Advocate General's Opinion: 22 May 2008
In the Daily Mail case, the Court had concluded that provisions regarding the life and death of a company were determined solely by the Member State under whose laws the company was created. This permitted in that case an exit tax on the movement of effective management to another Member State. A frequent question asked is how this approach from 1988 now sits with the Court's modern case law (e.g. C-9/02 Lasteyrie and C-470/04 N) which has found exit taxes incompatible with community law? Is Daily Mail for instance to be distinguished so that it is only relevant to charges created on the dissolution of a company upon migration?
AG Maduro has proposed the wholesale relegation of Daily Mail to history. To him it no longer represents the current and developed state of case law.
In Cartesio, a Hungarian company sought to transfer its operational headquarters to Italy whilst remaining incorporated in Hungary. According to Hungarian law, a company incorporated in Hungary cannot transfer its operational headquarters to another Member State without having been previously dissolved creating tax charges on the disposal of its assets.
While dispensing with Daily Mail, the AG has concluded that, following Cadbury Schweppes, it may be acceptable in circumstances such as the prevention of abuse or fraudulent conduct to set certain conditions before a company constituted under its own national law can transfer its operational headquarters abroad.
The AG considered that this was not the situation in Cartesio as the Hungarian rules do not merely set conditions to the transfer but also required the dissolution of the company.
Case C- 194/06 Orange European Smallcap Fund NV – 3rd Country Claims?
ECJ Judgment – 20 May 08
When is a third country claim in reality an intra community claim? Will, for instance, the taxation of dividends received by an EU parent company from an EU holding company of distributions originating in a lower tier non EU/EEA trading company represent a possible restriction on the exercise of rights within the community (i.e. the freedom to establish the EU holding company) or will it be only a "third country claim" subject to the greater limitations to rights available in third country contexts?
This case suggests in a related, indirect circumstance that intra community rights will be engaged.
A Dutch investment fund, exempt from Dutch tax, was entitled under certain conditions to a refund of withholding tax on dividends received from its investments. The refund however was restricted to the portion of its shareholders who were Dutch resident. Among other issues the Dutch authorities argued that the restriction was permissible where the shareholders were resident outside the EU/EEA by the requirements of fiscal supervision.
The Court rejected this argument holding that, where the restriction to the refund related to third country resident shareholders it nevertheless produced an overall reduction in the investment fund's refund without good reason penalising all shareholders wherever resident. As such the case looks a bit like the application in a tax context of C-292/02 Commission v Netherlands where restrictions on the registration of ships in the Netherlands related to the proportion of third country resident directors and shareholders in the ship's management company was considered a breach of intra community rights.
E-7/07 Seabrokers AS – Interest Allocation
EFTA Court (7 May 2008)
This is an interesting case on group contributions, interest deductions and allocations to branches.
Seabrokers AS, a Norwegian company, had a UK registered branch which paid tax in the UK. Seabrokers used the direct method in its accounts meaning that expenses were entered in the country where they arose. Seabrokers claimed a credit allowance under the Norway UK DTC corresponding to tax paid in the UK. The Norwegian authority reduced the amount claimed, apportioning expenses and group contributions in accordance with the principle of net income taxation. Seabrokers appealed, claiming that Norway's rules were discriminatory and contrary to the EEA Agreement.
The deduction of expenses when calculating the maximum credit allowance works to the taxpayers' disadvantage in that every increase in debt interest expense will reduce the maximum allowance granted to offset the tax levied. Accordingly the taxpayer may be left with having paid more tax than is compensated. The court held that Norway's rules have the potential of leading to a more burdensome result for taxpayers with income earned through a branch in another EEA state which must be regarded as a restriction contrary to the EEA Agreement.
The court also held that to attribute group contributions to the income of a branch situated in another EEA State when calculating the maximum credit allowance is also contrary to the EEA Agreement.
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