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2 October 2009AVRIO net meeting Athens
1
Direct TaxationDirect Taxation
Eliminating the obstacles to theEliminating the ob...
01/28/15AVRIO net meeting Athens
2
Introduction - AgendaIntroduction - Agenda
 A. General
– Definition of SMEs
– EC Treat...
01/28/15AVRIO net meeting Athens
3
Definition of SMEsDefinition of SMEs
 Recommendation 2003/361/EC – legally secure
and ...
01/28/15AVRIO net meeting Athens
4
Definition of SMEsDefinition of SMEs
Enterprise Category Headcount Turnover or Balance ...
01/28/15AVRIO net meeting Athens
5
Why are SMEs important?Why are SMEs important?
2. Importance of SMEs for the EU
 they ...
01/28/15AVRIOnet Athens Meeting
6
Mobility of SMEs within the EUMobility of SMEs within the EU
2. The EC Treaty Freedoms g...
Free Movement of PersonsFree Movement of Persons
Obligations for both the Origin (Home) State and
the Host State:
“Freedom...
Free Movement of PersonsFree Movement of Persons
- Freedom to choose the appropriate legal form in
which to pursue activit...
Free movement of personsFree movement of persons
- Not hindering the establishment in another
MS (origin state) [exit taxe...
Relationship between theRelationship between the
Fundamental FreedomsFundamental Freedoms
Relationship between the Fundame...
Relationship between theRelationship between the
Fundamental FreedomsFundamental Freedoms
Once the applicable freedom is i...
Freedom of Establishment andFreedom of Establishment and
Free Movement of CapitalFree Movement of Capital
Relationship bet...
Freedom of Establishment andFreedom of Establishment and
Free Movement of CapitalFree Movement of Capital
- Portfolio hold...
01/28/15AVRIO net meeting Athens
14
What constitutes an obstacle?What constitutes an obstacle?
Sea-Land Service (NL), C-43...
What constitutes an obstacle?What constitutes an obstacle?
- Discrimination: directly based on
nationality
- The applicati...
- Distinction: measures that result in covert or
indirect discrimination (criterion is not
nationality): a Luxembourg rule...
What constitutes an obstacle?What constitutes an obstacle?
- Measures without distinction that make
free movement less att...
What constitutes an obstacle?What constitutes an obstacle?
Disparities are not obstacles!
“If unequal treatment is due to...
01/28/15AVRIO net meeting Athens
19
How to get rid of ObstaclesHow to get rid of Obstacles
A. “Automatic”
i. Positive inte...
How to get rid of ObstaclesHow to get rid of Obstacles
“Forced” – (cont.)
ii. Infringement procedures (Art. 226 EC)
- Acti...
01/28/15AVRIO net meeting Athens
21
B. The Greek Experience - 1B. The Greek Experience - 1
 A. Preliminary rulings – 2 ca...
The Greek Experience - 2The Greek Experience - 2
i. Athinaiki Zythopoiia; C- 294/99
i. The incompatible rule: When distrib...
The Greek Experience - 3The Greek Experience - 3
B. Infringement procedures – 3 cases
i. Capital duty (Dir 69/335/EEC); C...
The Greek Experience - 4The Greek Experience - 4
ii. Taxation of Inbound Dividends; C-406/07
i. The incompatible rule: Dom...
The Greek Experience - 5The Greek Experience - 5
iii. Taxation of Foreign Partnerships; C-406/07
i. The incompatible rule:...
The Greek Experience - 6The Greek Experience - 6
iii. Compliance (law 3763/2009): As from 1-1-2009
branches of foreign par...
C. EU Trends – Pending casesC. EU Trends – Pending cases
Currently pending: cases from 12 MS
- Austria - Italy
- Belgium ...
Hot TopicsHot Topics
1. Dividend taxation: Austria, Belgium, France, Germany, Spain
2. Depreciation rates for buildings: G...
1. Austria1. Austria
C-70/09: Hengartner and Gasser – Art. 43 EC – is
the carrying on of hunting, if the person licensed
t...
2. Belgium2. Belgium
C-250/08: Comm v. Belgium - Art. 18, 43,
56 EC - Flemish house registration tax –
relief for Flemish ...
3. France3. France
C-72/09: Etablissments Rimbaud – Art. 40
EEA – 3% tax on the market value of
immovable property situate...
4. Germany4. Germany
 C-510/08: Mattner – Art. 39 EC, 43 EC, 56 EC -
gift tax allowance for nonresidents lower than
gift ...
5. Greece5. Greece
 C-155/09: Comm. v. Greece: Art. 18 EC, 39 EC,
43 EC, 12 EC - real estate transfer tax for the
acquisi...
6. Hungary6. Hungary
 C-253/09: Comm. v. Hungary: Art. 18 EC, 39
EC, 43 EC - Discriminatory tax provisions
concerning the...
7. Italy7. Italy
 C-172/08: Pontina Ambiente – regional levy on
waste disposal sites (ecotax)
 C-56/09: Zanotti – deduct...
8. Netherlands8. Netherlands
 C-337/08: X Holding – Art. 43 EC, 48 EC –
cross-border group taxation – group taxation
rule...
8. Netherlands – cont.8. Netherlands – cont.
C-440/08: Gielen – Art.43 – foreign
taxable person taxed in the NL – the rul...
9. Poland9. Poland
C-314/08: Filipiak: – Art. 43 -
deductibility of compulsory social
security contributions only if paid...
10. Portugal10. Portugal
 C-105/08: Comm. v. Portugal: Art 49 EC
(services), 56 EC – outbound interest payments -
higher ...
11. Spain11. Spain
 C-153/08: Comm. v. Spain: Art. 49 EC –
freedom to provide services - discriminatory tax
treatment on ...
11. Spain – cont.11. Spain – cont.
C-269/09, Comm. v. Spain: exit tax
provisions for individuals
01/28/15AVRIO net meetin...
12. UK12. UK
C-569/07: HSBC – Capital duty – [Art. 43
EC, (49 EC – N/A according to
Mengozzi), 56 EC (primarily applicabl...
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Direct Taxation: Eliminating the Obstacles to the mobility of SMEs wihin the EU; the Greek experience and EU trends

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Athens, 2 October 2009

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Direct Taxation: Eliminating the Obstacles to the mobility of SMEs wihin the EU; the Greek experience and EU trends

  1. 1. 2 October 2009AVRIO net meeting Athens 1 Direct TaxationDirect Taxation Eliminating the obstacles to theEliminating the obstacles to the mobility of SMEs within the EU:mobility of SMEs within the EU: the Greek experience and EUthe Greek experience and EU trendstrends Katerina Perrou
  2. 2. 01/28/15AVRIO net meeting Athens 2 Introduction - AgendaIntroduction - Agenda  A. General – Definition of SMEs – EC Treaty freedoms that promote Mobility – National rules that create Obstacles – Procedure for the Elimination of obstacles  B. Specific examples from the Greek experience – Preliminary rulings – Infringement procedures  C. EU trends: ECJ pending cases attacking obstacles – Various Member States
  3. 3. 01/28/15AVRIO net meeting Athens 3 Definition of SMEsDefinition of SMEs  Recommendation 2003/361/EC – legally secure and user friendly definition in order to avoid distortions  Criterion: economic strength measured by size and independence  Size: (a) headcount ceilings and (b) financial ceilings  Independence: not part of larger groupings that benefit from a stronger economic backing than genuine SMEs (less than 25% of capital or voting rights)
  4. 4. 01/28/15AVRIO net meeting Athens 4 Definition of SMEsDefinition of SMEs Enterprise Category Headcount Turnover or Balance Sheet total Medium - sized < 250 ≤ € 50 million ≤ € 43 million small < 50 ≤ € 10 million ≤ € 10 million micro < 10 ≤ € 2 million ≤ € 2 million
  5. 5. 01/28/15AVRIO net meeting Athens 5 Why are SMEs important?Why are SMEs important? 2. Importance of SMEs for the EU  they represent around 99% of all enterprises in the EU  they provide around 65 million jobs  they contribute to entrepreneurship and innovation
  6. 6. 01/28/15AVRIOnet Athens Meeting 6 Mobility of SMEs within the EUMobility of SMEs within the EU 2. The EC Treaty Freedoms guarantee MOBILITY of SMEs within the EU - There are 4+1 Fundamental freedoms - Goods - Services - Direct Effect - Persons - Rights for the companies - Capital - Obligations for MS - (Residence – inherent in the free movement of persons)
  7. 7. Free Movement of PersonsFree Movement of Persons Obligations for both the Origin (Home) State and the Host State: “Freedom of establishment aims to guarantee the benefit of national treatment in the host Member State, by prohibiting any discrimination based on the place in which companies have their seat” “Acceptance of the proposition that the M S of residence may freely apply different treatment merely by reason of the fact that the registered office of a company is situated in another Member State would deprive Article 52 of the Treaty of all meaning (Truck Center, C-282/07)01/28/15AVRIO net meeting Athens 7
  8. 8. Free Movement of PersonsFree Movement of Persons - Freedom to choose the appropriate legal form in which to pursue activities: branch or subsidiary: “The freedom of establishment would be deprived of all its meaning if companies of other MS establishing themselves in France in the form of an agency or a branch could be treated differently on the basis of their nationality (Avoir Fiscal, C-270/83; CLT-UFA, C-253/03) 01/28/15AVRIO net meeting Athens 8
  9. 9. Free movement of personsFree movement of persons - Not hindering the establishment in another MS (origin state) [exit taxes]: The freedom of establishment prohibits the MS of origin from hindering the establishment of one of its own nationals in another MS (Lasteyrie de Saillant, C-9/02) 01/28/15AVRIO net meeting Athens 9
  10. 10. Relationship between theRelationship between the Fundamental FreedomsFundamental Freedoms Relationship between the Fundamental Freedoms: NO general rule of precedence “When a national measure relates to more than one freedoms, which of the freedoms is affected and which one prevails over the other has to be considered on a case by case basis” (Fidium Finanz, C-52/04) 01/28/15AVRIO net meeting Athens 10
  11. 11. Relationship between theRelationship between the Fundamental FreedomsFundamental Freedoms Once the applicable freedom is identified, normally “it is not needed to examine the measure in the light of another freedom, since if there are any restrictions, such restrictions are a direct consequence of the applicable freedom, to which they are inextricably linked” Golden Shares, C-282/04 01/28/15AVRIO net meeting Athens 11
  12. 12. Freedom of Establishment andFreedom of Establishment and Free Movement of CapitalFree Movement of Capital Relationship between the Freedom of Establishment and the Free movement of Capital: - Definite influence over the company’s activities / control or management of a company (Baars, C-251/98) - Sole shareholder: freedom of establishment (Asscher, C-107/94) 01/28/15AVRIO net meeting Athens 12
  13. 13. Freedom of Establishment andFreedom of Establishment and Free Movement of CapitalFree Movement of Capital - Portfolio holdings: holdings that do not result in the control or management of the company >> free movement of capital (CFC, C-201/05) - Third country nationals: always free movement of capital (Holboeck, C-15705), as freedom of establishment does not apply to non-EU persons 01/28/15AVRIO net meeting Athens 13
  14. 14. 01/28/15AVRIO net meeting Athens 14 What constitutes an obstacle?What constitutes an obstacle? Sea-Land Service (NL), C-430 and 431/99: “ None the less the VTS system at issue in the main proceedings, in that it requires the payment of a tariff by sea-going vessels longer than 41 meters is liable to impede or render less attractive the provisions of those services to which the levy applies and therefore constitutes a restriction on their free circulation”. This means that ANY and EVERY tax is an obstacle?
  15. 15. What constitutes an obstacle?What constitutes an obstacle? - Discrimination: directly based on nationality - The application of different rules to comparable situations and - The application of the same rule to different situations Futura, C-250/95: Luxembourg rules of evidence that applied indiscriminately to both residents and nonresidents 01/28/15AVRIO net meeting Athens 15
  16. 16. - Distinction: measures that result in covert or indirect discrimination (criterion is not nationality): a Luxembourg rule that made “the refund of excess tax withheld on income conditional on permanent residency within a MS constitutes a covert form of discrimination contrary to the free movement of workers” (Biehl, C-175/88) What constitutes an obstacle?What constitutes an obstacle?
  17. 17. What constitutes an obstacle?What constitutes an obstacle? - Measures without distinction that make free movement less attractive: “legislation containing a number of elements liable to dissuade individuals from taking out and insurance companies from offering insurance is contrary to the freedom to provide services” (Jessica Safir, C-118/96) – in this case the Swedish measure was designed to take away discrimination, yet… 01/28/15AVRIO net meeting Athens 17
  18. 18. What constitutes an obstacle?What constitutes an obstacle? Disparities are not obstacles! “If unequal treatment is due to differences of the tax systems between the MS, it results from a disparity for which EC law is not concerned - Schempp (D), C-403/03 Adverse consequences of the application of the same tax rule to both domestic and cross-border situations that result from the parallel exercise by two MS of their fiscal sovereignty (Kerckhaert-Morres (B), C- 513/04) 01/28/15AVRIO net meeting Athens 18
  19. 19. 01/28/15AVRIO net meeting Athens 19 How to get rid of ObstaclesHow to get rid of Obstacles A. “Automatic” i. Positive integration – limited in direct taxation ii. Member States initiatives B. “Forced” Two available mechanisms: i. Preliminary rulings (Art. 234 EC-) i. National courts’ role ii. Result: negative integration
  20. 20. How to get rid of ObstaclesHow to get rid of Obstacles “Forced” – (cont.) ii. Infringement procedures (Art. 226 EC) - Action of the Commission on its own initiative or after a complaint - Three stages of Infringement Procedure: - Letter of Formal Notice (first written warning) - Reasoned Opinion (final written warning) - Case referred to the ECJ 01/28/15AVRIO net meeting Athens 20
  21. 21. 01/28/15AVRIO net meeting Athens 21 B. The Greek Experience - 1B. The Greek Experience - 1  A. Preliminary rulings – 2 cases i. Royal bank of Scotland plc; C – 311/97 i. The incompatible rule: Banks that had their seat in Greece were taxed at 35% whereas branches of foreign Banks established in Greece were taxed at 40% ii. The Court’s decision (29-4-99): this rule constitutes a discrimination incompatible with the freedom of establishment iii. Compliance (law 2836/2000): ITC was amended – all SAs taxed at 35%; effect: 30-9-2000.
  22. 22. The Greek Experience - 2The Greek Experience - 2 i. Athinaiki Zythopoiia; C- 294/99 i. The incompatible rule: When distributing tax-free income, the Greek subsidiary suffered a withholding tax that did not apply in cases the profits were retained by the sub. ii. The Court’s decision (4-10-2001): Such withholding was deemed contrary to the PSD 90/435/EC. iii. Compliance: The domestic provisions have NOT been amended; no-one is interested or wrong decision? 01/28/15 22
  23. 23. The Greek Experience - 3The Greek Experience - 3 B. Infringement procedures – 3 cases i. Capital duty (Dir 69/335/EEC); C-178/05 ii. The Incompatible rules: Greece levied capital duty in cases of transfer of the real seat of a company in another MS; it also granted a tax exemption to shipping companies. iii. The Court’s decision (7-6-2007): the Greek rules are incompatible with the Capital duty Directive iv. Compliance: Greece failed to comply with C- 178/05 and a second infringement was opened in January 2009. It finally complied in May 2009 (law 3763/2009). 01/28/15 23
  24. 24. The Greek Experience - 4The Greek Experience - 4 ii. Taxation of Inbound Dividends; C-406/07 i. The incompatible rule: Domestic dividends are tax exempt whereas inbound dividends received by individuals are taxed according to the individual progressive tax rates ii. The Courts decision (23-4-2009): Less favorable treatment of inbound dividends makes it less attractive for Greek residents to invest in foreign companies. iii. Compliance (law 3697/2008): as from 1-1- 2009 all dividends are taxed at 10%. 01/28/15AVRIO net meeting Athens 24
  25. 25. The Greek Experience - 5The Greek Experience - 5 iii. Taxation of Foreign Partnerships; C-406/07 i. The incompatible rule: Greek partnerships are taxed at a rate of 20% whereas foreign partnerships established in Greece are taxed at 25% ii.The Court’s decision (23-4-2009): The higher tax rate that applies to branches of foreign partnerships constitutes less favorable treatment liable to dissuade partnerships established in other MS from pursuing economic activities in Greece through a branch 01/28/15AVRIO net meeting Athens 25
  26. 26. The Greek Experience - 6The Greek Experience - 6 iii. Compliance (law 3763/2009): As from 1-1-2009 branches of foreign partnerships that are established in Greece are taxed in the same way as Greek partnerships, under the condition that the foreign partnership’s nature is substantially similar to the nature of Greek partnerships. 01/28/15AVRIO net meeting Athens 26
  27. 27. C. EU Trends – Pending casesC. EU Trends – Pending cases Currently pending: cases from 12 MS - Austria - Italy - Belgium - Netherlands - France - Poland - Germany - Portugal - Greece - Spain - Hungary - UK 01/28/15AVRIO net meeting Athens 27
  28. 28. Hot TopicsHot Topics 1. Dividend taxation: Austria, Belgium, France, Germany, Spain 2. Depreciation rates for buildings: Germany (2 cases) 3. Immovable property taxes (acquisition, registration): Belgium, France, Hungary and Greece 4. Deductibility of non-domestic expenses: School Fees (Italy), Social Security levies: Hungary, Poland, Foreign losses (Germany) 5. Capital duty directive: UK, Poland 6. Credit or Exemption Method? Austria 7. Transfer pricing rules: Belgium 8. Group taxation: Netherlands 9. Interest payments: Spain 10. Exit taxation: Spain
  29. 29. 1. Austria1. Austria C-70/09: Hengartner and Gasser – Art. 43 EC – is the carrying on of hunting, if the person licensed to hunt sells the shot wildlife within the country concerned a self employed activity within the meaning of Art. 43 EC, even if that activity is not intended to make an overall profit? C-436/437/09: Haribo – Art.56 EC - credit or exemption method for inbound dividends from portfolio investments? 01/28/15AVRIO net meeting Athens 29
  30. 30. 2. Belgium2. Belgium C-250/08: Comm v. Belgium - Art. 18, 43, 56 EC - Flemish house registration tax – relief for Flemish house registration tax only if previous house in Flanders. C-307/08: Comm v. Belgium – Art. 56 EC, 43 EC - refusal of credit for withholding tax levied on inbound dividends – foreign dividends are taxed more heavily than domestic dividends C-311/08: Societe de gestion industrielle (SGI) – Art. 43 EC, 56EC – transfer pricing rules 01/28/15AVRIO net meeting Athens 30
  31. 31. 3. France3. France C-72/09: Etablissments Rimbaud – Art. 40 EEA – 3% tax on the market value of immovable property situated in France – exemption for companies situated in France – exemption under conditions for companies situated in EEA (non-EU) C-310/09: Accor: Art. 43 and 56 EC – dividends taxation 01/28/15AVRIO net meeting Athens 31
  32. 32. 4. Germany4. Germany  C-510/08: Mattner – Art. 39 EC, 43 EC, 56 EC - gift tax allowance for nonresidents lower than gift tax allowance for residents  C-244/09: Comm. v. Germany - buildings abroad – free movement of capital – Art. 56 EC – higher percentages of depreciation for building situated in Germany than for buildings situated abroad  C-262/09: Meilicke (2nd) – Art. 56 EC (dividends)  C-35/08: Busley/Cibrian: - Art.56 – limited deductibility of losses abroad and different depreciation rates 01/28/15 32
  33. 33. 5. Greece5. Greece  C-155/09: Comm. v. Greece: Art. 18 EC, 39 EC, 43 EC, 12 EC - real estate transfer tax for the acquisition of first residential real estate in Greece – exemption under stricter conditions for residents of EU nationality – no exemption for nonresidents of EU nationality 01/28/15AVRIO net meeting Athens 33
  34. 34. 6. Hungary6. Hungary  C-253/09: Comm. v. Hungary: Art. 18 EC, 39 EC, 43 EC - Discriminatory tax provisions concerning the duty levied on the purchase of residential property – the value of the previous property sold is not taken into account if not in Hungary  C-96/08: CIBA: Art. 43 and 48 EC; companies established in Hungary have to pay vocational training levy on the total amount of wage costs (Hungary and abroad) although social security obligations are satisfied in the host state 01/28/15AVRIO net meeting Athens 34
  35. 35. 7. Italy7. Italy  C-172/08: Pontina Ambiente – regional levy on waste disposal sites (ecotax)  C-56/09: Zanotti – deductibility of tuition fees abroad 01/28/15AVRIO net meeting Athens 35
  36. 36. 8. Netherlands8. Netherlands  C-337/08: X Holding – Art. 43 EC, 48 EC – cross-border group taxation – group taxation rules only apply if all members of the group are companies of the same State  C-352/08: Zwijnenburg – Merger directive in connection with scheme to avoid NL property transfer tax – must the benefits of the directive be withheld from a taxpayer when a series of legal transactions is aimed at preventing the levying of a tax other than those taxes to which the benefits set out in that directive relate? Abuse 01/28/15 36
  37. 37. 8. Netherlands – cont.8. Netherlands – cont. C-440/08: Gielen – Art.43 – foreign taxable person taxed in the NL – the rule is indeed making a distinction contrary to art 43 EC – BUT the taxable person had the opportunity to opt to be treated as domestic taxable person and did do so for reasons of his own 01/28/15AVRIO net meeting Athens 37
  38. 38. 9. Poland9. Poland C-314/08: Filipiak: – Art. 43 - deductibility of compulsory social security contributions only if paid based on provisions of polish legislation C-441/08: Elektrownia Patnow – capital duty directive – loans converted into shares – transition – the loans were taxed before the accession, the conversion takes place after the accession 01/28/15AVRIO net meeting Athens 38
  39. 39. 10. Portugal10. Portugal  C-105/08: Comm. v. Portugal: Art 49 EC (services), 56 EC – outbound interest payments - higher taxation of interest for mortgage from foreign banks – discrimination of foreign banks  C-20/09: Comm. v. Portugal: Discriminatory 2005 tax amnesty legislation (RERT) - Art. 56 EC – Rule: penalty of 5% on the value of the investment – penalty of only 2,5% if the funds were reinvested in Portuguese government bonds 01/28/15AVRIO net meeting Athens 39
  40. 40. 11. Spain11. Spain  C-153/08: Comm. v. Spain: Art. 49 EC – freedom to provide services - discriminatory tax treatment on some foreign lottery winnings – certain domestic lottery winnings are exempt from taxation – the exemption does not apply to non-Spanish lottery winnings  C-487/08: Comm. v. Spain: Art. 43 EC (establishment ), 56 EC (capital) - outbound dividends – withholding tax on dividends received by foreign shareholders higher than tax due by residents 01/28/15AVRIO net meeting Athens 40
  41. 41. 11. Spain – cont.11. Spain – cont. C-269/09, Comm. v. Spain: exit tax provisions for individuals 01/28/15AVRIO net meeting Athens 41
  42. 42. 12. UK12. UK C-569/07: HSBC – Capital duty – [Art. 43 EC, (49 EC – N/A according to Mengozzi), 56 EC (primarily applicable)] - StampDutyReserveTax rules (tax on clearance services) – contrary to the capital duty directive 01/28/15AVRIO net meeting Athens 42 Judgment of Oct.1st , 2009: the rule is contrary to the Capital Duty Directive WSJ: Effective yesterday UK Govt wont apply 1,5% SDRT

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