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UNIVERSITY OF SÃO PAULOINSTITUTOBRASILEIRO DE
DIREITOTRIBUTÁRIO
4TH BRAZILIANCONGRESS OF INTERNATIONAL TAX LAW
22-23 AUGUST 2011
Taxation of movements of capital between the European Union and
Third CountriesJacques Malherbe
Professoremeritus of the CatholicUniversity of LouvainAvocat (Partner, Liedekerke, Brussels)
E-mail : [email protected]
Table of contentsI. Limits to liberalisation of capital movements
1. Grandfathering of restrictions existing in 1993
2. Possibility to distinguishbetweenresidents & non-residents
3. Otherjustified restrictions
II. Relations withothertreatyfreedoms
III. Application to practical situations
1. Golden Share
2. Limitation on benefits of treaties (LOB)
3. Withholding on dividends
4. Most-favoured nation treatment
IV. Treatiessigned by EU
1. EuropeanEconomic Area
2. TreatywithSwitzerland 26.10.2004
3. Treaties on interestfromsavings
2
European Union and Third Countries
• Transactions of EU operatorswiththird countries (TC) may not berestricted
• Transactions of TC operatorswith EU operators are governed by treaties– signed by EU– bilateral
3
Exception
Treaty on the Functioning of the European Union (TFEU) art. 63 (former treatyinstituting the EuropeanCommunity – TEC art. 56)
Restrictions of movements of capital betweenMember States (MS)
between MS and TC
are prohibited4
Exception
Example
An exemption for dividendsreceived must apply to dividendsfrom TC
Comp. ECJ, 6.06.2000 Verkooijen
5
Purpose
See Schoueri (2006)
Attractinvestmentfrom TC in EU
Favour EURO as currency
Concl. Exception shouldbeinterpretedbroadly
6
I. Limits to liberalisation of capital movements
1. Grandfathering of restrictions existing in 1993 re
direct investment (incl. real property)
establishment
financial services
vis-à-vis TC (not MS)
ex. restriction to purchase of buildings in Vienna
ECJ, 11.02.2000 FokusInvest 7
I. Limits to liberalisation of capital movements
2. Possibility to distinguishbetween
residents
non-residents
but withoutarbitrary discrimination
ex. Braziliandrawing all hisincomefrom Germany must benefit of familyreductions
Comp. ECJ, 14.02.1993 Schumacker 8
I. Limits to liberalisation of capital movements
ex. PE must benefit of treatiessignedwith TC
Comp. ECJ, 21.09.1999 Saint-Gobain
Applicable to TC ?
Schoueri : invest in DTT’s
ILADT proposal of model treaty for Latin America : scope of DTT extended to PE’s 9
I. Limits to liberalisation of capital movements
3. Otherjustified restrictions
a. Tax Control
Between MS : no : directive on exchange of info (16.10.2010)
With TC : yes
exchange of info : id.
ex. ECJ, 14.12.2007 A
Swedish exemption of dividendsdistributedunder the form of shares of subsidiary
not applicable to Swisssub10
I. Limits to liberalisation of capital movements
b. Anti-abuse measures
Presumptions :
must berebuttable
show that not inspired by tax motives
ex. interposition of EU subbenefiting of parent-subsidiary directive (no WHG) between French sub and TC parent
CGI (France), art. 119ter 11
II. Relations withothertreatyfreedoms
Freedom to render services
Freedom of establishment
do not apply to TC
If movement of capital isconsequence of rending of services or establishment, freedom of capital movementwill not applywhenmovement of capital is « unavoidableconsequence » of service or establishment
12
II. Relations withothertreatyfreedoms
Examples
ECJ, 3.10.2006 FidiumFinanz
Swisscompanygrantingconsumptioncredits in Germany
Authorizationdenied
Granting of credit = service + movement of capital
13
II. Relations withothertreatyfreedoms
ECJ, 10.05.2007 Lasertec
Germanthincapitalizationrule if debttowards parent > 3 x equity of parent in sub :
interest = profit distribution
2/3 participation of Swissshareholder and lender = exercise of control = freedom of establishment
not of capital movement
Provision applies14
II. Relations withothertreatyfreedoms
But
Freedom of capital movementswillapply if provision appliesindifferently to controlling and non-controlling participations
ex. ECJ, 24.05.2007 Hölböck
Austriantax rate reduced to half for Austrianshareholders of Austriancompanies
Full rate for dividends of foreigncompanies
Freedom of capital movementwould have applied
But the restriction existed in 1993. It wasgrandfathered 15
III. Application to practical situations
1. « Golden Share »
non-taxfield
voting right in Volkswagen limited to 20 % by privatisation law
requiredmajority in general meeting : 80 %
federal State and lowerSaxonyownedeach 20 % of shares
restriction to investment by shareholders of other States
not justifiedunderproportionalityrule16
III. Application to practical situations
2. Limitation on benefits of treaties (LOB)
Bilateraltreaty not applicable to companies of Contracting State
owed by residents of other States
payingdeductibleamounts to residents of other States
Comp. Open Skies Judgment
ECJ, 5.11.2002 Commission v UK
air traffic agreement between UK and US not applicable to airlines of UK owned by nationals of other MS
restriction to freedom of establishment : no reason of public policy
17
III. Application to practical situations
But
In the taxfield
ECJ, 12.12.2006 ACT Group Litigation
UK DTT’sgrants partial reimbursement of ACT paidupon distribution of dividend to shareholders of otherContracting State
Not applicable to companyowned by non-residentsresident in country having no suchtreatywith UK
Upheld :
no discrimination
companies not in same situations
whole of DTT must beviewed18
III. Application to practical situations
3. Withholding on dividends
a. Parent-subsidiary directive
no WHG if 10 % participation of parent in sub
applicable to third countries ?
secondarylaw, not treaty (primarylaw)
Seedomesticlaw of Belgium / Netherlands
applies exception above 10 % to all treaty countries with exchange of information
good platform as holding company to invest in EU19
III. Application to practical situations
b. Treaty
Within EU, withholding on dividendpaid to company in other MS owninglessthan 10 % isdiscriminatory if dividendpaid to domesticcompanyis not taxed, i.e. no withholding / justification exemption
ECJ, 19.11.2009 Commission v Italy
ECJ, 3.06.2010 Commission v Spain
Wouldapply to Third Countries ?
Probably not if differencebased on absence of exchange of information similar to the one provided by mutual assistance directive
But :DTT providesin casusimilar exchange of information20
III. Application to practical situations
4. Most-favoured nation treatment
Not imposed by EU Treaty
MS maye.g. granttaxsparing to third country
But PE must have in MS sametreatment as domesticcompany
Tax sparingunderFinland-China treatywasextended to PE in Finland of Luxembourg company
SAD, Supr. Adm. Court of Finland, 9.05.200721
IV. Treatiessigned by EU
1. EuropeanEconomic Area (EEA) : Iceland, Liechtenstein, Norway
samefreedoms as in EU – Treaty
But freedom of movement of capital not extended to third countries (art. 40)
ex. Liechtenstein as a third country
ECJ, 28.10.2010 Ets Rimbaud
French tax of 3 % on real propertycompanies
Not applicable if
DTT exchange of information
Return disclosingshareholders
Applies to Liechtenstein company in spite of freedom of movement of capital because no exchange of information
22
IV. Treatiessigned by EU
2. TreatywithSwitzerland 26.10.2004
Taxation of savings : WHG in Switzerland
Extension of treatmentaccording to directives of
dividend
interest
royalties
Condition of participation of 25 %23
IV. Treatiessigned by EU
3. Treaties on interestfromsavings
Varioustaxhavens
in Europe : Andorra, Liechtenstein, Monaco, San Marino
UK territories
24