Presentation discussed at the 2018 Conference on Presumptive Income taxation at the University of Milan "Bicocca": The event has been coordinated by Professor Nicola Sartori.

1. Presumptive Income Taxation and EU Principles
Milan, June 15th 2018
Marco Greggi

2. Outline of the Presentation
● Presumptions and EU Principles (on Taxation), relevance of the tax
considered:
○ VAT (VAlue Added Tax);
○ Customs Duties;
○ Direct taxes (within the scope of Article 115 TFEU);
● Importance of the legal perspective chosen, including:
○ Charter of Fundamental Rights of the European Union;
○ European convention on Human Rights and Fundamental Freedoms (Article 6);
● Eventually, the international perspective:
○ At the crossroads with International Tax law: LoB clauses as legal presumptions and their
compatibility with EU law.
2

3. A Possible Starting Point
● Plain definition: “Using a known fact to infer another fact”;
● Which kind of presumption:
○ “Rebuttable presumption of Law, that is The Risk of non Persuasion of the Jury” - Wigmore on
Evidence (2018);
● Does the field of the Law play a role ?
● Taxation: European Taxpayer’s Code (Soft law, 2016)
○ Presumption of Taxpayer’s honesty: § 3.1.3
● Criminal law:
○ Directive (EU) 2016/343, Article 6 on the Burden of the proof
3

4. Continued … the CJEU Interpretation
● “[A] presumption, even where it is difficult to rebut, remains within
acceptable limits so long as it is proportionate to the legitimate aim
pursued, it is possible to adduce evidence to the contrary and the
rights of the defence are safeguarded”;
○ CJEU C-521/09 Elf Aquitaine, October 1st 2009, § 62.
4

5. ● Presumption against the taxpayer: in La Poste case the CJEU determined
that the Commission could establish the existence of a selective advantage
arising from a state guarantee by way of a presumption without assessing the
effects of the guarantee;
○ Presumptions and State aid discipline (CJEU C-559/12 decided on April 3rd 2014, La Poste);
○ See contra (T-34/02 decided on February 22nd 2006, Le Levant)
● Presumption in favor of the taxpayer as a possible violation of State aids Rule
?
○ A way to circumvent the prohibition of State aid ? Example: Belgian Excess Profits Tax -
Income Tax Code (Article 185, §2), repealed.
… and a Different Perspective
5

6. Understanding European Tax Law
● Market-oriented Tax System focused on substantive provision;
● “Of the Market, by the Market, for the Market” … alas, this is not Gettysburg !;
● Procedure and procedure-related presumptions may nonetheless pay an
important role in the development of EU law;
● Rewe and Comet cases (C-33/76 and C-45/76): Principle of Effectiveness of
EU law:
○ Protection of rights must not be impossible or excessively difficult;
○ No special procedure for the application of EU law: Principle of equivalence instead.
6

7. Principle of Effectiveness in EU Law
● Effectiveness entails the necessity of a “Due procedure clause” with
presumption admissible only if consistent with the law;
● Consistency test:
○ Rule of Reason;
○ Proportionality;
● Due procedure includes:
○ Adversarial procedure;
○ RIght of being heard;
○ ... ;
● Necessity for a reasonable use of presumption implicitly stated also in CJEU
C-40/08 Asturcom case (October 6th 2009).
7

8. Effectiveness, continued ...
● Balancing the possibility to use presumptions with the powers of the Tax
office and the duties of the taxpayers;
● Administrative (or investigative) burdens (or costs) can not be invoked as to
justify the necessity to use presumptions;
○ CJEU C-318/07 Persche (January 27th 2009);
○ CJEU C-368/04 Centro di Musicologia Walter Stauffer (September 14th 2006);
● The more international collaboration (and exchange of information) takes
place, the less presumptions should be accepted.
8

9. The Principle of Proportionality in EU Law
● One of the cornerstones of EU law (Article 5 EC Treaty, …);
● Commonly interpreted as the need to strike a balance between the protection
of taxpayer’s right and the interest of the State (see CJEU case C-265/87 July
11th 1989, Schräder);
● Need to combat Tax frauds using presumptions (Centros doctrine: CJEU C-
212/97, March 9th 1999):
○ Presumptions need to be supported by objective evidence;
○ Objectives pursued by the provisions concerned;
● Significant role in shaping and interpreting GAARs.
9

10. Proportionality, a Theoretical Approach
● Presumptions (of Law) consistent with EU Law when:
a. Rebuttable;
b. Tailor-made to fit the circumstances of the case …
c. … and therefore consistent with the need to preserve the Interest of the state with the
Taxpayers’ rights;
■ No possibility of overkill.
10

11. ● No consistency with proportionality principle when deductibility of foreign
costs depends on a qualified burden of the proof on the taxpayer;
○ (Possible discrimination as well);
○ CJEU, C-55/98, Vestergaard (October 28th 1999).
● No consistency with proportionality principle when unrestrained exit taxation
occurs:
○ (Claw back provisions under scrutiny);
○ CJEU, C-9/02, Lasteyrie du Saillant (March 11th 2004).
Continued: Addressing Proportionality
11

12. Presumptions and Allocation of Taxing Powers ...
● Presumptions inspiring CFC discipline might be inconsistent with EU Law if
the application of the “look through” approach in unrestrained / automatic;
● Presumption of control as ‘Condicio sine qua non’ for the application of CFC
rules ?
○ CJEU C-196/04 Cadbury Schweppes (September 12th 2006)
○ Contra: CFC discipline varies from state to state, does not necessarily operates via
presumptions (see also “Transfer pricing” below);
● Cross-border allocation of taxing powers;
● Presumptions admissible if proportionate to the goal:
○ CJEU C-446/03 Marks & Spencer (December 13th 2005)
12

13. … Continued ...
● Further restrictions to the use of presumptions in EU Law;
● C-650/16 Bevola (June 12nd 2018):
○ Continuation of the Marks & Spencer doctrine;
Cross border losses attributable t the parent even if the latter didn’t opt for the “Fiscal unity
regime” (where available):
○ Irrelevance of:
■ Possible abusive reasons;
■ Complexity of the international audit system.
13

14. … with a Disclaimer !
● Case-law developed in a pre-BEPS word (with the only exception of Bevola);
● Interpretive relevance of the BEPS Project and findings in the EU;
● Influence on the European policymakers and legislator:
● ATAD I Directive (2016/1164, July 12th 2016):
○ Article 6 (GAAR) does not mention wholly artificial arrangements;
○ Article 7 (CFC) presumes Tax deferral;
● ATAD II Directive (Addressing Hybrids) (2017/952, May 29th 2017):
● ...
14

15. Presumptions and Transfer Pricing
● Is this a real case for presumption ? An anti avoidance provision ?
● Not necessarily as it’s a substantive rule overriding the contractual decision
by the taxpayers (and for tax purposes only):
○ CJEU C-311/08, SGI (January 21st 2010): International dimension of Transfer pricing
compatible with EU law;
○ CJEU C-382/16, Hornbach-Baumarkt (May 31st 2018): introducing concepts of proportionality,
Commercial justification (aka Correlative advantages);
○ Commercial justification could be presumed according to the nature of the business and state
of its development.
15

16. Presumptions, EU and Int’l Tax Law
● Limitation on Benefit Clauses (treaty based) and compatibility with EU Law;
● Basic assumption:
○ LoB entails presumption of misuse of the Treaty / need by the taxpayer to demonstrate
he/she is the actual beneficial owner of income of the case;
○ Shift of the burden of the proof;
● “Tolerant” case law;
○ CJEU C-374/04 Test Claimants in Class IV of the ACT Group Litigation (December 12th 2006);
● Given their unrestrained application and the shift they determine their
compatibility with EU law has been discussed;
○ More recently ...
16

17. Presumptions, Treaty Shopping and EU Law
● CJEU C-6/16, Eqiom
(September 7th 2017);
○ Presumption of treaty shopping
is not a valid justification to the
denial of the “Parent subsidiary”
regime;
○ Presumptions must
proportionale and grounded on
sound evidence anyway.
17
D
A
B
C

18. Presumptions and EU Law
● CJEU C-504/16 and 613/16,
Deister and Juhler Holding
(December 20th 2017);
○ Anti-avoidance rules applicable to
prevent wholly artificial arrangements;
○ The Tax administration must provide
evidence of the artificiality;
○ It can’t be presumed due to the
shareholding structure;
○ ...
18
A
B
C D
Juhler case

19. Concluding Remarks
● Analysis limited to Income Taxation;
● Complex Scenario where:
○ Presumption are admitted in principle, however:
■ In the respect of proportionality and reasonableness;
■ Can not be used to give evidence of the wholly artificial nature of a structure;
○ But:
■ ATAD 1 appears to grant more leeway to the Tax office in the struggle versus tax avoidance and
frauds.
19

20. Thanks for your attention !
marco.greggi@unife.it
20