect of Sweden and Italy, also dual-use material, for civil and military use). Germany, for its part, paid a sum of EUR 10,803 million – on a without prejudice basis and without providing a breakdown of the sum according to imports and periods – and then refused to send such information to the Commission. The infringements concern the period from 1 January 1998 to 31 December 2002, whereas, from 1 January 2003 – in order to take into consideration the protection of military confidentiality by Member States – specific administrative procedures were provided for in order to allow the suspension of import duties on such material.

In essence, the Member States stated that the justification for their refusal to make payment was the fact that the collection of customs duties would have threatened their essential security interests. The Court observed that there was no provision of the Community customs legislation which, in respect of the period from 1 January 1998 to

industries affected by increased imports to have the right to initiate investigation into the need for emergency measures. Parliament would monitor the situation of the European car industry particularly closely.

Under the clause, it will be possible to impose safeguard measures if customs duty reductions lead to an excessive increase in imports from South Korea, which causes or threatens to cause ’serious injury’ to EU producers. In critical circumstances, where a delay would cause irreparable damage, it would be possible to take urgent provisional measures.

EU and Japan agree to mutual recognition of each other’s certified tradersOn 24 June 2010, the EU and Japan signed a Decision which will simplify and speed up the customs procedures for trustworthy, certified traders between both sides. The Decision establishes the mutual recognition of Authorised Economic Operators (‘AEOs’), which will allow these operators to benefit from enhanced trade facilitation procedures and will enable customs to focus on high-risk transactions. This mutual recognition also helps to establish compatible standards for AEOs between both sides and helps promote more harmonised customs practices and procedures worldwide, to the benefit of businesses trading at international level.

WTO rules imposing duty by EU violates the International Technology AgreementA WTO panel has ruled that the EU was wrong to impose duties on three types of electronics products that were imported into the EU. The WTO panel backed the United States as well as Japan and Taiwan in their complaint that EU duties on flat-panel displays, multifunction printers and television set-top boxes violated the WTO’s Information Technology Agreement (‘ITA’).

The 1996 ITA had eliminated duties amongst a group of 72 participating countries on goods such as computer screens and printers to promote trade in high-tech products. But the EU argued that added functionality meant that some of these products were now also consumer goods not covered by the agreement rather than information technology products and therefore, should not benefit



need to safeguard the Member States’ interests apply a fortiori to imports of material for dual use, whether or not it was imported exclusively for military purposes. Lastly, the Court rejected the justification based on the Commission’s prolonged lack of action and the argument that adoption of the regulation on suspension of duties was tacit acceptance of the existence of an appropriate derogation.

The Commission had not at any stage of the proceedings abandoned its position in principle, and it had always expressed its firm intention to maintain its claim to the collection of customs duties which should have been paid for periods prior to the introduction of the procedures for suspension.

CJ rules on the revision of an incorrect customs export declaration (Terex Equipment)On 14 January 2010, the CJ rendered its judgment in the Terex Equipment Ltd and Others joint cases (C-430/08 and C-431/08). The cases concerned the consequences of the use of an incorrect code on an export document and whether these consequences could be avoided by revision of the export documents.

Terex is a company which manufactures earth-moving machinery. It imports various items which are incorporated into that machinery. Customs duties on those imported items were suspended under the inward processing procedure laid down in Articles 114 through 129 of the Customs Code. That machinery is sold to buyers inside and outside the EU. Where those goods are re-exported in accordance with the conditions of the inward processing procedure, no duty becomes payable.

Between January 2000 and July 2002, customs agents acting on behalf of Terex or purchasers inserted code 10 00 into the export declarations, indicating the export of EU goods, instead of code 31 51 used for the re-export of goods for which duties are suspended. The customs authorities considered in that case that the export declarations under an incorrect customs procedure code had the effect of wrongly conferring on the goods at issue the customs status of EU goods, which led to a customs debt pursuant to Article 203(1) of the Customs Code and

31 December 2002, provided for any specific exemption from customs duties on imports of products of that type. On the contrary, the suspension of customs duties on certain weapons and military equipment from 1 January 2003 confirmed that the Community legislature started from the assumption that an obligation to pay those customs duties existed prior to that date.

The CJ declared that, while it is true that it is for Member States to take the appropriate measures to ensure their internal and external security, those measures are not entirely outside the scope of Community law, which provides for express derogations applicable in situations which may involve public safety, but exceptionally and in clearly defined cases which must be interpreted strictly. The Court also stated that a Member State cannot plead by way of justification the increased costs of military material because of the application of customs duties: on the contrary, a Member State cannot avoid compliance with the obligations of joint financing of the Community budget.

Further, the justification based on confidentiality requirements contained in agreements entered into with exporting States cannot be accepted because the customs procedures involve the active involvement of Community and national officials, who are all bound by an obligation of confidentiality which is capable of protecting the essential security interests of Member States. Moreover, the obligation to facilitate the achievement of the Commission’s task – of ensuring compliance with the EC Treaty (now TFEU) – by making available to it the documents necessary to permit inspection to ensure that the transfer of the Community’s own resources is correct does not mean that Member States may not, on a case-by-case basis and by way of exception, restrict the information sent to certain parts of a document or withhold it completely.

More specifically, in the two cases against Sweden and Italy, which relate to duty-free imports of dual-use material – for both civil and military use – the Court stated that the reason why there was no justification based on the



within the meaning of Article 203(1) of the Customs Code by reason of the operation of Article 865 of the Implementing Regulation?

3. If so, was a customs debt on importation thereby incurred under Article 203 of the Customs Code?

4. Even if there was no customs debt under Article 203 of the Customs Code, has a customs debt arisen by virtue of Article 204 having regard to(i) the findings on “obvious negligence” in paragraphs

34 to 43 [of the order for reference] and(ii) the question whether HMRC failed to comply with

Article 221(3) of the Customs Code by failing to communicate the Article 204 customs debt within the time-limit?

5. Given that: (i) there can be no regularisation under Article 78 of

the Customs Code and (ii) there was a customs debt and (iii) there was a special situation as contemplated by

Article 899 of the Implementing Regulation, was it in the circumstances [described in the order for reference] open to the Tribunal to conclude that there was no obvious negligence present, so that the customs debt should be remitted under Article 239 of the Customs Code?’

The CJ ruled that the use in the export declarations at issue in the main proceedings of customs code 10 00 indicating the export of EU goods, instead of code 31 51 used for goods for which duties are suspended under the inward processing procedure, gives rise to a customs debt pursuant to Article 203(1) of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the EU Customs Code and the first paragraph of Article 865 of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Regulation No 2913/92 establishing the EU Customs Code, as amended by Commission Regulation (EC) No 1677/98 of 29 July 1998.

Further, the CJ ruled that Article 78 of Regulation No 2913/92 permitted the revision of the export declaration of the goods in order to correct the customs procedure code given to them by the declarant, and the customs authorities were obliged, first, to assess whether the provisions

Article 865 of the Implementing Regulation. In any event, a customs debt arose under Article 204(1)(a) of the Customs Code, because there had been no prior notification of the re-export of the goods, which is obligatory under the inward processing procedure.

Terex sought a revision of its export declarations in order to regularise the situation pursuant to Article 78(3) of the Customs Code. The customs authorities refused to amend those declarations on the grounds that Terex’s application sought to change the customs arrangements applicable and, moreover, the situation could not be regularised because it was impossible to present, after the event, a prior notification of re-export of goods. Terex also sought remission of the customs debt pursuant to Article 239 of the Customs Code. The customs authorities refused that request on the ground that Terex had displayed ‘obvious negligence’ which precluded the application of that provision.

The national court was of the view that the use of an incorrect code in the export declaration, can give rise to a customs debt. As to the application of Article 78(3) of the Customs Code to the present case, the national court considered that that provision enabled the situation to be regularised despite the fact that Article 182(3) required that there be prior notification of the re-export of goods. Lastly, the national court was of the opinion that Terex could not be criticised for obvious negligence within the meaning of Article 239 of the Customs Code. In that regard, it was of the view that the behaviour of the customs authorities contributed, during the relevant time period, to the use of an incorrect code. In those circumstances, the VAT and Duties Tribunal, Edinburgh, stayed proceedings and referred the following questions to the ECJ for a preliminary ruling:‘1. Does the Customs Code, and in particular Article

78, permit revision of the declaration to correct the customs procedure code and if so, are HMRC required to amend the declaration and to regularise the situation?

2. In the circumstances summarised in paragraph 3 to 21 [of the order for reference] were the goods in this case unlawfully removed from customs supervision



Denying that it was liable for the abovementioned customs debt, on 2 February 2001, Boeckmans België issued a writ of summons against the Belgian State requiring it to appear before the Court of First Instance of Antwerp. By writ of 8 February 2001, Direct Parcel was joined by Boeckmans België as a party to the proceedings in respect of all the debts attributed to it by the Belgian State. The Belgian State brought a counterclaim seeking that Direct Parcel and Boeckmans België be jointly ordered to pay the duties owed. By judgment of 7 April 2004, the Court of First Instance of Antwerp dismissed Boeckmans Belgian action and ordered it and Direct Parcel to pay the customs duties concerned.

By judgment of 7 November 2006, the Court of Appeal of Antwerp set aside that judgment. It declared that the Belgian State’s right to proceed to recover the customs debt concerned had lapsed, on the ground that the Belgian State had not provided any evidence of the prior entry in the accounts of the amount of that duty in accordance with Article 221(1) of the Customs Code. The Belgian State therefore appealed to the referring court on a point of law against the judgment of the Court of Appeal of Antwerp, claiming that the failure to enter the customs debt in the accounts, or its late entry in the accounts, did not preclude recovery of the debt by the customs authorities.

In those circumstances, the Court of Cassation decided to stay the proceedings and to refer the questions to the CJ for a preliminary ruling concerning the entry into the accounts, the technical and formal requirements of entering into the accounting records, the moment of entering into the accounting records, the communications to the debtor and the consequences of the payment by the debtor of the amount of duty communicated to him without its having been previously entered in the accounts.

The CJ ruled as follows:

1. Article 221(1) of the Customs Code must be interpreted as meaning that ‘entry in the accounts’ of the amount of duty to be recovered as referred to in that provision is the same as ‘entry in the accounts’ of that amount as defined in Article 217(1) of that regulation.

governing the customs procedure concerned had been applied on the basis of incorrect or incomplete information and whether the objectives of the inward processing regime had not been threatened, in particular, in that the goods subject to that customs procedure had actually been re-exported, and, second, where appropriate, to take the measures necessary to regularise the situation, taking account of the new information available to them.

Preliminary remarksIt follows from this decision that in case incorrect codes have been used, a customs debt may occur. However, the export document can be revised. If the goods have been exported and other conditions concerning the inward processing procedure have been fulfilled, the revision of the export document will result in no customs duty being due.

CJ rules on the requirement of entry in the accounts of a customs debt (Direct Parcel Distribution Belgium)On 28 January 2010, the CJ rendered its decision in the Direct Parcel Distribution Belgium case (C-264/08). The case concerned the requirement of entry in the accounts of the amount of duty before it is communicated to the debtor.

On 18 November 1999, Boeckmans België NV (‘Boeckmans België’) submitted a summary declaration to the customs and excise administration in Antwerp concerning a container-load of bakery products intended for delivery to Direct Parcel. That container was delivered to Direct Parcel without the declaration presented to the administration having been cleared, with the result, however, that the container was not subject to customs control. By letter of 26 May 2000, the administration informed Boeckmans België that the time-limit for clearance had been well exceeded and that, as a result, a customs debt had been incurred. By letter of 3 October 2000, the same administration proposed an amicable arrangement to Boeckmans België, to which it lodged objection, which was rejected on 10 January 2001.



5. Article 221(1) of the Customs Code must be interpreted as meaning that the communication of the amount of duty to be recovered must have been preceded by the entry in the accounts of that amount by the customs authorities of the Member State concerned and that, if it has not been entered in the accounts in accordance with Article 217(1) of that statute, that amount may not be recovered by those authorities, which however remain entitled to proceed with a new communication of that amount, in accordance with the conditions laid down by Article 221(1) and the limitation rules in force at the time the customs debt was incurred.

6. Although the amount of import duty or export duty remains ‘legally owed’ within the meaning of Article 236(1), first subparagraph, of the Customs Code, even where that amount was communicated to the person liable without having been entered in the accounts beforehand in accordance with Article 221(1) of that regulation, the fact remains that, if such communication is no longer possible because the period laid down in Article 221(3) of that regulation has expired, that person must in principle be able to obtain repayment of that amount from the Member State which levied it.

CJ rules on infringement resulting from fixed minimum retail prices for cigarettes (Commission v France, Austria and Ireland)On 4 March 2010, the CJ rendered its decision in the cases Commission v France, Austria and Ireland (C-197-08, C-198/08 and C-221/08), concerning the fixing of minimum prices for cigarettes and other tobacco products. The CJ ruled that, by adopting and maintaining in force a system of minimum prices for the retail sale of cigarettes released for consumption and a prohibition on selling tobacco products ‘at a promotional price which is contrary to public health objectives’, France, Austria and Ireland have failed to fulfil their obligations under Article 9(1) of Council Directive 95/59/EC of 27 November 1995 as amended by Council Directive 2002/10/EC of 12 February 2002.

2. ‘Entry in the accounts’ within the meaning of Article 217(1) of the Customs Code must be distinguished from entry of established entitlements in the accounts for own resources as referred to in Article 6 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 94/728/EC, Euratom on the system of the Communities’ own resources. Since Article 217 of the Customs Code does not lay down any practical procedures for ‘entry in the accounts’ within the meaning of that provision or, accordingly, any minimum requirements of a technical or formal nature, that entry in the accounts must be made in a way which ensures that the competent customs authorities enter the exact amount of the import duty or export duty resulting from a customs debt in the accounting records or on any other equivalent medium, so that, inter alia, the entry in the accounts of the amounts concerned may be established with certainty, including with regard to the person liable.

3. Article 221(1) of the Customs Code must be interpreted as meaning that the amount of import or export duty due can be validly communicated to the debtor by the customs authorities, in accordance with appropriate procedures, only if the amount of that duty has been entered in the accounts beforehand by the authorities. The Member States are not required to adopt specific procedural rules on the manner in which communication of the amount of import or export duty is to be made to the debtor where national procedural rules of general application can be applied to that communication, which ensure that the debtor receives adequate information and which enable him, with full knowledge of the facts, to defend his rights.

4. Community law does not preclude the national court from proceeding on the assumption, based on the declaration by the customs authorities, that the ‘entry in the accounts’ of the amount of import or export duty within the meaning of Article 217 of the Customs Code took place before that amount was communicated to the debtor, provided that the principles of effectiveness and equivalence are observed.



Pursuant to an authorisation from the Danish customs and tax authorities granted under Article 6 of the TIR Convention, Dansk Transport og Logistik (‘DTL’) is entitled to issue TIR carnets and act as the guarantor association in connection with TIR transport operations. The referring court is dealing with three disputes relating to customs and tax debts in connection with the smuggling of cigarettes in the course of TIR operations, for which DTL had issued TIR carnets and acted as guarantor. In two of the cases, the goods were transported to Denmark by sea and, in the third case, by land.

The introduction, by sea, of the goods into EU customs territory was discovered by the local customs and tax authorities on 2 May 2000. Two lorries crossed the Danish border, on board a ferry from Klaipeda, in Lithuania, which at the time of the facts in the main proceedings was not yet a Member State of the European Union. When the ferry docked in Åbenrå, those lorries were inspected by the abovementioned authorities, following which, they found a large quantity of cigarettes hidden in the trailers which were not enumerated in the TIR carnets. In all of the cases in the main proceedings the customs authorities immediately detained the cigarettes, in accordance with the first sentence of Paragraph 83(1) of the Customs law. The cigarettes remained in the possession of those authorities from their seizure to their destruction between November 2004 and March 2005.

By letters sent between December 2001 and August 2002, those authorities sought from the transporters, namely the Lithuanian undertakings whose names the TIR carnets were in, payment of customs duty, excise duty and VAT in respect of the smuggled cigarettes. Since those undertakings did not reply to those letters, the customs and tax authorities decided that DTL, as the association acting as guarantor under the TIR Convention, was required to pay the sum corresponding to its maximum liability under the TIR carnets which it had issued for those transport operations. DTL brought an action against those decisions before the Danish Tax Court, which upheld them. DTL then lodged an appeal against that judgment before the Eastern Regional Court and paid, on a conditional basis, the sum sought in two of the cases in the main proceedings, but did not pay the sum sought in relation to the third case.

The Commission brought infringement actions before the CJ against France, Austria and Ireland, because it considers that the legislation of those Member States concerning the fixing of minimum prices for cigarettes and other tobacco products in the case of France, cigarettes and fine-cut tobacco for the rolling of cigarettes in the case of Austria, and cigarettes in the case of Ireland, are contrary to Directive 95/59 which lays down rules on excise duty affecting the consumption of those products. The Directive obliges Member States to impose excise duty on cigarettes consisting of a proportional element (ad valorem), calculated on the maximum retail selling price, and a specific element, the amount of which is fixed by reference to cigarettes in the most popular price category, but which may not be less than 5% or more than 55% of the amount of the total tax burden. The rate of the proportional excise duty and the amount of the specific excise duty must be the same for all cigarettes. The Directive also provides that the manufacturers and importers of manufactured tobacco are to be free to determine the maximum retail selling price for each of their products (Article 9(1)).

According to the Commission, the legislation of those three Member States, which imposes minimum prices corresponding to a certain percentage of the average prices of the manufactured tobacco concerned (95% in the case of France, 92.75% for cigarettes and 90% for fine-cut tobacco in the case of Austria and 97% in the case of Ireland) undermines the freedom of manufacturers and importers to determine the maximum retail selling prices of their products and, correspondingly, free competition. That legislation is therefore contrary to the Directive.

CJ rules on the customs debt of seized and confiscated goods (Dansk Transport og Logistik) On 29 April 2010, the CJ rendered its judgment in the Dansk Transport og Logistik case (C-230/08). The case concerns the extinction of the customs and tax debt of goods which are seized and simultaneously or subsequently confiscated.



Agra disputed the reassessment notice before the Provincial Tax Court of Alessandria, submitting that the right to carry out reassessment of customs declarations had been extinguished. According to Agra, that right was subject to a limitation period of three years from the date of the customs declarations. Given that the declarations at issue had been lodged on 13 August, 18 September and 23 October 2002 respectively, the corresponding limitation periods fell to be regarded as having expired on 13 August, 18 September and 23 October 2005 respectively.

The Provincial Tax Court of Alessandria decided to stay the proceedings and to refer the following question to the CJ for a preliminary ruling: ‘In the light of Article 11 of Legislative Decree No 374 of 8 November 1990, read in conjunction with Article 221(3) and (4) of the EU Customs Code, regard being had to Article 84(3) of the Consolidated Customs Laws, is the right of the customs authority to revise the assessment of the customs debt extinguished, and/or is it time-barred, on the expiry of the three-year period from the date of the customs declaration, or can those time-limits be interrupted and/or suspended pending the outcome of criminal proceedings for infringement of the customs rules relating to the assessment?’

The CJ ruled that Article 221(3) and (4) of the EU Customs Code, as amended by Regulation (EC) No 2700/2000 of the European Parliament and of the Council of 16 November 2000, must be interpreted as not precluding national legislation under which, where the failure to pay customs duty has its origins in a criminal offence, time for the purposes of the limitation period for recovery of the customs debt is to run from the date on which the order or judgment in the criminal proceedings becomes final.

CJ rules on the value of goods for customs purposes (Gaston Schul BV) On 15 July, the CJ rendered its judgment in the Gaston Schul BV (‘Gaston Schul’) case (C-354/09). The case concerns the inclusion of the customs duty in the customs value of goods. In its capacity as a customs agent, in the years 1998 to 2000, Gaston Schul made up import declarations for the release of fish products into free circulation in the EU. That company made those declarations, in its own

The referring court considers that Paragraph 83 of the Customs law does not expressly state whether the customs and tax debt relating to the smuggled goods exists and may be recovered where the goods are detained, seized or destroyed in accordance with that provision. In those circumstances, the Eastern Regional Court decided to refer the case to the CJ for a preliminary ruling.

The CJ ruling can be summarized as follows:• No import duty, excise and VAT will be due in the

case the unlawfully introduced goods are seized and confiscated in the area in which the first customs office is situated at the external border of the Community, and are simultaneously or subsequently destroyed by those authorities.

• If these actions take place after the unlawfully introduced goods have left the area of the first customs office, the duty and taxes will be due.The authorities in the Member State situated at the external border of the EU at which the goods were introduced unlawfully are competent to recover the customs debt and the VAT, even if those goods were then transported to another Member State where they were discovered then seized. The authorities in that latter Member State are competent to recover the excise duty, provided that those goods are held for commercial purposes.

CJ rules on the limitation period of post-clearance recovery of a customs debt (Agra Srl) On 17 June 2010, the CJ gave its judgment in the Agra Srl case (C-75/09). The case concerned the limitation period that applies to the post clearance recovery of a customs debt in a situation in which a number of irregularities were found.

According to Italian national law, the (substantive) right of the State to recover customs duties shall be extinguished on expiry of a period of five years. Where the failure to pay customs duties has its origins, in whole or in part, in a criminal offence, time for the purposes of the limitation period shall run from the date on which the order or judgment in the criminal proceedings becomes final.



‘In the case of subsequent entry in the accounts within the meaning of Article 220 of the Community Customs Code, must it be assumed that the condition laid down in Article 33 of that code, under which import duties are not to be included in the customs value, is satisfied where the seller and buyer of the goods concerned have agreed on the delivery term “delivered duty paid” and this is stated in the customs declaration, even if in determining the transaction price they – wrongly – assumed that no customs duties would be owed upon importation of the goods into the Community and consequently no amount of customs duties was stated in the invoice or in or with the declaration?’

The CJ ruled that the condition specified in Article 33 of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code, to the effect that import duties must be ‘shown separately’ from the price actually paid or payable for the imported goods, is satisfied in the case where the parties to the contract have agreed that those goods are to be delivered DDP (‘Delivered Duty Paid’) and have incorporated that information in the customs declaration but, by reason of a mistake as to the preferential origin of those goods, have failed to state the amount of the import duties.

As a result of this judgment the customs value over which the import duty is calculated must be lowered with the amount of duty that became due.

CJ rules upon the refund arrangement in the Netherlands luxury car tax legislation (VAV)By order of 29 September 2010, the CJ ruled in the VAV case (C-91/10) that the refund arrangement that is included in Article 14a of the Netherlands Luxury Car Tax Act 1992 is in breach of Articles 56 through 62 TFEU (formerly Articles 49 through 55 EC) as far as it concerns the refund of the remainder of tax that had to be paid for cars that are registered outside the Netherlands, that are leased or hired in another EU Member State.

name and on its behalf, on the instructions of an Icelandic carrier which, in turn, was acting on the instructions of an Icelandic exporter.

Those declarations were accompanied by requests for the application of a preferential zero rate on the ground that the goods in question originated in the EEA (European Economic Area). Gaston Schul attached copies of the invoices issued by the Icelandic exporter, which referred to DDP (Delivered Duty Paid) as a delivery term and stated that ‘the exporter of the products covered by this document declares that, except where otherwise clearly indicated, these products are of EEA preferential origin’. The DDP delivery term was also mentioned on the customs declarations.

An investigation into the origin of the goods in question subsequently established that they in fact came from third countries and that therefore, the preferential rate had been incorrectly applied.

The State Secretary of Finance accordingly proceeded with the post-clearance recovery of customs duties and requested Gaston Schul to pay those duties.

That administration calculated the amount of the duties to be recovered by taking as the customs value the transaction price, as it appeared on the import declarations, without deducting the amount of the customs duties to be recovered.

The State Secretary of Finance subsequently rejected the complaint by which Gaston Schul sought to reduce its liability by requesting that the amount of customs duties subsequently calculated be deducted from the contractual price.

The case was brought before the Netherlands Supreme Court. The Supreme Court decided to stay the proceedings and to refer the following question to the CJ for a preliminary ruling:



risk management systems for targeting and inspecting dangerous cargo, and to strengthening international cooperation to facilitate this process.

The Commission has considered it necessary to back this preliminary assessment with hard data. It has conducted three complementary studies on the expected impact on EU customs, on maritime transport and on trade. The studies have confirmed that implementation by the EU would have serious repercussions for European and, indeed, global maritime transport and trade as well as welfare:

Firstly, European port procedures and regulations would have to be fundamentally redesigned with a significant financial burden:• A total of EUR 430 million would be required for

investments for scanning and radiation detection including significant changes in infrastructure to create space for extra facilities for ports and terminals involved in US bound container traffic.

• Operational costs in European ports would rise by more than EUR 200 million annually, including expenditure for 2200 extra staff.

Secondly, transport would be disrupted and costs would increase significantly:• Direct transport costs of US-bound consignments

would increase by about 10%.• Ports unable to implement 100% scanning would lose

access to the US market; this would tend to increase congestion and environmental costs for other ports.

Thirdly, the annual welfare loss from trade disruption could be high. The 100% scanning requirement could lead to a loss of some EUR 10 billion for the EU and US combined. Further rough calculations suggest that the worldwide loss due to the scanning law could be in the order of EUR 17

The Netherlands luxury car tax legislation does not provide for a levy of tax whereby the amount of tax is calculated proportionally to the time the car is to be used on Dutch public roads. Instead of such proportional tax, the full amount of tax is levied and the remainder is refunded after the car is re-exported. According to the CJ, it is not allowed to levy the full amount of tax at the beginning of the use of Netherlands public roads by cars from persons who live in the Netherlands and hire or lease a car from a company established outside the Netherlands and refund the remainder of the tax without compensation of interest after the car is re-exported.

Secure trade and 100% scanning of containersOn 11 February 2010, the Commission published a working document concerning secure trade and 100% scanning of containers. Below is a summary of the working document and the conclusions reached.

The EU shares the concerns of the United States about the security of the supply chain and is strongly committed to implementing measures enhancing security in line with agreed international standards. The United States legislation ’Implementing Recommendations of the 9/11 Commission Act of 2007’ unilaterally introducing a 100% scanning requirement for US-bound maritime cargo at export, to be implemented by 1 July 2012, does not meet this requirement and may become a new trade barrier.

In April 2008, the Commission, with support from EU Member States and the business community, carried out a preliminary impact assessment of 100% scanning. This was sent to US Customs Border Protection (‘CBP’) and included in the report of the Department of Homeland Security to the US Congress in June 2008. The paper pointed out that, if 100% scanning at export were implemented in European ports, it would be excessively costly, would be unlikely to improve global security, would absorb resources currently allocated to EU security interests, and would disrupt trade and transport within the EU and worldwide. As an alternative, priority should be given to investing in enhancing multilayered



Following the ’security amendment‘ of the EU Customs Code, the EU has the legislative and administrative framework required for the implementation of this policy. This combines electronic systems and practical tools of collection of information prior to arrival to and departure from the EU; enhancement of risk analysis and risk management procedures; development of new technologies; and coordination of enforcement by customs authorities in all EU Member States. These tools will be deployed fully by the end of 2010; they supplement the enforcement by the EU of one of the strictest legislations worldwide in maritime security.

Moreover, as an integral part of the multi-layered risk management policy, it is appropriate to intensify international cooperation to maximise effectiveness and efficiency. Jointly, the EU and the US can play an important role: they are one another‘s main trading partners and account for more than one third of world trade and investment; they have a responsibility and interest in promoting multilateral cooperation to develop more effective global customs security standards and policies.

We may also consider strengthening bilateral cooperation on a number of issues:• Ensuring effective collection of quality data;• Exchanging relevant security information; • Implementing mutual recognition of trade partnership

programmes and, later, of other security controls; • Developing and spreading utilisation of new security

technologies, including scanning;• Building capacities and training of staff for effective

implementation.

Punitive measures against US concerning additional import duties for US productsAs from 1 May 2009, the EU is to levy additional import duties on a number of products originating in the US. The EU was permitted by the WTO to levy this additional duty, because of the fact that the US had neglected to amend or withdraw its Continued Dumping and Subsidy

billion. Moreover, if, following the US model, 100% scanning were replicated on a world scale to address the ‘bomb in the box’ as a worldwide threat, the annual welfare loss for the world might reach EUR 150 billion.

In the absence of a convincing demonstration that 100% scanning at export will produce significant global supply-chain security benefits, incurring such costs is not justified.

In addition, there are other fundamental questions and difficulties to take into account:• Scarce European financial and human resources

would have to be diverted away from European security objectives and measures to satisfy US requirements; this disruption of security policy would be difficult to justify to European citizens.

• Authorities might focus excessively on satisfying the 100% scanning requirement; this could lead to a false sense of security and to neglecting other security risks (chemical, biological) as well as the use of other modes of transport.

• The EU would adhere to a unilateral US requirement without a reciprocal commitment by the US.

Even on the hypothetical assumption that 100% scanning was positive for US security, it would be extremely difficult to argue the case for European security. The EU does not contemplate implementing 100% scanning of containers at export. It advocates shifting the policy focus towards developing a package of measures to cope with the wide diversity of security risks and address supply chain security not only from a national perspective but also as a global and complex challenge.

The alternative package should be based on the principle that all exports, as well as imports, undergo comprehensive and effective multi-layered risk management processes using a range of methods and technologies commensurate to the risks associated with specific consignments. No consignment should go unchecked.



time the movement of products for which excise duties have still to be paid. It is estimated that about 100,000 traders dispatch around 4.5 million consignments of excise goods between Member States each year, and the EMCS will help to reduce the financial and administrative burdens that they face. Member States’ authorities and economic operators can join the system progressively until 1 January 2011, after which the EMCS will be fully applied throughout Europe.

Monitoring the movement of excise goodsUnder EU legislation, excise duties must be paid on alcohol, tobacco and energy products at the final point before consumption. Therefore, while these goods are in transit to their final destination and no excise duty has yet been paid on them, Member States need a system of monitoring their movement to ensure that the duties are properly levied at the final destination. Currently, a paper-based system is applied, whereby the person who consigns the goods must complete an Accompanying Administrative Document (‘AAD’) which travels with the goods to their final destination. Once the consignment arrives at its final destination, the recipient must acknowledge its receipt through the paper-based procedure.

A quicker, more efficient systemThe EMCS will replace the paper AAD with an electronic record – the e-AD. This e-AD is sent electronically by the consigner of the goods to the final recipient, via the EMCS systems in the Member States of dispatch and destination.

When the goods arrive, the recipient files an electronic report of receipt, which is sent to the consignor who can then discharge the movement. This computerised system makes the whole process much faster and easier for traders, and also allows them to recover the financial guarantees they had to make for the excise products much more quickly.

Offset Act (‘Byrd Amendment’) of 2000. The law provides for payment to US companies of the money the US customs collected on basis of the anti dumping and anti subsidy measures. Foreign competitors of these US companies, under which EU companies, were harmed by these measures. The WTO ruled this legislation to be in breach of the WTO rules. If necessary, the total value of the punitive measures of the EU against the US will be amended annually. In that case, products will be added to or withdrawn from the product list.

In the meantime, the US has withdrawn the Byrd Amendment. US companies however, can still benefit from the yield of anti dumping levies and compensating measures which were imposed by US customs before 1 October 2007 regarding imports in the US. This illegal treatment of EU companies will continue throughout the main part of 2010. Therefore, the Commission proposes to extend the list of products to which the punitive measures will be in force.

The list will be extended by goods (mostly textiles) classified under the following CN codes:

9406 0038 6101 3010 6102 3010 6201 1210 6201 1310

6102 3090 6201 9200 6101 3090 6202 9300 6202 1100

6201 1390 6201 9300 6201 1290 6204 4200 6104 4300

6204 4910 6204 4400 6204 4300 6203 4231

On these products, an additional duty of 15% of the value will be levied. If the proposal is adopted, this extension of punitive measures will enter into force on 1 May 2010.

New electronic system to monitor the movement of excise goodsOn 1 April 2010, a new electronic system for monitoring and controlling the movement of excise goods (alcohol, tobacco and energy products) within the EU becomes operational. The Excise Movement and Control System (‘EMCS’) will make intra-EU trade in excise goods cheaper and simpler for operators, while also making it quicker and easier for Member States to tackle excise fraud. Designed to replace the current paper-based system, the EMCS is a computerised structure for recording in real-



Capital DutyCJ rules on levy of Italian registration duty in case of merely intended contribution and liability of civil law notary (Speranza)On 1 July 2010, the CJ issued its judgment in the Speranza case (C-35/09). This case concerned an appeal by Paolo Speranza, an Italian civil law notary, against the levy of Italian registration duty.

The background of the case is as follows. In 1993, the shareholder meeting of the Italian company LEJA Srl decided to increase the capital of the company. One of the two shareholders in the company intended to increase the share capital by contributing certain assets. The decision to increase the capital was registered and the deed containing the capital increase was subject to Italian registration duty at a rate of 1% of the value of the (intended) contribution. The civil law notary who drafted the documentation, Speranza, became jointly and severally liable for the payment of the registration duty. The Italian tax authorities issued a registration duty assessment to both the company and the civil law notary, since the latter was jointly and severally liable. However, the capital increase by contribution of assets never took place due to certain circumstances which were attributable to the shareholder concerned. Consequently, LEJA Srl went bankrupt and the only remaining person liable to registration duty was the civil law notary. The relevant legislation provided that registration duty should be paid even if the resolution to increase share capital is null and void. In addition, paid registration duty could only be refunded after a final civil judgment in which the capital increase was declared null and void or annulled. In this case, Speranza filed an appeal against the registration duty assessment. In the proceedings that followed, the Italian Corte Suprema di Cassazione referred preliminary questions the CJ.

According to the CJ, based on Articles 4(1)(c) and 5(1)(a) of Directive 69/335/EEC, as amended (the ‘Capital Duty Directive’), Member States may identify the registration of an instrument recording an increase in the capital of

Better equipped to tackle fraudThe EMCS will allow Member States to monitor more closely and accurately the movement of goods for which excise duties have still to be paid. This will create faster information exchange between authorities and help prevent and detect excise fraud.

Commission has published a study on the minimum rates and structures of excise duties on alcoholic beveragesIn 2004, the Commission produced a report which recommended that the minimum rates of duty laid down in 1992 should be revalued to take account of the inflation that has occurred since then (COM(2004) 223 final). The report also noted problems in the classification and categorisation of alcoholic products for excise purposes such that, in some cases, the same product was classified under different categories (and hence subject to different taxation) in different Member States.

The overarching objective of the study, published by the Commission on 28 June 2010, is to examine whether the current structures of alcohol taxation and the minimum rates laid down for the various categories adequately support the effective functioning of the internal market, or whether distortions are caused and adaptations would be appropriate. The study has two main specific aims, namely to provide an assessment of:1. the current burdens of taxation and economic

relationships between the different types of alcoholic beverages in different Member States; and

2. the economic impact on the particular beverages and on the different Member States of potential changes to the alcohol directives compared to the current status quo.



in order to prevent tax avoidance, transfer tax is imposed on transfers of shares in entities of which the assets consist for at least 50% of immovable property and where the acquirer, as a result of the transfer, obtains a position which enables him to exercise control over the entity. The legislation at issue does not distinguish between holding companies and companies which carry on economic activities.

In its Order, the CJ confirms that the Capital Duty Directive does not preclude automatic application of legislation of Member States, such as the Spanish legislation at issue which, in order to avoid tax evasion, imposes tax on transfers of securities representing part of the capital of companies in which at least 50% of the assets comprise immovable property and where the acquirer, as a result of that transfer, obtains a position which enables him to exercise control over the entity. According to the CJ, this applies even if there is no intention to avoid taxation, if the companies involved are fully active and if the assets cannot be disassociated from their economic activities.

Preliminary questions referred to CJ on the compatibility of Italian annual duty with the Capital Duty Directive (Grillo Star Fallimento)On 13 November 2009, the District Court of Cosenza referred the following preliminary questions to the ECJ in the Grillo Star Fallimento case (C-443/09).‘Are the criteria for determining the annual duty referred to in Article 18[1](b) of Italian Law No 580 of 29 December 1993, as provided for in Article 18(3), (4), (5) and (6) thereof, inconsistent with Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital, in so far as the duty cannot be covered by the exceptions provided for in Article 6[1](e) of that directive?

a company (such as a notarial deed) at the moment at which the taxable event for capital duty occurs, provided that there remains a connection between the levying of the duty and the actual contribution of assets to the company intended to receive them. If, at the time when such an instrument was executed, the actual contribution of assets has not been effected and it remains uncertain whether it will be effected, the Member State concerned cannot demand payment of capital duty until the contribution has become definite. The principle of effectiveness precludes national legislation which restricts, before the tax courts, the means of proving that no contribution was in fact effected to increase the capital of a company, in accordance with the company’s resolution, to the production of a civil judgment that has become final declaring the registration null and void or annulling it, such that capital duty must in any event be paid and can be reimbursed only by means of the production of such a civil judgment.

Furthermore, the CJ held that the Capital Duty Directive does not preclude a Member State from providing that the public officer who drafted or certified the instrument recording the increase in capital (such as a civil law notary) is jointly and severally liable for payment of capital duty, provided that the officer has the right to bring an action under a right of recourse against the company receiving the capital contribution.

CJ rules levy of Spanish transfer tax on immovable property companies not at odds with Capital Duty Directive (Inmogolf)On 6 October 2010, the CJ issued its Order in the Inmogolf case (C-487/09) regarding the interpretation of the Capital Duty Directive. This case concerns the levy of Spanish transfer tax on immovable property companies.

The Capital Duty Directive prohibits the taxation of making available on the market, or dealing in, stocks, shares or other securities of the same type. In addition, the Capital Duty Directive only authorises Member States to charge duties on the transfer of securities, whether charged at a flat rate or not. The Spanish legislation at issue establishes a general exemption, from value added tax and from tax on capital transfers, for the transfer of securities. However,



In particular:1. Does the annual duty, which is to be determined by reference to ‘the budgetary resources needed in order for the chambers of commerce system to be able to carry out the services which it is under a duty to provide throughout the national territory’, constitute a duty paid by way of fees or dues? 2. Does the provision for a ‘balancing fund’, which is intended to harmonise throughout the national territory the performance of all the ‘administrative functions’ entrusted by law to the chambers of commerce, preclude the possibility that the annual duty is a duty paid by way of fees or dues? 3. Is the power conferred on the individual chambers of commerce to increase the amount of the annual duty by up to 20% for the purposes of co-financing initiatives aimed at increasing production and improving the economic conditions of the territorial unit under their responsibility consistent with that annual duty being a duty paid by way of fees or dues?4. Does the fact that no methods have been specified for determining the total budgetary requirements for the maintaining and the updating by the chambers of commerce of registrations and notes in the register of companies mean that the annual duty cannot be a duty paid by way of fees or dues?5. Is the fact that the annual duty is determined on a flat-rate basis, with no provision for checking at ‘regular intervals’ that it appropriately reflects the average cost of the service, consistent with the annual duty being a duty paid by way of fees or dues?’

Preliminary ruling request on whether capital contribution to cover estimated losses is subject to capital dutyOn 14 October 2010, the Independent Finance Court of Linz (Unabhängiger Finanzsenat Außenstelle Linz) in Austria requested a preliminary ruling from the CJ in the case of Immobilien Linz GmbH & Co KG v. Finanzamt Freistadt Rohrbach Urfahr (C-492/10) regarding the interpretation of the Capital Duty Directive. Essentially, the Finance Court wishes to know from the CJ whether a capital contribution which is intended to cover estimated losses of the beneficiary company constitutes a capital increase within the meaning of the Capital Duty Directive, and therefore, whether capital duty can be levied in such cases.

Commission requests Spain to abolish its transfer tax on certain contributions of capitalOn 28 January 2010, the Commission formally requested Spain to change its tax provisions related to the transfer of securities. The Commission considers that the imposition of a transfer tax on certain contributions of capital, in addition to capital duty, is contrary to the Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital (the ‘recast Capital Duty Directive’). The request takes the form of a reasoned opinion, i.e., the second step of the infringement procedure provided for in Article 258 TFEU. If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the ECJ.

According to Article 108 of Law No. 24/1988 of 28 July 1988 on the securities market, any contributor who, as a result of certain contribution of capital, obtains a position such as to exercise control over this entity or, once this control has been obtained, increases his shareholding in the entity, will have to pay a transfer tax (at a tax rate which ranges from 6% to 7%) in addition to the capital duty (1%) paid by the company increasing its capital. This transfer tax applies in the case of a contribution of capital to a company (i) which real estate assets located in Spain represent more than 50% of its total assets; or (ii) which assets include securities in another entity whose assets consist for at least 50% of real estate located in Spain.

The Capital Duty Directive allows Member States to levy capital duty on contributions of capital but the tax rate may not, in any event, exceed 1% of the capital increase and Member States may not levy any other tax on such an increase (Article 5). The Commission considers that the Spanish legislation at issue is not in conformity with Article 5 of the Capital Duty Directive as it provides for another tax to be levied in addition to capital duty on certain contributions of capital that fall within the scope of that Directive.


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Editorial boardFor contact, mail: [email protected]:● René van der Paardt (Loyens & Loeff Rotterdam)● Thies Sanders (Loyens & Loeff Amsterdam)● Dennis Weber (Loyens & Loeff Amsterdam; University of Amsterdam)

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Editors● Patricia van Zwet

Correspondents● Peter Adriaansen (Loyens & Loeff Tokyo)● Séverine Baranger (Loyens & Loeff Luxembourg)● Gerard Blokland (Loyens & Loeff Amsterdam)● Alexander Bosman (Loyens & Loeff Rotterdam)● Kees Bouwmeester (Loyens & Loeff Amsterdam)● Joke Brabants (Loyens & Loeff Brussels)● Alexander Fortuin (Loyens & Loeff Frankfurt am Main)● Raymond Luja (Loyens & Loeff Amsterdam; Maastricht University)● Bruno da Silva (Loyens & Loeff Amsterdam)● Rita Szudoczky (Loyens & Loeff Amsterdam)● Patrick Vettenburg (Loyens & Loeff Eindhoven)

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