January 2015 - edition 137EU Tax Alert

Highlights and overview 2014

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Highlights in 2014CJ finds taxation of unrealised hidden reserves in the course of the contribution of a limited partnership interest into a capital company to be a justified restriction on the free movement of capital (DMC)On 23 January 2014, the CJ rendered its judgment in case DMC Beteiligungsgesellschaft mbH v Finanzamt

Hamburg-Mitte (C-164/12). The case concerns the question whether the taxation of unrealised hidden reserves by

a Member State in the course of the contribution of a limited partnership interest into a capital company is in line with

the free movement of capital. The CJ held that the taxation of the unrealised hidden reserves can be justified by the

objective of preserving the balanced allocation of the power to impose taxes between Member States, if the Member

State imposing such tax is in fact no longer entitled to tax those gains when they are realised.

CJ rules that UK legislation on consortium relief is in breach of the freedom of establishment (Felixstowe Dock)On 1 April 2014, the CJ issued its judgement in case Felixstowe Dock and Railway Company Ltd and others v The

Commissioners for Her Majesty’s Revenue & Customs (C-80/12). The case deals with the UK legislation on the

consortium relief and in particular with the requirement that the link company of the UK companies applying for the

consortium relief is also resident in the UK.

CJ rules that Polish legislation which grants a tax exemption on dividends only when paid to resident investment funds may constitute a breach to the free movement of capital (Emerging Markets Series)On 10 April 2014, the CJ issued its judgement in case Emerging Markets Series of DFA Investment Trust Company

v Dyrektor Izby Skarbowej w Bydgoszczy (C-190/12). The case refers to the Polish legislation which provides for a

tax exemption in case of dividends paid to resident investment funds while such tax exemption is not applicable in

case of dividends received by non-resident investment funds.

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CJ dismisses UK action for annulment regarding the Financial Transactions Tax (UK v Council of the European Union)On 30 April 2014, the CJ delivered its judgment in case United Kingdom of Great Britain and Northern Ireland v Council of

the European Union (C-209/13). The case deals with the action brought by the United Kingdom asking for the annulment

of Council Decision 2013/52/EU of 22 January 2013 authorising enhanced cooperation in the area of financial transaction

tax (‘FTT’).

Commission investigates transfer pricing arrangements on corporate taxation of Apple (Ireland) Starbucks (Netherlands) and Fiat Finance and Trade (Luxembourg)On 11 June 2014, the Commission opened three in-depth investigations to examine whether decisions by tax authorities

in Ireland, the Netherlands and Luxembourg with regard to the corporate income tax to be paid by Apple, Starbucks and

Fiat Finance and Trade, respectively, comply with the EU rules on State aid. The opening of an in-depth investigation gives

interested third parties, as well as the three Member States concerned, an opportunity to submit comments.

CJ rules Netherlands fiscal unity regime in contravention of the freedom of establishment (SCA Group Holding)On 12 June 2014, the CJ delivered its judgment in case SCA Group Holding BV and others (joined cases C-39/13, C-40-13

and C-41/13) concluding that the Netherlands fiscal unity (consolidation) regime is in contravention of the freedom of

establishment.

CJ rules that Danish legislation regarding reincorporation of the losses previously deducted in respect of permanent establishments located abroad contravenes the freedom of establishment (Nordea Bank Danmark A/S)On 17 July 2014, the CJ delivered its judgement in case Nordea Bank Danmark A/S v Skatterministeriet (C-48/13). The

case deals with the Danish legislation regarding reincorporation of losses previously deducted in respect of permanent

establishments (PEs) located abroad.

CJ rules that taxable persons may rely on EU VAT Directive in one transaction and on national law in another transaction concerning the same goods (GMAC UK plc)On 3 September 2014, the CJ delivered its judgment in case GMAC UK plc (‘GMAC’) v Commissioners for Her Majesty’s

Revenue and Customs (C-589/12). The CJ ruled that in circumstances such as those of the case at hand, a Member

State may not prevent a taxable person from invoking the direct effect of Article 11C(1) of the Sixth EU VAT Directive in

respect of one transaction by arguing that that person may rely on the provisions of national law in relation to another

transaction concerning the same goods even if the cumulative application of those provisions would produce an overall

fiscal result which neither national law nor the Sixth EU VAT Directive, applied separately to those transactions, produces

or is intended to produce.

CJ rules that services rendered by a head office to its branch constitute VAT taxable transactions if that branch forms part of a VAT group (Skandia America Corp.)On 17 September 2014, the CJ delivered its judgment in case Skandia America Corporation USA, filial Sverige v het

Skatteverk (C-7/13). Skandia America Corporation USA (‘head office’) is established in the United States and has a fixed

establishment in Sweden. The CJ ruled that the fixed establishment is dependent on the head office and therefore, cannot

itself be characterised as a taxable person. Furthermore, the CJ ruled that treatment as a single taxable person precludes

the members of the VAT group from continuing to be identified, within and outside their group as individual taxable persons.

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CJ rules on the right to effective judicial protection (Unitrading Ltd)On 23 October 2014, the CJ delivered its judgment in case Unitrading Ltd (C-437/13). The case concerns the right to

effective judicial protection.

ECOFIN Council approves the introduction of a general anti-avoidance rule (GAAR) in the EU Parent-Subsidiary DirectiveOn 9 December 2014, the ECOFIN Council approved the introduction of a general anti-avoidance rule (GAAR) in the EU

Parent-Subsidiary Directive (the Directive). The GAAR requires Member States to refrain from granting the benefits of the

Directive (withholding exemptions) if any of the main purposes of an arrangement is to obtain a tax advantage that would

defeat the object or purpose of the Directive and such arrangement is not ‘genuine’. An arrangement is not ‘genuine’ if it

lacks economic reality. As there is no clear guidance on the terms used in the GAAR, it allows Member States to interpret

these terms in their own way. Member States must bring into force the laws, regulations and administrative provisions

necessary to comply with the amended Directive by 31 December 2015 at the latest.

ECOFIN Council approves extending the scope for automatic exchange of informationOn 9 December 2014, the ECOFIN Council approved a Directive that extends the scope for automatic exchange of

information to bring interest, dividends, gross proceeds from the sale of financial assets and other income, as well as

account balances within the scope of automatic exchange of information. Accordingly, the approved text revises Directive

2011/16/EU on administrative cooperation in the field of direct taxation.

General Court annuls first Spanish Goodwill decision (Autogrill and Banco Santander cases)On 7 November 2014, the General Court issued two judgements in cases Autogrill Espana, SA v European Commission

(T-219/10) and Banco Santander and Santusa Holding, SL v European Commission (T-399/11). The General Court

annulled the first out of three Commission decisions declaring a Spanish regime that allowed for the tax deduction of

goodwill in the case of foreign takeovers to be unlawfully granted State aid.

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• General Court annuls first Spanish Goodwill decision

(Autogrill and Banco Santander cases)

Overview 2014State Aid / WTO

• Spain fined for failing to recover fiscal aid

• Property transfer tax exemptions for reorganization of

local authorities found not to be aid

• Commission investigates Gibraltar’s tax rulings

practice

• Commission investigates transfer pricing

arrangements on corporate taxation of Amazon in

Luxembourg

• State Aid Opening Decision Starbucks

• CJ questions exemption of property tax for

government-owned businesses (Concello de Ferrol)

• EFTA: recovery from Icelandic companies

• Formal investigations into Gibraltar and Luxembourg

extended

Direct taxation

• EFTA Court rules that difference in treatment between

domestic and cross-border mergers pursuant to

Icelandic legislation is in breach of the freedom of

establishment and the free movement of capital

(EFTA Surveillance Authority v Iceland)

• CJ rules that UK tax legislation which retroactively

curtails the period for reimbursement of undue

tax paid is not compatible with the principles of

effectiveness, legal certainty and the protection of

legitimate expectations (Test Claimants in the FII

Group Litigation)

• CJ rules that Belgium legislation that precludes the

granting of personal allowances to a married couple

with cross-border activities is in breach of the freedom

of establishment (Imfeld and Garcet)

• EU Joint Transfer Pricing Forum adopts report on

compensating adjustments

• CJ rules that Belgium legislation that denies tax

reduction on contributions paid by individuals to

savings pensions established in other Member

States is in breach of the freedom to provide services

(Commission v Belgium)

ContentsHighlights in 2014

• CJ finds taxation of unrealised hidden reserves in

the course of the contribution of a limited partnership

interest into a capital company to be a justified

restriction on the free movement of capital (DMC)

• CJ rules that UK legislation on consortium relief is in

breach of the freedom of establishment (Felixstowe

Dock)

• CJ rules that Polish legislation which grants a tax

exemption on dividends only when paid to resident

investment funds may constitute a breach to the free

movement of capital (Emerging Markets Series)

• CJ dismisses UK action for annulment regarding

the Financial Transaction Tax (UK v Council of the

European Union)

• Commission investigates transfer pricing

arrangements on corporate taxation of Apple

(Ireland), Starbucks (Netherlands) and Fiat Finance

and Trade (Luxembourg)

• CJ rules Netherlands fiscal unity regime in

contravention of the freedom of establishment (SCA

Group Holding)

• CJ rules that Danish legislation regarding

reincorporation of the losses previously deducted in

respect of permanent establishments located abroad

contravenes the freedom of establishment (Nordea

Bank Danmark A/S)

• CJ rules that taxable persons may rely on EU VAT

Directive in one transaction and on national law in

another transaction concerning the same goods

(GMAC UK plc)

• CJ rules that services rendered by a head office to

its branch constitute VAT taxable transactions if that

branch forms part of a VAT group (Skandia America

Corp.)

• CJ rules on the right to effective judicial protection

(Unitrading Ltd)

• ECOFIN Council approves the introduction of a

general anti-avoidance rule (GAAR) in the EU Parent-

Subsidiary Directive

• ECOFIN Council approves extending the scope for

automatic exchange of information

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• CJ rules that designation of tax representative did

not preclude VAT refund request (E.ON Global

Commodities SE)

• CJ rules that the right to deduct VAT may be denied in

case of VAT fraud (Maks Pen EOOD)

• CJ clarifies scope of provision on fictional intra-

Community supplies (DresserRand SA)

• CJ rules that certain pension funds qualify as special

investment funds for the application of the VAT

exemption for management of special investment

funds (ATP PensionService A/S)

• CJ rules that deduction of VAT should be adjusted

when ultimately the taxable supply does not take

place (FIRIN OOD)

• CJ concludes that input VAT relating to acquisition of

client base cannot be deducted if that client base is

made available free of charge (Malburg)

• Spanish tax on capital transfers is not contrary to

Sixth EU VAT Directive according to CJ (La Caixa)

• CJ rules that reduction of taxable amount in case of

non-payment may in principle be refused (Almos)

• CJ rules that Member State is not allowed to require

payment of import VAT when reporting of that VAT

has already taken place under the reverse charge

mechanism (Equoland)

• Place of supply is where goods have become

compliant with contractual obligations according to

CJ (Fonderie)

• CJ rules that Member State is not allowed to establish

additional requirements for VAT exemption for intra-

Community supplies (Traum)

• CJ rules that fixed establishment requires structure

with a sufficient degree of permanence (Welmory)

Customs Duties, Excises and other Indirect Taxes

• CJ rules on the neutrality of the Netherlands car

registration tax (X)

• EFTA surveillance authority brings Norway to the

EFTA Court regarding legislation on registration tax

(EFTA Surveillance Authority v Kingdom of Norway)

• CJ rules on whether the use of import licenses for

garlic results in abuse of rights (Società Italiana

Commercio e Servizi)

• CJ considers that Hungarian store retail trade tax as

it applies to groups of companies in contravention of

the freedom of establishment (Hervis)

• European Commission issues information injunction

against Luxembourg on tax ruling practices and IP

regimes

• CJ rules that French legislation which excludes

the inclusion of withholding tax paid abroad on the

calculation of a tax exemption on income is in breach

of the fundamental freedoms (Bouanich)

• EU Council adopts amendments to the EU Savings

Directive

• CJ rules free movement of capital does not preclude

Netherlands withholding tax on dividend payments

to its Overseas Countries and Territories (X BV and

TBG Limited)

• CJ rules that German legislation for the elimination

of double taxation regarding dividends received from

foreign companies does not contravene the free

movement of capital (Kronos)

• CJ rules that Belgian legislation on determining

income from immovable property located abroad

contravenes the free movement of capital (Verest

and Gerards)

• CJ rules that Spanish rules on inheritance and

gifts tax contravene the free movement of capital

(Commission v Spain)

• CJ finds UK legislation concerning the immediate the

attribution of gains to participators in non-resident

companies to contravene the free movement of

capital (Commission v UK)

• CJ rules that Spanish legislation that requires the

appointment of a tax representative for pension

funds and insurance companies established in

another Member State which offer their services

in Spain contravenes the free movement of capital

(Commission v Spain) (EUTA 136)

VAT

• CJ rules that screening tax forms part of taxable

amount for VAT purposes (TVI - Televisão

Independente SA)

• CJ rules that deduction of incorrectly charged VAT

was rejected justly (Fatorie)

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• CJ rules on application of the principle of respect for

the right of defence (Global Trans Lodzhistik)

• CJ rules on application of the results of examination of

goods to identical goods covered by earlier customs

declarations after release of goods (Greencarrier

Freight Services)

• CJ rules on the consequences of the refusal to make

own resources available to the European Union

(Commission v UK)

• CJ rules on the powers of customs authorities to

establish the infringement of an intellectual property

right (Sintax Trading)

• CJ rules on the scope of Articles 203 and 204(1)(a) of

the Community Customs Code (X BV)

• EU and China sign landmark mutual recognition

agreement and intensify their customs cooperation

• CJ rules on the incurrence of a customs debt resulting

from an unlawful removal of goods from customs

supervision (SEK Zollagentur GmbH)

• CJ rules on the repayment of taxes levied in breach

of EU law (Ilie Nicolae Nicula)

• CJ rules on the principle of one excise rate of excise

duty for all cigarettes (Yesmoke Tobacco SpA)

• Customs Tariff 2015

European Court of Human Rights

• European Court of Human Rights rules that Finland

contravened the principle of non bis in idem

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company DMC GmbH in return for shares in DMC GmbH.

Since K-GmbH and S-GmbH were Austrian companies,

Germany did not have the taxing right with respect to

capital gains on the shares received. Thus, in accordance

with the Law on taxation of business reorganisations, the

German tax authorities issued a tax assessment to DMC

(as successor of K-GmbH and S-GmbH) in which they

taxed the capital gain on the deemed realisation of the

hidden reserves connected to the partnership interests of

K-GmbH and S-GmbH.

The German tax court of Hamburg referred preliminary

questions to the CJ, asking whether (i) the taxation of

unrealised gains and (ii) the interest-free deferral of the

tax due to the extent that it has to be paid in five annual

instalments, provided that such payment is secured, are

in line with the free movement of establishment.

The CJ first stated that the applicable freedom in the

case at hand is not the freedom of establishment, but

the free movement of capital. The reason given is that

the legislation in question is directed at capital gains

on assets contributed by investors who are no longer

subject to tax in Germany on gains arising as a result of

the transfer of such assets from a limited partnership to

a capital company, while the investors are not required

to have a holding which enables them to exert a definite

influence on the decisions of the partnership or the

capital company.

The CJ then ruled that the taxation of the hidden reserves

leads to a restriction of the free movement of capital,

since it is imposed on the Austrian investors, whereas it

would not have been imposed on German investors who,

in the same circumstances, remain subject to German

taxation on capital gains on their newly acquired shares.

According to the CJ, this restriction can be justified by the

objective to preserve the balanced allocation of taxing

rights between Member States. The CJ referred to the

cases National Gris Indus (C-371/10) and Commission

v Denmark (C-261/11) and considered that Member

States are entitled to tax unrealised capital gains as

such and may also make provision for a chargeable

event other than the actual realisation of such gains, in

order to ensure that such gains are taxed. According

to the CJ, the fact that the conversion of interest in a

Highlights in 2014CJ finds taxation of unrealised hidden reserves in the course of the contribution of a limited partnership interest into a capital company to be a justified restriction on the free movement of capital (DMC)On 23 January 2014, the CJ rendered its judgment in

case DMC Beteiligungsgesellschaft mbH v Finanzamt

Hamburg-Mitte (C-164/12). The case concerns the

question whether the taxation of unrealised hidden

reserves by a Member State in the course of the

contribution of a limited partnership interest into a capital

company is in line with the free movement of capital.

The CJ held that the taxation of the unrealised hidden

reserves can be justified by the objective of preserving

the balanced allocation of the power to impose taxes

between Member States, if the Member State imposing

such tax is in fact no longer entitled to tax those gains

when they are realised.

According to the German Law on taxation of business

reorganisations, the transfer of a partnership interest to

a capital company leads to a taxable deemed realisation

of the hidden reserves connected to this partnership

interest, if after the transfer, Germany does not have the

right to tax the owner of the former partnership interest

with respect to capital gains from the shares in the capital

company he received as a consideration. The tax on this

deemed realisation can be paid in five annual instalments,

on condition that payment of these instalments is

ensured. The background of this rule is as follows:

While Germany generally does have the taxing right with

respect to capital gains on partnership interests, which

usually qualify as a German permanent establishment,

it loses this taxing right when the partnership interest is

converted into shares in a capital company, since under

most double tax treaties (including the one with Austria),

capital gains on shares are taxable only in the country in

which the seller resides.

DMC Beteiligungsgesellschaft mbH (‘DMC’) is an Austrian

company and successor of the Austrian companies

K-GmbH and S-GmbH, which contributed their interests

in a German partnership (DMC KG) to the German

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ultimate parent company, through various companies

some of which have their seat in third States. The

claimant companies, which made a profit in the same

tax years, sought to take advantage of the possibility to

offset the its profits against the losses of Hutchison 3G

UK Ltd. Their claims were rejected on the ground that the

link company was neither resident in the United Kingdom

for tax purposes nor carried on a trade there through a

permanent establishment. The question brought before

the CJ was in essence whether Articles 49 TFEU and 54

TFEU must be interpreted as precluding legislation of a

Member State under which it is possible for a resident

company that is a member of a group to have transferred

to it losses sustained by another resident company which

belongs to a consortium where a ‘link company’ which

is a member of both the group and the consortium is

also resident in that Member State, irrespective of the

residence of the companies which hold, themselves or

by means of intermediate companies, the capital of the

link company and of the other companies concerned by

the transfer of losses, whereas that legislation rules out

such a possibility where the link company is established

in another Member State.

The CJ started by referring that the residence condition

laid down for the link company introduces a difference

in treatment between, on the one hand, resident

companies connected, for the purposes of the national

tax legislation, by a link company established in the UK,

which are entitled to the tax advantage at issue, and, on

the other hand, resident companies connected by a link

company established in another Member State, which

are not entitled to it.

Therefore it considered that such difference in treatment

makes it less attractive in tax terms to establish a link

company in another Member State, since the applicable

national legislation grants the tax advantage at issue only

where link companies are established in the UK.

After the finding that there was a restriction to the

freedom of establishment the CJ went to analyze

whether such restriction could be justified. As regards the

argument based on the need to preserve the powers of

taxation between Member States, the CJ referred that in

a situation such as that at issue in the main proceedings

limited partnership into shares in a capital company has

the effect of removing income from the exercise of the

powers of taxation of Germany (on whose territory the

income was generated) is sufficient justification for the

German provision. However, because the CJ did not find

it clear whether Germany actually loses its taxing right in

the situation at hand, it stated that the national court had

to determine whether the transaction in the case at hand

does in fact lead to a loss of Germany’s taxing right on

the capital gain on the partnership interest.

Finally, the CJ ruled that the ability to spread the payment

of the tax over a period of five years constitutes a

satisfactory and proportionate measure for the attainment

of the objective of preserving the balanced allocation of

the power to impose taxes between Member States. It

also held that the requirement to secure the payment is

equally proportionate.

CJ rules that UK legislation on consortium relief is in breach of the freedom of establishment (Felixstowe Dock)On 1 April 2014, the CJ issued its judgement in case

Felixstowe Dock and Railway Company Ltd and others

v The Commissioners for Her Majesty’s Revenue

& Customs (C-80/12). The case deals with the UK

legislation on the consortium relief and in particular

with the requirement that the link company of the UK

companies applying for the consortium relief is also

resident in the UK.

Hutchison Whampoa Ltd (‘the ultimate parent company’)

is a company having its seat in Hong Kong. The claimant

companies have their seats in the United Kingdom. As

indirect subsidiaries at least 75% owned by the ultimate

parent company, they are members of a group. Hutchison

3G UK Ltd (‘the loss-surrendering company’) is also a

company having its seat in the United Kingdom. It is

owned indirectly by a consortium and constitutes, on this

basis, a consortium company. That consortium includes

Hutchison 3G UK Investment Sàrl (‘the link company’), a

company having its seat in Luxembourg. It is through that

company that the claimant companies are connected,

for the purposes of the UK tax legislation relating

to consortium group relief, to the loss-surrendering

company. Hutchison Sàrl itself is owned indirectly by the

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CJ rules that Polish legislation which grants a tax exemption on dividends only when paid to resident investment funds may constitute a breach to the free movement of capital (Emerging Markets Series)On 10 April 2014, the CJ issued its judgement in case

Emerging Markets Series of DFA Investment Trust

Company v Dyrektor Izby Skarbowej w Bydgoszczy

(C-190/12). The case refers to the Polish legislation which

provides for a tax exemption in case of dividends paid

to resident investment funds while such tax exemption

is not applicable in case of dividends received by non-

resident investment funds.

The facts in the proceedings involve an investment fund

the registered office of which is in the United States of

America, investment in Polish companies forming one

part of its business, requested from the Polish tax authority

the refund of an overpayment of flat-rate corporation tax

which had been applied, at a rate of 15%, to dividends

which had been paid to it by those companies which were

established in Poland. That request was rejected and

the US investment fund appealed based on an alleged

discrimination between investment funds established in

non-Member States and those established in Poland.

The first question, dealt on whether Article 63 TFEU

applied in this situation, where, under the tax legislation

of a Member State, the dividends paid by companies

established in that Member State to an investment fund

established in a non‑Member State do not qualify for a

tax exemption, whereas investment funds established in

that Member State do receive such an exemption. The CJ

started by referring that in a context which relates to the

tax treatment of dividends originating in a third country,

it is clear that it is sufficient to examine the purpose of

national legislation in order to assess whether the tax

treatment of dividends originating in a third country falls

within the scope of the TFEU provisions on the free

movement of capital. In the present case, it concluded

that the legislation makes no distinction according to the

type of investment that generates the dividends received

by an investment fund. As an additional remark the CJ

the power of the host Member State, on whose territory

the economic activity giving rise to the losses of the

consortium company is carried out, to impose taxes is

not at all affected by the possibility of transferring, by

relief and to a resident company, the losses sustained by

another company, since the latter is also resident for tax

purposes in that Member State.

In addition as regards a possible justification based

on combating tax avoidance the CJ recalled that for a

restriction on freedom of establishment to be justified on

such grounds, the specific objective of that restriction

must be to prevent conduct involving the creation of

wholly artificial arrangements which do not reflect

economic reality with a view to escaping the tax normally

due on the profits generated by activities carried out on

national territory. That was however not the case of the

legislation at stake, which in no way pursues a specific

objective of combating purely artificial arrangements, but

is designed to grant a tax advantage to companies that

are members of groups generally, and in the context of

consortia in particular.

Finally the CJ referred that the conclusion was not affected

by the circumstance raised by the referring tribunal that

the ultimate parent company of the group and of the

consortium as well as certain intermediate companies in

the chain of interests are established in third States. First

of all, because it does not follow from any provision of

European Union law that the origin of the shareholders

be they natural or legal persons, of companies resident in

the European Union affects the right of those companies

to rely on freedom of establishment. In addition the

places of residence of the ultimate parent company and

the intermediate companies that control the companies

seeking to transfer losses to each other are not of

concern to the system of consortium group relief in the

UK as resulting from the legislation at issue in the main

proceedings. Apart from the residence condition for the

link company, the provisions of the UK legislation at the

time of the dispute were silent as to the location of any

other company falling within or standing at the top of the

chain of interests between the companies claiming and

surrendering losses.

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Directive. For the CJ the distinction made by the Polish

legislation was based on the place of residence of an

investment fund, enabling solely investment funds which

are established in Poland to qualify for the tax exemption.

Therefore, a comparison of the regulatory framework

governing funds established in a non‑Member country

and the uniform regulatory framework applied within the

Union is of no relevance,

As regards possible justifications based on an overriding

reason of public interest, the CJ dealt first with the need

to guarantee the effectiveness of fiscal supervision,

notably the fact that the Polish tax authority is not in a

position to determine, in the case of a non-resident

investment fund, whether it complies with specific

conditions laid down by the Polish legislation. The

Court recognized that movements of capital between

Member States and non-member States take place in a

different legal context as the framework established by

Directive 77/799 for cooperation between the competent

authorities of the Member States does not exist between

those authorities and the competent authorities of a non-

Member State. However the CJ recalled that there is a

regulatory framework of mutual administrative assistance

established between the Republic of Poland and the

United States of America which permits the exchange

of information which may be required for the application

of the tax legislation. Therefore it concluded that it is up

to the referring court to examine whether the obligations

under agreements to which the Republic of Poland and

the United States of America are party, establishing a

common legal framework for cooperation and providing

mechanisms for the exchange of information between

the national authorities concerned, are in fact capable of

enabling the Polish tax authorities to verify, where it may

be necessary, the information provided by investment

funds established in the United States of America on the

conditions for their formation and operation, in order to

determine that they operate within a regulatory framework

equivalent to that of the European Union.

The Court further rejected the justifications based on the

need to preserve the coherence of the tax system, the

allocation of powers to tax between Member State as

well as the safeguard of tax revenue.

referred that there was no risk that an economic operator

who does not fall within the territorial scope of freedom

of establishment could derive some advantage therefrom

does not exist, since the tax legislation at issue in the

main proceedings concerns the tax treatment of those

dividends and is not intended to impose conditions for

access to the national market on traders from non-

Member countries. Therefore the CJ confirmed that

Article 63 TFEU was applicable.

The CJ went then to analyze whether there was a

restriction to the free movement of capital. In this regard it

referred that the difference in the tax treatment of dividends

as between resident and non‑resident investment funds

may discourage, on the one hand, investment funds

established in a non-Member country from investing

in companies established in Poland, and, on the other

hand, investors resident in Poland from acquiring shares

in non-resident investment and, therefore, constitutes a

restriction to the free movement of capital.

Regarding possible justifications to this restriction the

CJ started by analyzing whether the situations between

resident investment funds and non-resident investment

funds were comparable, in particular when residing

in third States. The CJ started by referring that the

context of a tax rule, such as that at issue in the main

proceedings, which seeks to exempt from tax profits

distributed by resident companies, the situation of a

resident investment fund receiving profits is comparable

to that of a non-resident investment fund receiving

profits in so far as, in each case, the profits made are, in

principle, liable to be subject to economic double taxation

or a series of charges to tax. Therefore it considered that

with regard to the tax legislation Poland which adopts as

the main distinguishing criterion the place of residence

of investment funds, according to which criterion tax is

or is not deducted at source on dividends paid to them

by Polish companies, non-resident investment funds are

in a situation which is objectively comparable to that of

investment funds whose registered office is situated in

Poland. The CJ further disregarded the arguments that

the fact that in this case the investment fund was resident

in a third State could never be comparable to a resident

investment fund due to not meeting European Union’s

uniform regulatory framework, set up by the UCITS

12

the territory of that Member State, with the exception of

instruments referred to in points (4) to (10) of that Section

which are not traded on an organized platform.

The UK relied on two pleas in law in support of its action.

The first plea concerned a claimed infringement of Article

327 TFEU and of customary international law insofar as

the contested decision authorised the adoption of an

FTT which produces extraterritorial effects. The second

plea, relied on in the alternative, related to a claimed

infringement of Article 332 TFEU, in that such decision

authorised the adoption of an FTT which will impose

costs on Member States which are not participating in the

enhanced cooperation (‘the non-participating Member

States’).

The first plea had two parts, claiming infringement

of Article 327 TFEU and of customary international

law respectively. In the first part of that plea, the UK

claimed that, by authorising the adoption of an FTT

with extraterritorial effects because of ‘the counterparty

principle’ laid down in Article 3(1)(e) of the 2011 proposal,

and the ‘issuance principle’ laid down in Article 4(1)(g) and

(2)(c) of the 2013 proposal, the contested decision was

in breach of Article 327 TFEU. The UK claimed that this

decision permits the introduction of an FTT applicable, by

reason of the two abovementioned principles of taxation,

to institutions, persons or transactions situated or taking

place in the territory of non-participating Member States,

a fact which adversely affects the competences and

rights of those Member States.

In the second part of its first plea in law, the United

Kingdom claimed that customary international law

permits legislation which produces extraterritorial effects

only on the condition that there exists between the

facts or subjects at issue and the State exercising its

competences thereon a sufficiently close connection to

justify an encroachment on the sovereign competences

of another State. In this case, the extraterritorial effects of

the future FTT stemming from ‘the counterparty principle’

and ‘the issuance principle’ are not justified in the light of

any accepted rule of tax jurisdiction under international

law. By its second plea in law, the United Kingdom claimed

that, whereas expenditure linked to the implementation

of enhanced cooperation in the area of FTT may in

CJ dismisses UK action for annulment regarding the Financial Transaction Tax (UK v Council of the European Union)On 30 April 2014, the CJ delivered its judgment in case

United Kingdom of Great Britain and Northern Ireland

v Council of the European Union (C-209/13). The case

deals with the action brought by the United Kingdom

asking for the annulment of Council Decision 2013/52/EU

of 22 January 2013 authorising enhanced cooperation in

the area of financial transaction tax (‘FTT’).

On 22 January 2013, the Council approved a decision

authorising enhanced cooperation between 11 Member

States in the area of FTT. On 14 February 2013, the

Commission adopted a proposal for a Council Directive

implementing enhanced cooperation in the area of FTT.

Article 3(1) of this proposal, provided that ‘the Directive

shall apply to all financial transactions, on the condition

that at least one party to the transaction is established

in the territory of a participating Member State and that

a financial institution established in the territory of a

participating Member State is party to the transaction,

acting either for its own account or for the account of

another person, or is acting in the name of a party to the

transaction.’ The definition of ‘Establishment’, in Article

4 (1) provided that for the purposes of the Directive, a

financial institution shall be deemed to be established

in the territory of a participating Member State where

among others, the following condition was fulfilled:

(g) it is party, acting either for its own account or for the

account of another person, or is acting in the name of

a party to the transaction, to a financial transaction in

a structured product or one of the financial instruments

referred to in Section C of Annex I of Directive 2004/39/

EC issued within the territory of that Member State, with

the exception of instruments referred to in points (4) to

(10) of that Section which are not traded on an organised

platform.

In turn, paragraph 2 to Article 4 sets out that a person

which is not a financial institution shall be deemed to be

established within a participating Member State where,

among others, the following conditions were fulfilled:

(c) it is party to a financial transaction in a structured

product or one of the financial instruments referred to in

Section C of Annex I to Directive 2004/39/EC issued within

13

the future FTT on the administrative costs of the non-

participating Member States cannot be examined as

long as the principles of taxation in respect of that tax

have not been definitively established as part of the

implementation of the enhanced cooperation authorised

by the contested decision. Those effects are dependent

on the adoption of ‘the counterparty principle’ and the

‘issuance principle’, which, however, are not constituent

elements of the contested decision.

Therefore, the CJ concluded that the two pleas in law

relied on by UK should be rejected and, accordingly, that

the action should be dismissed.

Commission investigates transfer pricing arrangements on corporate taxation of Apple (Ireland), Starbucks (Netherlands) and Fiat Finance and Trade (Luxembourg)On 11 June 2014, the Commission opened three in-

depth investigations to examine whether decisions

by tax authorities in Ireland, the Netherlands and

Luxembourg with regard to the corporate income tax to

be paid by Apple, Starbucks and Fiat Finance and Trade,

respectively, comply with the EU rules on State aid. The

opening of an in-depth investigation gives interested third

parties, as well as the three Member States concerned,

an opportunity to submit comments.

The Commission has been investigating under EU State

aid rules certain tax practices in several Member States

following media reports alleging that some companies

have received significant tax reductions by way of ‘tax

rulings’ issued by national tax authorities. Tax rulings as

such are not problematic: they are comfort letters by tax

authorities giving a specific company clarity on how its

corporate tax will be calculated or on the use of special

tax provisions. However, tax rulings may involve State aid

within the meaning of EU rules if they are used to provide

selective advantages to a specific company or group of

companies.

According to Article 107(1) of the Treaty on the Functioning

of the European Union (TFEU), State aid which affects

trade between Member States and threatens to distort

competition by favouring certain undertakings is, in

principle, under Article 332 TFEU, be borne only by

the participating Member States, that implementation

will also be the source of costs for the non-participating

Member States, because of the application of Council

Directives 2010/24/EU of 16 March 2010 concerning

mutual assistance for the recovery of claims relating to

taxes, duties and other measures and 2011/16/EU of

15 February 2011 on administrative cooperation in the

field of taxation. The UK claimed that those two directives

do not authorise the non-participating Member States to

seek the recovery of the costs of mutual assistance and

administrative cooperation linked to the application of

those directives to the future FTT.

The CJ started by recalling that the purpose of the

first plea in law is to challenge the effects which the

recourse to certain principles of taxation in respect of

the future FTT might have on institutions, persons and

transactions situated in or taking place in the territory

of non-participating Member States. In that regard,

the CJ considered that the objective of the contested

decision was to authorise 11 Member States to establish

enhanced cooperation between themselves in the area

of the establishment of a common system of FTT with

due regard to the relevant provisions of the Treaties.

The principles of taxation challenged by the UK were,

however, not in any way constituent elements of that

decision.

As regards the action’s second plea in law, whereby the

United Kingdom claims, in essence, that the future FTT

will give rise to costs for the non-participating Member

States because of the obligations of mutual assistance

and administrative cooperation linked to the application

of Directives 2010/24 and 2011/16 to that tax, which,

according to the United Kingdom, is contrary to Article 332

TFEU, it must be observed that the contested decision

contains no provision related to the issue of expenditure

linked to the implementation of the enhanced cooperation

authorised by that decision. The CJ further added that,

irrespective of whether the concept of ‘expenditure

resulting from implementation of enhanced cooperation’,

within the meaning of Article 332 TFEU, does or does not

cover the costs of mutual assistance and administrative

cooperation referred to by the UK in its second plea, it

is obvious that the question of the possible effects of

14

to pay less tax. The Commission notes that the three

rulings concern only arrangements about the taxable

basis; they do not relate to the applicable tax rate itself.

Luxembourg, contrary to the Netherlands and Ireland,

only provided the Commission with a limited sample of

the information requested, which included the ruling for

Fiat Finance and Trade, but not the complete information

demanded by the Commission. The Commission,

therefore, has initiated infringement proceedings against

Luxembourg by issuing letters of formal notice.

CJ rules Netherlands fiscal unity regime in contravention of the freedom of establishment (SCA Group Holding)On 12 June 2014, the CJ delivered its judgment in case

SCA Group Holding BV and others (joined cases C-39/13,

C-40-13 and C-41/13) concluding that the Netherlands

fiscal unity (consolidation) regime is in contravention of

the freedom of establishment.

One of the conditions to form such fiscal unity is that a

Netherlands resident company can only be included

in the fiscal unity if Members of the fiscal unity hold

directly at least 95% of the capital of that company.

This excludes Netherlands resident companies held via

foreign intermediary group companies or a foreign parent

company from becoming part of such fiscal unity. Foreign

resident companies can only be included in a fiscal unity

if specific conditions are met. One of these conditions

is that they should carry on a Netherlands permanent

establishment.

Essentially, there were two different group structures

under scrutiny in these cases: (i) forming a fiscal unity

between a Netherlands parent company and Netherlands

second-tier subsidiaries when the intermediate EU

subsidiaries are not established in the Netherlands

(Cases C-39/13 and C-41/13), and (ii) forming a fiscal

unity between Netherlands subsidiaries (associated

companies) held, directly or indirectly, by a foreign EU

parent company (case C-40/13).

In both group structures, the CJ confirmed that the

impossibility to form a fiscal unity between the companies

established in the Netherlands due to the existence of a

principle, incompatible with the EU Single Market.

Selective tax advantages may amount to State aid. The

Commission does not call into question the general tax

regimes of the three Member States concerned.

Tax rulings are used, in particular, to confirm transfer

pricing arrangements. Transfer pricing has regard to the

prices charged for commercial transactions between

various parts of the same group of companies, in

particular, prices set for goods sold or services provided

by one subsidiary of a corporate group to another

subsidiary of the same group. Transfer pricing influences

the allocation of taxable profit between subsidiaries of a

group located in different countries.

If, when accepting the calculation of the taxable basis

proposed by a company, tax authorities insist on a

remuneration of a subsidiary or a branch on market

terms, reflecting normal conditions of competition, this

would exclude the presence of State aid. However, if

the calculation is not based on remuneration on market

terms, it could imply a more favourable treatment of the

company compared to the treatment other taxpayers

would normally receive under the Member States’ tax

rules. This may constitute State aid.

The Commission will examine if the three transfer pricing

arrangements validated in the following tax rulings involve

State aid to the benefit of the beneficiary companies:

• the individual rulings issued by the Irish tax authorities

on the calculation of the taxable profit allocated to the

Irish branches of Apple Sales International and of

Apple Operations Europe;

• the individual ruling issued by the Netherlands tax

authorities on the calculation of the taxable basis

in the Netherlands for manufacturing activities of

Starbucks Manufacturing EMEA BV;

• the individual ruling issued by the Luxembourg tax

authorities on the calculation of the taxable basis

in Luxembourg for the financing activities of Fiat

Finance and Trade.

The Commission has reviewed the calculations used

to set the taxable basis in those rulings and, based on

a preliminary analysis, has concerns that they could

underestimate the taxable profit and thereby grant an

advantage to the respective companies by allowing them

15

as provisions for doubtful claims or risks, waivers of

debt, subsidies, provisions for depreciation of shares and

the transfer of fixed assets. In that judgment, the Court

relied on the fact that, in the tax system of the Member

State at issue in that case, the purpose of neutralising

those intra-group transactions was to avoid the double

use of losses at the level of resident companies falling

under the tax integration regime, and thus preserve the

coherence of that tax system. However the CJ observed

that the legal context of present case was difference.

Article 13 of the Corporate Income Tax Act 1969 (Wet

op de vennootschapsbelasting 1969) contains a general

‘holding exemption’ rule, which applies to holdings larger

than 5% of the capital. That rule covers all tax entities,

given that they require a holding of at least 95% of the

capital. As a result of the holding exemption, the profits

or losses resulting from the possession, acquisition or

disposal of a holding are not taken into account when

determining the taxable profit of a tax entity. Therefore,

it is through this general exemption - and not specific

provisions for the neutralisation of certain transactions,

as in the system at issue in the case giving rise to the

judgment in Papillon - that the Netherlands tax system

seeks to prevent the double use of losses within a tax

entity. Accordingly, the holding exemption mechanism is

designed in such a way that a resident parent company

can never take into account a loss linked to a holding in

one of its subsidiaries, even when that subsidiary has its

seat in another Member State.

Therefore, the Court concluded that such justification

could not apply as no direct link can be established

between the tax advantage linked to the formation of

a fiscal unity and the offsetting of that advantage by a

particular tax.

Similarly, the CJ also rejected the justification based

on the risk of tax avoidance as it considered that the

Netherlands legislation does not have the specific

objective of combating wholly artificial arrangements.

foreign EU link constituted a restriction to the freedom

of establishment. The CJ rejected the argument that no

restriction was imposed because indirect subsidiaries held

by an intermediate Netherlands group company can also

not be included in a fiscal unity. The decisive factor for the

CJ was that, under the Netherlands regime, Netherlands

companies which have a foreign company link have no

possibility at all of forming a fiscal unity because the

foreign company can never be part of the fiscal unity.

That possibility is available to group structures in which

all the companies are established in the Netherlands. In

addition, the CJ also dealt with an argument specifically

addressed to the second type of group structures

referred to above: that under the Netherlands regime,

the consolidation of the group’s results always takes

place at the level of the parent company, reason by

which the situation of two subsidiaries with a foreign

parent company could never be comparable with a pure

domestic situation. The CJ rejected such argument by

making reference to the fact that, as regards the aim of

fiscal unity regime - which is to treat all the companies

of the group as one and the same taxpayer - that can be

achieved either when the parent company of the group

is a resident company or when the parent company is a

non-resident company but the consolidation occurs, as in

the proceedings, only at the level of the sister companies

which are resident in the Netherlands.

Subsequently, the CJ went on to analyse possible

justifications to the infringement of the freedom of

establishment. As regards the need to preserve the

coherence of the Netherlands tax system related to the

prevention of double use of losses. In that regard, the

Court recalled that the need to preserve the coherence

of a tax system may justify a restriction on the exercise

of the fundamental freedoms guaranteed by the Treaty,

it is however necessary, for such a justification to be

accepted, that a direct link be established between

the granting of the tax advantage concerned and the

offsetting of that advantage by a particular tax. By

making reference to a previous decision in Papillon (case

C-418/07 of 28 November 2007) the Court observed that,

in principle, such a direct link exists between, on the one

hand, the possibility of transferring losses between the

companies of a group and, on the other, the neutralisation

of certain transactions between those companies, such

16

The CJ then went to analyse the justifications invoked

by the Danish Government based on the need to

ensure a balanced allocation of the power to impose

taxes between Member States in connection with the

prevention of tax avoidance. The CJ recalled that the

objective of the Danish legislation is thus to avoid the risk

of tax avoidance which would consist, in particular, in a

group organising its business in such a way that it deducts

from its taxable income in Denmark the losses incurred

by a loss-making PE situated abroad and then, once

that establishment has become profitable, transfers the

establishment’s business to a company which it controls

but which is liable to tax not in Denmark. If Denmark were

denied the power to reincorporate the losses thereby

deducted into the taxable profit of the Danish company

carrying out the transfer, when it has lost the power to

tax any future profits, arrangements of the above kind

would artificially erode its tax base and, therefore, affect

the allocation of the power to impose taxes. However, the

CJ considered that the legislation went beyond what is

necessary to attain that objective.

The CJ recalled that the balanced allocation of the power

to impose taxes has the objective of safeguarding the

symmetry between the right to tax profits and the right

to deduct losses. That means that the losses deducted

in respect of a PE must be capable of being offset by

taxation of the profits made by it under the tax jurisdiction

of the Member State in question, that is to say, both the

profits made throughout the period when the permanent

establishment belonged to the resident company and

those made at the time of the permanent establishment’s

transfer. In the present case it was not disputed that the

profits of a PE belonging to a resident company that are

made before the permanent establishment’s transfer to

a non-resident company in the same group are taxable

in Denmark. In addition in the event of a subsequent

sale, the gain made upon the transfer is then added to

the taxable income of the Danish company carrying out

the transfer.

Therefore the Court concluded that the reincorporation of

the previously deducted losses went beyond necessary

to the need to safeguard the balanced allocation of the

power to impose taxes. It stressed that such conclusion

was not altered by the fact, put forward by the Danish

CJ rules that Danish legislation regarding reincorporation of the losses previously deducted in respect of permanent establishments located abroad contravenes the freedom of establishment (Nordea Bank Danmark A/S)On 17 July 2014, the CJ delivered its judgement in

case Nordea Bank Danmark A/S v Skatterministeriet

(C-48/13). The case deals with the Danish legislation

regarding reincorporation of losses previously deducted

in respect of permanent establishments (PEs) located

abroad.

Under the Danish legislation applicable in the main

proceedings, resident companies take into account on

an ongoing basis the profits and losses of their PEs

located abroad when determining the taxable income

of the company. Nordea Bank is a company resident

in Denmark which engaged in retail banking activities

in Finland, Sweden and Norway through loss-making

PEs and lawfully deducted the losses from its taxable

income in Denmark. In 2000, the activities of those PEs

were restructured. The transactions were considered

as a partial sale of the business to other companies

of the group. The losses previously deducted - which

had not been matched by subsequent profits - were

reincorporated into Nordea Bank’s taxable profit. Nordea

Bank considered that such reincorporation was contrary

to freedom of establishment.

The CJ started by considering that the Danish legislation

results in an advantage being denied to Danish

companies having permanent establishments abroad

compared with those having PEss in Denmark. They

lay down a rule requiring the reincorporation of losses

lawfully deducted in respect of the foreign establishments

transferred which does not apply if establishments in

Denmark are transferred in identical circumstances. That

disadvantageous treatment is liable to deter a Danish

company from carrying on its business through a PE

situated in a Member State or in a State that is party to

the EEA Agreement other than Denmark and therefore

constitutes a restriction prohibited in principle by the

provisions of the TFEU and the EEA Agreement that

relate to freedom of establishment.

17

Furthermore, GMAC brought a set of proceedings, based

on the direct effect of the Sixth EU VAT Directive, in order

to reclaim VAT regarding the part of the consideration

that had remained unpaid because of the customer’s

default. In this regard, the Upper Tribunal decided to refer

to the Court of Justice for a preliminary ruling regarding

the question to what extent a taxable person is entitled

both to invoke the direct effect of one provision of the

Sixth EU VAT Directive in respect of one transaction and

to rely on the provisions of national law in relation to the

other transaction concerning the same goods, when that

would produce a result contrary to both the Sixth EU VAT

Directive and the national provisions.

The CJ ruled that in circumstances such as those of the

case at hand, a Member State may not prevent a taxable

person from invoking the direct effect of Article 11C(1) of

the Sixth EU VAT Directive in respect of one transaction

by arguing that that person may rely on the provisions of

national law in relation to another transaction concerning

the same goods even if the cumulative application of

those provisions would produce an overall fiscal result

which neither national law nor the Sixth EU VAT Directive,

applied separately to those transactions, produces or is

intended to produce. Finally, according to the CJ it is for

the national court to verify whether action constituting an

abusive practice has taken place.

CJ rules that services rendered by a head office to its branch constitute VAT taxable transactions if that branch forms part of a VAT group (Skandia America Corp.)On 17 September 2014, the CJ delivered its judgment

in case Skandia America Corporation USA, filial Sverige

v het Skatteverk (C-7/13). Skandia America Corporation

USA (‘head office’) is established in the United States and

has a fixed establishment in Sweden. The head office

supplied IT services to its Swedish fixed establishment,

which is registered in Sweden as part of a VAT group.

The fixed establishment performed IT-production and

made this production available, with a mark-up of 5%,

to other companies in the VAT group. In this respect,

the CJ ruled in the case FCE Bank (C-210/04) that

a fixed establishment, together with its non-resident

company, must be considered as one and the same

Government, that it would be difficult for it in the event

of an intragroup transfer to verify the market value of

the business transferred in another Member State. Such

difficulties are not specific to cross-border situations

since the Danish authorities necessarily already carry out

similar checks when a business is sold in the context of an

intragroup transfer of a resident establishment. Moreover,

the Danish authorities in any event would always have

the power to request from the transferring company the

documents that appear to them necessary in order to

verify whether the value of the business adopted for the

purpose of calculating the gain on transfer of a foreign

establishment is the same as the market value

CJ rules that taxable persons may rely on EU VAT Directive in one transaction and on national law in another transaction concerning the same goods (GMAC UK plc)On 3 September 2014, the CJ delivered its judgment in

case GMAC UK plc (‘GMAC’) v Commissioners for Her

Majesty’s Revenue and Customs (C-589/12). GMAC is a

company which carries on a business of, amongst other

things, selling motor cars on deferred payment terms. If

the parties concerned are in agreement, GMAC buys the

car from the dealer and supplies it to the final consumer

under a hire purchase contract. The sale by the car

dealers as well as the provision of the cars by GMAC to

the final customers, which is regarded for VAT purposes

as a supply, are subject to VAT at the standard rate.

If the hire purchase customer defaulted, GMAC would

repossess the car and sell it at auction, which sale

was treated as neither a supply of goods nor a supply

of services under the Cars Order. Furthermore, under

Regulation 38 of the VAT Regulations 1995, GMAC was

to be treated as having made the hire purchase supply in

return for a consideration reduced by the amount of the

auction proceeds. The High Court of Justice considered

that both the Cars Order and Regulation 38 applied in

the case at hand, with the result that GMAC did not have

to pay VAT on the auctions proceeds. Consequently,

the VAT ultimately payable was less than it would have

been had the Sixth EU VAT Directive been implemented

correctly.

18

that guarantee on 26 November 2007 those authorities

granted release of the goods. The Customs Laboratory in

Amsterdam (Netherlands) had a portion of each sample

examined, using a high-resolution method called ‘ICP/

MS (Inductively coupled plasma mass spectroscopy)’

by a laboratory of the US Department of Homeland

Security, Customs and Border Protection (the ‘American

laboratory’). By letter of 8 January 2008, the American

laboratory reported, essentially, that the probability that

the goods in question had originated in China was at

least 98%.

At Comex’s request, a different portion of each sample

was sent to the American laboratory, which, after

examination, confirmed its earlier findings. However,

Comex’s proposal that the goods be examined in

Pakistan, at the cost of the company on behalf of which

the goods had been imported into the Netherlands, was

rejected by the customs authorities.

The Amsterdam customs laboratory sent the results

of the examination to the Netherlands customs office

concerned. It also informed the customs office that

the remaining samples examined would not be stored

in the laboratory, but that until 30 May 2009, counter-

samples would be stored in a central storage facility,

of which Unitrading was informed on 11 June 2008. On

2 December 2008, the customs authorities concluded

that the goods had originated in China.

On 19 December 2008, a notice of assessment of

customs duties was issued and served on Unitrading.

Having regard to the alleged fact that the goods originated

in China, additional duties of EUR 1,200 per 1,000 kg,

namely EUR 98,870.40, were imposed.

Unitrading appealed against the contested notice of

assessment, disputing the examinations carried out

by the American laboratory. The American laboratory,

having been asked certain questions by the Amsterdam

customs laboratory, stated in an e-mail of 9 February

2009 that the portions of the samples had been compared

with the data in the American databanks relating to

the declared country of origin, namely Pakistan, and

from the suspected country of origin, namely China. In

March 2009, the American laboratory also informed the

taxable person. The main question in the Skandia case

is whether or not the judgment of the CJ in FCE Bank

is also applicable to the relation between the head

office and its Swedish fixed establishment when that

fixed establishment forms part of a VAT group and if

so, whether the VAT on the services concerned is due

by the service provider or the recipient of the service.

The CJ ruled that the fixed establishment is dependent

on the head office and therefore, cannot itself be

characterised as a taxable person. Furthermore, the CJ

ruled that treatment as a single taxable person precludes

the members of the VAT group from continuing to be

identified, within and outside their group as individual

taxable persons. Subsequently, the supply of services

made by the head office in a third country to its branch

which forms part of a VAT group must, according to the

CJ, be considered to constitute VAT taxable transactions

which have been made not to that member but to the

actual VAT group to which that member belongs. Finally,

the CJ ruled that the VAT group, as the purchaser of

the services, becomes liable for the VAT due under the

reverse charge mechanism.

CJ rules on the right to effective judicial protection (Unitrading Ltd)On 23 October 2014, the CJ delivered its judgment in

case Unitrading Ltd (C-437/13). The case concerns the

right to effective judicial protection.

On 20 November 2007, Unitrading, established in

Rickmansworth (United Kingdom), made a declaration to

the Netherlands customs authorities for release into free

circulation of 86,400 kg of fresh garlic bulbs (‘the goods’).

The declaration was submitted by F.V. de Groof’s In- en

Uitklaringsbedrijf BV, trading under the name of Comex

(‘Comex’). In the declaration, Pakistan was cited as being

the country of origin of the goods. It was accompanied by

a certificate of origin issued by the Karachi Chamber of

Commerce and Industry on 5 November 2007.

On 21 November 2007, the Netherlands customs

authorities took samples of the goods. On the same day,

those authorities demanded an additional guarantee,

on the ground that they had doubts as regards the

country of origin cited. When Unitrading had provided

19

information either to the customs authorities or to

the declarant, as a result of which it is made difficult

or impossible for the defence to verify or disprove

the correctness of the conclusion arrived at and

the court is hampered in its task of evaluating

the results of the examination, those examination

results may not be taken into account by the

court? Does it make any difference to the answer

to that question that that third party withholds the

information concerned from the customs authorities

and from the party concerned on the ground, not

further explained, that “law enforcement sensitive

information” is involved?

(2) Do the rights enshrined in Article 47 of the Charter

mean that when the customs authorities cannot

disclose further information in respect of the

examination carried out which forms the basis

for their position that the goods have a specific

origin - the results of which are challenged by

reasoned submissions - the customs authorities - in

so far as can reasonably be expected of them - must

cooperate with the party concerned in connection

with the latter’s request that it conduct, at its own

expense, an inspection and/or sampling in the

country of origin claimed by that party?

(3) Does it make a difference to the answer to the first

and second questions that, following the notification

of the customs duties payable, portions of the

samples of the goods, to which the party concerned

could have obtained access with a view to having

an examination carried out by another laboratory,

were still available for a limited period, even though

the result of such an examination would have had

no bearing on the fact that the results obtained

by the laboratory used by the customs authorities

could not be verified, with the result that even in that

case it would have been impossible for the court - if

that other laboratory were to find in favour of the

origin claimed by the party concerned - to compare

the results of the two laboratories with respect to

their reliability? If so, must the customs authorities

point out to the party concerned that portions of the

samples of the goods are still available and that it

may request those samples for purposes of such an

examination?’

Amsterdam customs laboratory that more than 15 trace

elements had been discovered in the samples of the

goods. Nevertheless, it refused to disclose the information

concerning the regions of China and Pakistan which had

been compared, on the ground that these were sensitive

data to which access was restricted by law.

In a mission report of 20 October 2009 concerning

enquiries made in China on a number of consignments

of fresh garlic bulbs sent to Belgium, the Netherlands

and the United Kingdom for which the country of origin

declared was Pakistan while it was suspected that the

goods originated in China, the European Anti-Fraud

Office (OLAF) concluded that there were strong reasons

to believe that the country of origin of the goods in

question was in fact China and not Pakistan.

The contested notice of assessment having been

confirmed, in those circumstances, by the customs

authorities, Unitrading brought an action before the

Rechtbank te Haarlem (District Court, Haarlem) which,

by judgment of 12 August 2010, declared the appeal

brought against that decision to be unfounded. Unitrading

appealed against that judgment before the Gerechtshof

te Amsterdam (Court of Appeals, Amsterdam), which,

on 10 May 2012, upheld the judgment delivered at

first instance, taking the view, in particular, that the

Netherlands customs authorities had shown that the

goods did not originate in Pakistan but in China. The

Gerechtshof te Amsterdam further stated that, at the time

of the hearing before it, there were still portions of the

samples of the goods in Amsterdam which could be used

for a possible second expert opinion. Unitrading pursued

an appeal in cassation before the referring court.

In those circumstances, the Hoge Raad der Nederlanden

decided to stay the proceedings and to refer the following

questions to the Court for a preliminary ruling:

‘(1) Do the rights enshrined in Article 47 of the Charter

of Fundamental Rights of the European Union

mean that if customs authorities, in the context

of the submission of evidence as to the origin of

imported goods, intend to rely on the results of an

examination carried out by a third party with regard

to which that third party does not disclose further

20

of the Directive and such arrangement is not ‘genuine’.

An arrangement is not ‘genuine’ if it lacks economic

reality. As there is no clear guidance on the terms used

in the GAAR, it allows Member States to interpret these

terms in their own way. Member States must bring into

force the laws, regulations and administrative provisions

necessary to comply with the amended Directive by

31 December 2015 at the latest.

The GAAR is an amendment to the current anti-abuse

rule of Article 1.2 of the Directive and contains a broadly

worded ‘de minimis rule’, which consists of a subjective

test (main purposes test) as well as an objective test

(lack of economic reality test). One of the purposes of

the amendment is to harmonise the variety of anti-

abuse rules currently applied by Member States. The

amendment expands the ability of Member States to

apply their (domestic) provisions. The main objective

of the GAAR is to tackle arrangements or series of

arrangements that meet both the main purposes test and

the lack of economic reality test.

The main purposes test is met if an arrangement or a

series of arrangements has or have been put into place

for the main purpose or one of the main purposes of

obtaining a tax advantage which defeats the object or

purpose of the Directive.

The lack of economic reality test is met if such

arrangement or arrangements is or are not genuine

having regard to all facts and circumstances. An

arrangement or a series of arrangements shall be

deemed not genuine to the extent that they are not put

into place for valid commercial reasons which reflect

economic reality.

The GAAR goes one step further than the Court’s Cadbury

Schweppes judgment (C-196/04, of 12 September

2006), which only refers to the main purpose of setting up

a structure (which may not be wholly artificial), whereas

the GAAR addresses one of the main purposes and

gives an additional qualification with the wording ‘to the

extent that’. This qualification is intended to give Member

States an argument to use the new anti-abuse clause

when a certain step in an arrangement is not genuine,

for example, where shares from which the distribution

The CJ ruled as follows:

1. Article 47 of the Charter of Fundamental Rights

of the European Union must be interpreted as

not precluding proof of origin of imported goods

adduced by the customs authorities on the basis

of national procedural rules resting on the results

of an examination carried out by a third party, with

regard to which that third party refuses to disclose

further information either to the customs authorities

or to the customs declarant, as a result of which it is

made difficult or impossible to verify or disprove the

correctness of the conclusions reached, provided

that the principles of effectiveness and equivalence

are upheld. It is for the national court to ascertain

whether that is so in the main proceedings.

2. In a situation such as that at issue in the main

proceedings, and when the customs authorities

cannot disclose further information in respect of

the examination carried out, whether the customs

authorities must grant the request of the party

concerned that it conduct, at its own expense, an

examination in the country declared as the country

of origin and whether it matters that portions of the

samples of the goods, to which the party concerned

could have obtained access with a view to having

an examination carried out by another laboratory,

were still available for a limited period and, if so,

whether the customs authorities must inform the

party concerned that portions of the samples of

the goods are still available and that it may request

those samples for purposes of such an examination

must be assessed on the basis of national

procedural law.

ECOFIN Council approves the introduction of a general anti-avoidance rule (GAAR) in the EU Parent-Subsidiary DirectiveOn 9 December 2014, the ECOFIN Council approved the

introduction of a general anti-avoidance rule (GAAR) in

the EU Parent-Subsidiary Directive (the Directive). The

GAAR requires Member States to refrain from granting

the benefits of the Directive (withholding exemptions) if

any of the main purposes of an arrangement is to obtain

a tax advantage that would defeat the object or purpose

21

Foreign Account Tax Compliance Act (FATCA) providing

for a wider cooperation than the one currently existing

under the Directive. Therefore, they should also provide

such wider cooperation between Member States. In

accordance with this, Member States should require their

Financial Institutions to implement reporting and due

diligence rules which are fully consistent with those set

out in the Common Reporting Standard developed by

the OECD. Moreover, the scope of Article 8 of Directive

2011/16/EU should be extended to include the same

information covered by the OECD Model Competent

Authority Agreement and Common Reporting Standard.

Member States will start exchanging information

automatically under the revised directive for the first time

by the end of September 2017, along with other OECD

‘earlier adopters’. Austria has announced that it will join

the other Member States in doing so by the same date,

thereby not making full use of a derogation it obtained

when political agreement was reached in October 2014.

General Court annuls first Spanish Goodwill decision (Autogrill and Banco Santander cases) On 7 November 2014, the General Court issued two

judgements in cases Autogrill Espana, SA v European

Commission (T-219/10) and Banco Santander and

Santusa Holding, SL v European Commission (T-399/11).

The General Court annulled the first out of three

Commission decisions declaring a Spanish regime that

allowed for the tax deduction of goodwill in the case of

foreign takeovers to be unlawfully granted State aid. In the

Court’s analysis, the Commission had failed to establish

that the goodwill regime was selective in nature. In its

view, the fact that the regime would only apply in the case

of foreign takeovers did not warrant a finding of selectivity

in itself. Our preliminary analysis is that this case could

be a turning point in the Commission’s practice to expand

the scope of the State aid regime. Therefore, an appeal

to the CJ is most likely. For the time being, these two

judgements by themselves do not warrant the conclusion

that a finding of (unlawful) fiscal aid will be much harder

from now on.

arises are not genuinely attributed to a taxpayer that is

established in a Member State, i.e., if the arrangement

based on its legal form transfers the ownership of the

shares but its features do not reflect economic reality.

The GAAR will have as a consequence that the burden

of proof shifts to the taxpayer. As the terms are unclear, it

is expected that there will be an increasing number of tax

disputes. The GAAR will give rise to greater uncertainty

for European holding companies of non-EU investors, as

the benefits of the Directive (withholding exemptions) will

often be one of the drivers for choosing a certain Member

State as location of the holding company in Europe, also

when a substantial presence and economic substance is

established.

It has been announced that a similar rule will be included

in the EU Interest & Royalty Directive.

ECOFIN Council approves extending the scope for automatic exchange of informationOn 9 December 2014, the ECOFIN Council approved a

Directive that extends the scope for automatic exchange

of information to bring interest, dividends, gross proceeds

from the sale of financial assets and other income, as

well as account balances within the scope of automatic

exchange of information. Accordingly, the approved

text revises Directive 2011/16/EU on administrative

cooperation in the field of direct taxation.

Council Directive 2011/16/EU already provides for the

mandatory automatic exchange of information between

Member States on certain categories of income and

capital, mainly of a non-financial nature, that taxpayers

hold in Member States other than their State of residence.

Considering the current international flows of income and

the increased opportunities for taxpayers to invest abroad

in financial products it has been clear that the existing

instruments for international administrative cooperation

had become less effective in tackling cross-border tax

fraud and evasion.

This amendment takes into account the fact that the

Member States have concluded, or are in the process

of concluding, agreements with the US regarding the

22

certain income, generated by companies incorporated in

Gibraltar or which carried out an activity which generates

income, are subject to taxation in Gibraltar.

The Commission has assessed 165 tax rulings granted

by the Gibraltar tax authorities to different companies in

2011, 2012 and up to August 2013.

Based on the information submitted by the UK authorities,

it appears that the Gibraltar tax authorities grant formal

tax rulings without performing an adequate evaluation of

whether the companies’ income has been accrued in or

derived from outside Gibraltar and therefore is exempted

from taxation in Gibraltar. Even if the Gibraltar tax

authorities are given considerable margin of manoeuvre

under the ITA 2010, a misapplication of its provisions

cannot be excluded at this stage.

The Commission has concerns that potentially all

assessed rulings may contain State aid, because none

of them is based on sufficient information such to ensure

that the level of taxation of the activities concerned is in

line with the tax paid by other companies, which generate

income that is to be considered accrued in or derived

from Gibraltar. The Commission, therefore, has doubts

as regards the compatibility with EU State aid rules of the

way in which Gibraltar tax authorities have applied the

ITA 2010 using tax rulings.

Commission investigates transfer pricing arrangements on corporate taxation of Amazon in LuxembourgOn 7 October 2014, the Commission has opened an in-

depth investigation to examine whether the decision by

Luxembourg’s tax authorities with regard to the corporate

income tax to be paid by Amazon in Luxembourg is in line

with the EU rules on state aid. This investigation is based

on a tax ruling in favour of Amazon that dates back to

2003 and is still in force.

The Commission underlying reason is that tax rulings

on transfer pricing arrangements may involve state aid

within the meaning of EU rules if they are used to provide

selective advantages to a specific company or group of

companies. The Commission takes the opinion, prices for

intra-group transactions have to be correctly estimated

Overview 2014

State Aid / WTOSpain fined for failing to recover fiscal aidIn 2001, the European Commission ordered Spain to

recover investment tax credits in a number of Basque

countries. The decision was upheld by the ECJ in 2006.

In 2011, the Commission requested the CJ to impose

a penalty payment on Spain as well as a lump sum in

order to ensure compliance. As during the course of this

procedure the Commission had established that Spain

had finally met its obligations, the request for a penalty

was withdrawn. Spain was still fined EUR 30 million for

late compliance by the CJ.

Property transfer tax exemptions for reorganization of local authorities found not to be aidOn 26 May 2014, the European Commission found

that a German exemption from property transfer tax for

reorganizations of public authorities did not constitute

aid. As part of local merging or reorganization, land can

be transferred from one legal entity to another. Given

public policy reasons for such transfers, this did not lead

to State aid given the logic of a property transfer tax. It

should be noted that the Commission considered that

neither the merging of two economic activities nor the

development of such an activity should be the purpose

of a reorganization.

Commission investigates Gibraltar’s tax rulings practiceOn 1 October 2014, the Commission announced that

it has extended the scope of the ongoing investigation

it opened in October 2013 to verify whether the new

Gibraltar corporate tax regime selectively favours certain

categories of companies, in breach of EU State aid rules.

The Commission will now also examine the Gibraltar tax

rulings practice.

The new Gibraltar income tax act (ITA 2010) introduced,

amongst other changes, a tax rulings practice which allows

companies to ask for advance confirmation of whether

23

According to Article 107(1) TFEU, State aid which affects

trade between Member States and distorts, or threatens

to distort, competition by favouring certain undertakings,

is incompatible with the EU Single Market. The European

Commission considers that APAs should not have the

effect of granting taxpayers lower taxation than other

taxpayers in a similar legal and factual situation.

The opening decision shows that the European

Commission is determined to challenge potential State

aid elements embedded in APAs, examining in detail the

transfer pricing methods agreed to by tax authorities. In

the Starbucks case, the European Commission questions

in particular three elements of the APA, which it is to

investigate further:

i. Whether the Netherlands tax authorities correctly

accepted Starbucks’ classification as a low-risk toll

manufacturer;

ii. Whether the Netherlands tax authorities were right to

accept certain transfer pricing adjustments following

the qualification as a low-risk toll manufacturer; and

iii. Whether the Netherlands tax authorities were right

to accept Starbucks’ interpretation of the APA, as

a result of which the residual profit of the taxpayer

was paid out as a royalty.

The State Secretary has sent a letter to the Netherlands

Parliament setting out why he is confident that the

investigation will show that no State aid has been granted

to Starbucks. The State Secretary is of the view that

State aid can only be present in transfer pricing cases if

it is demonstrated that a specific case explicitly deviates

from the OECD transfer pricing guidelines and the arm’s

length principle clearly is not applied correctly. According

to the State Secretary, the APA of Starbucks is carefully

and sufficiently substantiated and is in line with the OECD

transfer pricing guidelines and the general Netherlands

tax system that contains the arm’s length principle.

CJ questions exemption of property tax for government-owned businesses (Concello de Ferrol)On 9 October 2014, the CJ issued its judgement in Case

Ministerio de Defensa and Navantia SA v Concello de

Ferrol (C-522/13). The case concerned a Spanish

builder of naval vessels, Navantia, who had effectively

based on market prices. If this is not the case groups

of companies could have the possibility to underestimate

their taxable profit, whereas other companies which buy

and sell goods or services from the market rather than

within the group would be disadvantaged. This may

constitute state aid within the meaning of EU rules.

The referred ruling under scrutiny applies to Amazon’s

subsidiary Amazon EU Sàrl, which is based in

Luxembourg and records most of Amazon’s European

profits. Based on a methodology set by the tax ruling,

Amazon EU Sàrl pays a tax deductible royalty to a limited

liability partnership established in Luxembourg but which

is not subject to corporate taxation in Luxembourg. As a

result, most European profits of Amazon are recorded in

Luxembourg but are not taxed in Luxembourg.

At this stage the Commission considers that the amount

of this royalty, which lowers the taxable profits of Amazon

EU Sàrl each year, might not be in line with market

conditions. The Commission has concerns that the

ruling could underestimate the taxable profits of Amazon

EU Sàrl, and thereby grant an economic advantage to

Amazon by allowing the group to pay less tax than other

companies whose profits are allocated in line with market

terms.

The Commission is in the process of investigating

whether its concerns are confirmed. The opening of an

in-depth investigation gives interested third parties and

the Member States concerned an opportunity to submit

comments.

State Aid Opening Decision Starbucks On 24 November 2014, the European Commission

published its opening decision of 11 June 2014 in the

formal state aid investigation into the advance pricing

agreement (‘APA’) concluded by Starbucks in the

Netherlands. It is the European Commission’s preliminary

view that the APA concluded with Starbucks constitutes

State aid. In the meantime, the Netherlands State

Secretary of Finance (‘State Secretary’) has informed

the Netherlands parliament why he is confident that the

investigation will show that the APA does not constitute

State aid.

24

payments do not seem to have been set at arm’s length.

The Commission also disclosed that it had also received

information on some other companies from Luxembourg,

although Luxembourg still refused to comply with its more

general request for information on rulings in general (an

issue now pending before the General Court).

Direct taxationEFTA Court rules that difference in treatment between domestic and cross-border mergers pursuant to Icelandic legislation is in breach of the freedom of establishment and the free movement of capital (EFTA Surveillance Authority v Iceland)On 2 December 2013, the EFTA Court delivered its

judgment in case EFTA Surveillance Authority v Iceland

(E-14/13). The case deals with the Icelandic legislation

which imposes an immediate tax on assets and shares

of companies that merge cross-border with companies

established in other EEA States and on shareholders

of such companies, whereas similar transactions within

the Icelandic territory, do not attract any immediate tax

consequences.

According to Icelandic law, a cross-border company

merger, where the shareholders of the merging company

are only paid with shares in the acquiring company as

a payment for the liquidated company (merger with

exchange of shares), will lead to immediate taxation on

the capital gains for shareholders, if the market price

of the shares is higher than the purchase price. The

difference between the purchase price and the market

price is taxed as dividend. The same principles apply

to a company that is being dissolved without going into

liquidation and transfers all its assets and liabilities to

a foreign company holding all the securities or shares

representing its capital (merger without the exchange of

shares). However, pursuant to Icelandic law, domestic

mergers, with or without the exchange of shares, are

exempted from tax in Iceland.

The EFTA Court concluded that that the difference in

treatment between domestic and cross border mergers

with regard to the tax exemption represents a restriction

profited from an exemption from municipal property

tax. Although Navantia was fully government-owned, it

offered its services on the market. It rented land from

the State which, as owner, would normally pass on the

property tax imposed on it. As Spanish law required

an exemption from property tax for government-owned

property, ultimately there would be no tax to pass on.

Before the local court, the Spanish government appealed

the imposition of property tax by the region of Ferrol. The

local court decided to refer the matter to the CJ ex officio

as upholding Spanish law could lead to the unlawful

granting of State aid. (This is now the fourth ex officio

reference of its kind by a national court dealing with a

domestic tax dispute.). In its judgement, the CJ pointed

out that this could indeed be the case as far as competition

is affected, in respect of civil as well as military activities,

both of which may be competing with other businesses.

This is for the referring court to sort out.

EFTA: recovery from Icelandic companiesIn 2010, the EFTA Surveillance Authority approved an

Icelandic tax regime that would stimulate investment

and employment in some disadvantaged regions. Upon

investigation of five companies that received those

benefits, it found that the criteria had not been met. Two

companies had already taken investment decisions and

started their projects prior to the approval. For three

others, the tax benefits resulted in operating aid instead

of investment aid. In all four cases, recovery was ordered

on 8 October 2014.

Formal investigations into Gibraltar and Luxembourg extended On 1 October 2014, the European Commission decided

to extend its ongoing investigation into Gibraltar’s tax

regime to its ruling practice. Further to a preliminary

review, it found that possibly as many as 165 rulings may

be suspect. Those dealt with issues such as exempting

non-Gibraltar income. According to the Commission,

Gibraltar had issued rulings without a prior case-by-case

assessment and in lack of sufficient supporting evidence.

As for Luxembourg, on 7 October 2014, the Commission

took on a second ruling case concerning Amazon.

According to its preliminary analysis, certain royalty

25

Inland Revenue. This amendment led to a retroactive

curtailment without notice of the limitation period for a

claim for the reimbursement of the tax paid but not due.

This case deals precisely with whether such curtailment

is compatible with the principles of effectiveness, legal

certainty and the protection of legitimate expectations.

The CJ started by reminding that Member States have

discretion in the exercise of their procedural autonomy

which allows them to define the detailed procedural

rules governing actions for the safeguarding of rights

which individuals derive from EU law. However, such

procedural rules governing actions for safeguarding

a taxpayer’s rights under EU law must thus be no less

favourable than those governing similar domestic actions

(principle of equivalence) and must not be framed in such

a way as to render impossible in practice or excessively

difficult the exercise of rights conferred by EU law

(principle of effectiveness). In any event, whilst national

legislation reducing the period within which repayment of

sums collected in breach of EU law may be sought is

not incompatible with the principle of effectiveness, it is

subject to the condition not only that the new limitation

period is reasonable but also that the new legislation

includes transitional arrangements allowing an adequate

period after the enactment of the legislation for lodging

the claims for repayment which persons were entitled to

submit under the previous legislation. Such transitional

arrangements are necessary where the immediate

application to those claims of a limitation period shorter

than that which was previously in force would have the

effect of retroactively depriving some individuals of their

right to repayment, or of allowing them too short a period

for asserting that right.

In the case under analysis, the CJ analysed that, until

Section 320 was enacted, it was open to taxpayers to

introduce claims based on an error of law for the recovery

of tax paid but not due during a six-year period, starting

with discovery of the error giving rise to payment of the

tax concerned. The enactment of Section 320 had the

effect of depriving them of that possibility, retroactively

and without any transitional arrangements, since the

Section provides that the extended period for bringing an

action in case of error of law does not apply in relation

to an error of law relating to a taxation matter under the

on the freedom of establishment and the free movement

of capital pursuant to Articles 31 and 40 EEA. This

Court considered it undisputed that such difference in

treatment cannot be justified.

CJ rules that UK tax legislation which retroactively curtails the period for reimbursement of undue tax paid is not compatible with the principles of effectiveness, legal certainty and the protection of legitimate expectations (Test Claimants in the FII Group Litigation)On 12 December 2013, the CJ delivered its judgment

in the case Test Claimants in the FII Group Litigation

v Commissioners of Inland Revenue, Commissioners

for Her Majesty’s Revenue and Customs (C-362/12).

The case deals with the compatibility of the UK rules

which retroactively curtail the period for reimbursement

of undue tax paid is not compatible with the principles

of effectiveness, legal certainty and the protection of

legitimate expectations.

On 8 September 2003, Aegis - a multinational group

with a UK holding company - introduced a claim before

the English courts for reimbursement of taxes which

the CJ had declared incompatible with the fundamental

freedoms. According to the UK rules, two causes of action

were available in ‘common law’ to claimants seeking

restitution of corporate tax levied in breach of EU Law.

The first cause of action allowed the recovery of sums

paid to a public authority in response to an apparent

statutory requirement to pay tax which (in fact and in law)

was not lawfully due. These claims were time-barred after

six years had elapsed from the date on which the cause

of action arose, which was normally the date on which

the tax was paid. The second permitted the restitution of

taxes paid by error either of fact or of law on the part of

the taxpayer. In these cases, the period of limitation would

not begin to run until the plaintiff had discovered the error

or, with reasonable diligence, could have discovered

it. In 2004, the UK Parliament adopted an amendment

to this second cause of action which laid down that the

extended period for bringing an action in case of error

was not applicable in relation to an error of law relating

to taxation under the case of the Commissioners of

26

CJ rules that Belgium legislation that precludes the granting of personal allowances to a married couple with cross-border activities is in breach of the freedom of establishment (Imfeld and Garcet)On 12 December 2013, the CJ issued its Judgment in

the Imfeld and Garcet v Belgian State case (C-303/12).

M. Imfeld and Mrs Garcet are married and residents

of Belgium. For Belgian tax calculation purposes, they

are assessed jointly in Belgium. M. Imfeld derives

professional income from Germany. Under the Double

Tax Convention (“DTC”) between Belgium and Germany

this income is taxable in Germany and exempt in

Belgium. The issue concerns tax advantages relating to

the personal situation of the taxpayer. Under Belgian law,

an increased tax free allowance is granted to persons

with dependents. For the computation of Belgian tax in

a case of joint assessment, this tax free allowance is set

off, as a priority, against the income of the spouse with

the highest income. In the case submitted to the CJ, as

a consequence of this rule, the couple could not fully

benefit from this tax advantage given the fact that the

higher income was not taxable in Belgium.

The CJ found that the legislation at issue, applied to the

case at issue, constitutes a restriction on the freedom

of establishment of M. Imfeld, since it put his couple at

a disadvantage compared to a couple deriving most of

its income from Belgium. Nationals of Belgium are thus

discouraged to exercise their freedom of establishment.

The CJ stated that, in principle, it is for the State of

residence to grant the tax advantages relating to the

personal and family situation. The Member State of

employment is only required to take these attributes

in consideration in cases where the taxpayer derives

almost all or all his income from that Member State. The

Court went on to state that the mere fact that M. Imfeld’s

personal and family situation was partially taken into

account in Germany could not compensate for the loss

of the tax advantage recorded by the couple in Belgium.

The CJ dismissed the argument that the legislation at

issue was justified by the need to safeguard the balanced

distribution of the power of taxation between the Member

care and management of the Commissioners. Their claim

for recovery of sums paid although not due could thus

no longer cover any period other than that from 1997 to

1999.

Therefore, the CJ considered that whilst the principle

of effectiveness does not preclude national legislation

curtailing the period in which claims may be brought

for recovery of sums paid although not due, and whilst

a limitation period of six years which starts to run on

the date of payment of the tax appears in itself to be

reasonable, the new legislation must also provide for

transitional arrangements, allowing an adequate period

after the enactment of the legislation for lodging the

claims which taxpayers were entitled to submit under the

previous legislation.

Therefore, it concluded that the requirement for

transitional arrangements is not satisfied by a national

legislative provision such as that at issue in the main

proceedings, which has the effect of curtailing the

limitation period for actions to recover sums paid but

not due so that, instead of six years from discovery of

the error giving rise to payment of the tax, that period

is six years from the date of payment of the tax, and

which provides for its immediate application to all claims

made after the date of its enactment, as well as to claims

made between that date and an earlier date, in the

present case, the date on which the proposal to adopt

that provision was announced, which is also the date on

which the provision took effect. Such legislation makes

it impossible in practice to exercise a right previously

available to taxpayers to recover tax paid but not due. It

follows that national legislation such as that at issue in the

main proceedings must be considered to be incompatible

with the principle of effectiveness.

The CJ further considered that the change in the UK law

also infringes the principles of legal certainty and the

protection of legitimate expectations.

27

The CJ started by considering that, the fact that

contributions paid to a savings pension confer a right

to the tax reduction solely if they are paid to financial

institutions established in Belgium has the effect of

rendering the freedom to provide savings pension

services from other Member States more difficult that if it

were purely within Belgium. Those savings pension rules

are liable to dissuade both Belgians liable to tax from

subscribing to an individual or collective savings account

or taking out savings insurance with financial institutions

established in a Member State other than Belgium.

The CJ then went to analyse the justifications brought

forward by Belgium to such restriction, namely the need

to maintain the coherence of the tax system and the need

for effective fiscal supervision. As regards the coherence

of the tax system the Court recalled that such justification

requires the existence of a direct link between a tax

advantage and a corresponding disadvantage. In this

case it was admitted that there was a link between the

tax reduction for which contributions paid to a savings

pension are eligible and the taxation of the savings

pension income. However the CJ referred that the factor

that adversely affects the coherence of such rules is to

be found in the fact that the transfer of residence of the

person liable to tax occurs between the time of payment

of contributions to the savings pension and the receipt

of savings pension income, and less in the fact that the

financial institution managing the savings pension is

located in another Member State. In other words, the

fact that a savings pension is acquired from a financial

institution established in a Member State other than the

Kingdom of Belgium is not liable, as such, adversely to

affect the coherence of the rules at issue. There is nothing

to prevent the Kingdom of Belgium from exercising

its power of taxation over the income derived from the

savings pension paid by a financial institution established

in another Member State to a person liable to tax who

is still resident in Belgium when that income is paid, as

a counterbalance to the payments of contributions in

respect of which a tax reduction was granted. Therefore

the CJ concluded that a general ban on granting a tax

reduction cannot be justified by the need to preserve the

coherence of the tax system.

States. The Court stated that this justification may be

accepted where the system in question is designed to

prevent conduct capable of jeopardising the right of a

Member State to exercise its fiscal jurisdiction in relation

to activities carried out in its territory. The Court found

that in the present case, were the Kingdom of Belgium

to fully grant the benefit of deductions of a personal and

family nature to the applicants in the main proceedings,

that right would not be jeopardised.

The Court did however state that it is open to the Member

States concerned to take into consideration the tax

advantages which may be granted by another Member

State imposing tax, provided that, irrespective of how

those Member States have allocated that obligation

amongst themselves, their taxpayers are guaranteed

that, as the end result, all their personal and family

circumstances will be duly taken into account.

EU Joint Transfer Pricing Forum adopts report on compensating adjustmentsOn January 2014, the EU Joint Transfer Pricing Forum

adopted a report on compensating adjustments.

MS apply different approaches with respect to

compensating adjustments. The purpose of this report is

to provide practical guidance on avoiding double taxation

and double non-taxation in the application of compensating

adjustments in spite of the different practices of MS. The

guidance is applicable to compensating adjustments

which are made in the taxpayer’s accounts and explained

in the taxpayer’s transfer pricing documentation.

CJ rules that Belgium legislation that denies tax reduction on contributions paid by individuals to savings pensions established in other Member States is in breach of the freedom to provide services (Commission v Belgium)On 23 January 2014, the CJ issued its decision in case

Commission v Belgium (C-296/14). The case deals with

the Belgium legislation in respect of contributions paid

by individuals to savings pensions. According with such

legislation, a tax reduction in respect of contributions paid

to a savings pension is applicable only to payments to

institutions or funds established in Belgium.

28

companies that have their registered offices in other

Member States, in the light of the structure of store retail

trade on the Hungarian market and, in particular, the

fact that retail stores belonging to such companies are

generally organised, as is the case of Hervis, in the form

of subsidiaries.

The CJ confirmed the claim made by the Hervis,

confirming that the Hungarian legislation although it did

not make a formal distinction according to the registered

office of the companies, entailed indirect discrimination in

contravention of Article 49 TFEU.

European Commission issues information injunction against Luxembourg on tax ruling practices and IP regimesIn the process of gathering information on ruling practices

and IP regimes in EU Member States, Luxembourg

has refused to provide the European Commission with

the information it required invoking fiscal secrecy. The

Commission has asked for an overview of rulings of 2011

and 2012 as well as a list of the 100 largest companies

that use the Luxembourg IP regime. The Commission

has now issued an information injunction ordering

Luxembourg to comply, pointing out that the Commission

is also bound by professional secrecy.

In its March 24th press release, the Commission reiterates

that tax rulings are not a problem per se as long as they do

not provide selective advantages to companies. As for IP

regimes, the Commission pointed out that it had received

indications that special IP regimes mainly benefit mobile

business and do not sufficiently stimulate R&D. It is now

looking into whether these regimes benefit a particular

group of companies. In doing so, the Commission seems

to reconsider its State aid approach to IP regimes.

If Luxembourg refuses to comply with the Commission’s

injunction, the details of which have not yet been made

public, it may be taken to the Court for non-compliance.

As regards the need for effective fiscal supervision, the

Court recalled the existence of Directive 77/799 which

may be invoked by a Member State in order to obtain

from the competent authorities of another Member State

all the information necessary to enable it correctly to

assess the amount of the taxes. Therefore it rejected

such justification by considering that there is no reason for

Belgian tax authorities should not request from the person

liable to tax the evidence that they consider they need to

effect a correct assessment of the taxes concerned and,

where appropriate, refuse the tax reduction applied for if

that evidence is not supplied.

CJ considers that Hungarian store retail trade tax as it applies to groups of companies in contravention of the freedom of establishment (Hervis)On 5 February 2014, the CH rendered its judgment in

case Hervis Sport- és Divatkereskedelmi Kft. v Nemzeti

Adó- és Vámhivatal Közép-dunántúli Regionális Adó

Főigazgatósága (C-385/12). The case concerns the

Hungarian store retail trade tax and its application to

groups of companies.

Hervis is a subsidiary of SPAR AG, a parent company

situated in Austria (‘SPAR’). Hervis is part of the SPAR

group, in accordance with Paragraph 7 of the law on

the special tax, defining ‘linked undertakings’ within the

meaning of that law. On that basis, Hervis is liable to pay

a share, in proportion to its turnover, of the special tax

payable by all the undertakings belonging to that group

on the basis of their overall turnover achieved in Hungary.

As a result of the application of the steeply progressive

scale of the special tax to the overall turnover of that

group, Hervis claimed that it was subject to an average

rate of tax considerably higher than that corresponding

to the taxable amount consisting solely of the turnover

of its own stores. In that regard, Hervi claimed that such

tax discriminated against foreign owned Hungarian

companies - which operated in a group structure - as per

comparison with the Hungarian retail store chains which

had the tax calculated individually, given that they are, for

the most part, organised as sales outlets on the franchise

model, having legal personality, and not belonging to

a group. In particular, Hervis claimed that there was a

de facto discrimination since the subsidiaries of parent

29

As the request for preliminary ruling dealt with both

the breach to the freedom of establishment and the

free movement of capital, the CJ started by analyzing

which fundamental freedom applied to this case. In the

present case, the national legislation at issue in the main

proceedings applies regardless of the amount of the

shareholding held in a company. Therefore, it was not

possible to determine from the legislation whether they

fell predominantly within the scope of Article 49 TFEU or

of Article 63 TFEU. Therefore, the Court moved on to take

into account of the facts of the case. However, neither

the order for reference nor the documents before the CJ

provided information in that respect. Consequently, the

CJ held that national legislation such as that at issue

in the main proceedings is liable to affect both the free

movement of capital and the freedom of establishment.

The CJ then went to analyse whether there was a

restriction to the free movement. In that regard, this

case deals with a difference in treatment, as regards the

application of the tax shield, between, first, a taxpayer

resident in a Member State of the Union who receives

dividends from a company established in that State

and, second, a taxpayer resident in that Member State

who is a shareholder of a company established in

another Member State and receives dividends taxed in

both States, the double taxation being regulated by the

imputation in the Member State of residence of a tax

credit of an amount corresponding to the tax paid in the

State of the distributing company. The CJ stressed that

the tax shield is unrelated to the parallel exercise of tax

jurisdiction and concerns only the French Republic’s tax

jurisdiction. That tax provision has the purpose and effect

of reducing the level of taxation of the income on which

that Member State exercises its powers of taxation. Since

there is a difference in treatment, the Court focused on

examining whether the difference in treatment between

a shareholder taxable in France who receives dividends

from a company established in that Member State and

another shareholder taxable in the same manner in France

but receiving dividends from a company established in

another Member State, in the present case Sweden,

concerns situations which are objectively comparable.

The Court concluded affirmatively since France, by first,

taxing the incoming dividends received by Ms Bouanich

and including those dividends in her taxable base in

CJ rules that French legislation which excludes the inclusion of withholding tax paid abroad on the calculation of a tax exemption on income is in breach of the fundamental freedoms (Bouanich)On 13 March 2014, the CJ issued its judgement in case

Margaretha Bouanich v Directeur des services fiscaux

de la Drôme (Case C-373/12). The case deals with the

refusal of the tax authorities to include the withholding

tax paid by Ms Bouanich in Sweden in the total amount of

direct taxes taken into account for the calculation of a tax

cap by reference to income.

The French law provided that direct taxes paid by

a taxpayer may not exceed 60% of his income and

subsequently (years of 2007 and 2008) 50% of the

income. The conditions applicable to that cap on direct

taxes includes, inter alia, the right to restitution of tax

levied above the set threshold.

At the time of the facts in the main proceedings,

Ms Bouanich, a tax resident in France, was a shareholder

in a listed company established in Sweden. She received

income from shares in that company which were subject

to withholding tax in Sweden. After calculating the gross

amount of income tax by applying the progressive scale

to the taxable base, the tax authorities, pursuant to

Article 23(1)(a)(ii) of the Franco-Swedish Agreement,

set against that gross amount a tax credit equal to the

amount of withholding tax to which Ms Bouanich had

been subject in Sweden. Ms Bouanich subsequently

applied to be entitled to the right to restitution resulting

from the application of the tax shield. In her applications

for restitution of tax, Ms Bouanich had included, in the

taxes to be taken into account for the application of the

tax shield, the amount of the tax credits corresponding

to the amount of withholding tax levied on the dividends

from Sweden. That method of calculation, however,

was rejected by the tax authorities, on the ground

that the withholding tax was not a tax paid in France.

Ms Bouanich claimed that the French legislation

constituted an obstacle to the freedom of establishment

and free movement of capital guaranteed by the TFEU

as it limited the tax advantage of the cap to half of what

it would have been if the dividends had been paid by a

company established in France.

30

the French Republic agrees to prevent double taxation

of those dividends by the imputation on the French

tax of a tax credit equal to the Swedish withholding

tax. According to that government, the tax shield gives

due effect to that agreement-based regime and to the

elimination of double taxation taken on by the French

Republic as the taxpayer’s State of residence. Thus,

the calculation of taxes capable of being capped takes

account of only the amount of direct taxes paid in France,

after the imputation of a tax credit equal to the withholding

tax paid in Sweden. By its very nature, the tax shield

has the purpose of limiting the exercise of the French

Republic’s tax jurisdiction by capping the total amount of

direct taxes in theory payable, in that Member State, by

the taxpayer at a fraction (60% or 50%) of his income.

Insofar as that provision falls within the sole competence

of that Member State, it is relevant to include only the

taxes paid in France in the calculation of the restitution

from which the taxpayer may benefit. The French

Government considered that the taking into account of

taxes paid abroad in that calculation would oblige, by

contrast, the taxpayer’s State of residence to bear the

burden of the restitution of a tax which contributed not

to its tax revenue, but to that of another Member State

acting as the State from which the income originated. The

CJ however considered that such justification cannot be

accepted. In the present case, the question of allocation

of powers of taxation between the French Republic and

the Kingdom of Sweden was dealt with in the Franco-

Swedish Agreement under which each of those States

is entitled to tax dividends acquired and received on its

territory. In those circumstances, the French Republic

retained the right to tax Swedish investment income

and agreed to grant a tax credit to reduce the effect of

that double taxation in favour of taxpayers resident in

France. That Member State, therefore, freely accepted

the allocation of powers of taxation as results from the

very provisions of the Franco-Swedish Agreement. That

mechanism of allocation of taxation provided for by

the Franco-Swedish Agreement cannot, nevertheless,

justify the restriction resulting from the application of the

legislation on the tax shield. The CJ stressed that the

restitution of tax granted under the tax shield is a tax

advantage provided for by the French legislation, which

limits the tax burden of taxpayers by applying a system of

capping, guaranteeing the restitution of tax paid above a

France for the purposes of calculating her income tax

and, second, takes account of those dividends for the

purposes of applying the tax cap, placed the taxpayer

in the same situation as a taxpayer receiving dividends

from a company established in France. Therefore, the CJ

concluded that there was a restriction to both the free

movement of capital and the freedom of establishment.

The CJ then went on to analyse whether there were

possible justifications to such restriction. First, it dealt

with the coherence of the tax system and the argument

of France according to which, the tax shield aims to avoid

direct taxes being confiscatory in nature, or imposing on

a category of taxpayers a burden which is excessive in

the light of their capacity to contribute. Having regard to

that objective, a direct link exists between, on the one

hand, the tax advantage granted, namely the refund to

the taxpayer of the portion of taxes paid in France which

exceeds the threshold defined and, on the other, the

offsetting of that advantage with the direct taxes which

the taxpayer paid in France. The Court, however, rejected

such argument as it considered that there was no link

between the tax advantage in the form of the restitution

of tax which that measure may give rise to for the benefit

of the taxpayer and the offsetting of that advantage by a

particular levy. For the Court, the tax advantage granted

by way of the tax shield is not offset by any levy, insofar

as that tax provision merely has the purpose and effect

of reducing the level of taxation of income on which the

French Republic exercises its power of taxation. The

tax advantage at issue in the main proceedings is not

granted in correlation to a specific tax levied but is only

granted if the total tax paid exceeds a certain percentage

of taxpayers’ income for the year. It follows that no direct

link can be established between the tax advantage

concerned and a particular tax levied.

As regards the need to safeguard a balanced allocation

of powers of taxation between the Member States, the

French Government claimed that, in the context of the

Franco-Swedish Agreement, each of the two signatory

States waives a right to a portion of the tax which it

could levy if it were not bound by that agreement. On

the one hand, the Kingdom of Sweden agrees to limit to

15% the rate of withholding tax on dividends paid to a

person resident for tax purposes in France. On the other,

31

The Directive could be circumvented by using financial

products that had similar characteristics to debt claims,

but were not legally classified as such. The new text of

the Directive extends the scope to income from similar

products:

• Securities which are equivalent to debt claims;

• Life insurance contracts including a guarantee of

income return or whose performance is linked for more

than 40% to income from debt claims or equivalent

income is covered by the Savings Directive.

In addition, the Directive also covered only relevant

income obtained through undertakings for collective

investment in transferable securities authorised in

accordance with Directive 85/611/EEC (‘UCITS’)

whereas income through other EU investment funds

(‘non-UCITS’) is mostly not taken into account. The

new amendments include the scope of relevant income

distributed/capitalised by all CIVs, regardless of legal

form and technical qualification, and also cover relevant

income from all non-EU investment funds.

CJ rules free movement of capital does not preclude Netherlands withholding tax on dividend payments to its Overseas Countries and Territories (X BV and TBG Limited)On 5 June 2014, the CJ delivered its judgment in case

X BV and TBG Limited v Staatssecretaris van Financien

(joined cases C-24/12 and C-27/12). These cases deal

with the question whether the free movement of capital

must be interpreted as precluding a measure of a Member

State which is likely to hinder movements of capital

between that Member State and the overseas countries

and territories (OCTs) of the Member State at issue (‘own

OCTs’). In particular, the case deals with the tax levied

in the Netherlands on dividends paid by companies

established in the Netherlands to their holding companies

established in the Netherlands Antilles, but where the

payment of dividends to a company established in the

Netherlands or in another Member State is exempt.

The CJ started by observing that in accordance with

Article 299(3) EC, the OCTs listed in Annex II to the

EC Treaty form the subject-matter of the special

arrangements for association set out in Part Four thereof,

namely, Articles 182 EC up to 188 EC, the detailed

certain percentage. Such a tax capping mechanism does

not affect the possibility of the French Republic taxing the

activities carried on in its territory, nor does it restrict the

possibility of that Member State taxing income acquired

in another Member State.

EU Council adopts amendments to the EU Savings Directive On 20 March 2014, the EU Council adopted proposed

amendments to the EU Savings Directive (Council

Directive 2003/48/EC on taxation of savings income

in the form of interest payments). The new text aims

at strengthening the EU rules on the exchange of

information on savings income.

Already back in 2008, the Commission had carried out

an assessment as to the application of the Savings

Directive detecting the need for certain amendments

in order to close certain loopholes, notably as regards:

(i) Beneficial ownership, (ii) Paying agent mechanism,

and (iii) Financial instruments equivalent to debt claims.

In fact, one of the problems detected with the application

of the Directive was that individuals could circumvent

the Directive by using an interposed legal person (e.g. a

foundation) or arrangement (e.g. a trust) situated in a non-

EU country. Therefore, the new Directive now provides

for a Look-through approach based on ‘customer due

diligence’ carried out for other purposes in order to avoid

circumventing the application of the Directive.

Another issue was the definition of paying agent.

Individuals could also, under certain conditions,

circumvent the Directive by using an interposed legal

person (e.g. a foundation) or arrangement (e.g. a trust)

situated in an EU Member State. The new text provides for

a clearer definition of the structures which have to apply

the Directive, an indicative list of entities/arrangements

that may be concerned when situated and effectively

managed in Member States (as well as an obligation for

paying agents upon receipt) in cases where there is no

immediately identifiable beneficial owner to apply the

Directive at a later stage, whenever the identification of

the beneficial owner(s) becomes possible.

Other problems detected with the application of the

Directive had regard to the definition of Savings income.

32

OCT Decision, provided it pursues that objective in an

effective and proportionate manner, which is a matter for

the referring court to assess.

CJ rules that German legislation for the elimination of double taxation regarding dividends received from foreign companies does not contravene the free movement of capital (Kronos)On 11 September 2014, the CJ delivered its judgment in

case Kronos International Inc. v Finanzamt Leverkusen

(C-47/12). The case deals with the German legislation on

elimination of double taxation and, in particular, with the

offsetting against German corporation tax, for the years

1991 to 2001, of the corporation tax paid abroad by the

subsidiaries of Kronos that distributed dividends.

Kronos is a holding company of a group of companies.

Its registered office is in the United States and

its management is in Germany. During 2000 and

2001, Kronos had indirect shareholdings in Europa

SA (Belgium) and Kronos Norge (Norway) through

its wholly-owned subsidiary Kronos Denmark ApS

(Denmark). The shareholdings of Kronos Denmark ApS

in the group’s Belgian and Norwegian companies were

99.99% and 100% respectively. The dividends paid

by foreign subsidiaries, which were exempt from tax

pursuant to the double taxation convention applicable in

each case, were not taken into account in the calculation

of the relevant basis for the notices of assessment and

statements of losses. In this context, Kronos requested

that the corporation tax and tax on capital income paid by

its subsidiaries and second-tier subsidiaries established

in other Member States (Belgium, France and the United

Kingdom) and third States (Canada and Norway) between

1991 and 2001 be set off against the corporation tax for

which it was liable in Germany, as such setting off had,

where appropriate, to result in a tax refund.

The following questions were referred to the CJ for a

preliminary ruling:

‘(1) Is the exclusion of the set-off of corporation tax as

a consequence of the tax exemption of dividend

distributions by capital companies in third countries

to German capital companies, for which the German

legislation requires only that the capital company

rules and procedures of which are, in accordance with

Article 187 EC, established by decisions of the Council. In

this respect, the Netherlands Antilles, which, under the

Netherlands Constitution, is one of the three entities

which constitute the Kingdom of the Netherlands, is on

that list and, therefore, is the subject-matter of the special

arrangements for association set out in Part Four of the

EC Treaty. The existence of the special arrangements

between the EU and OCTs results in the general

provisions of the EC Treaty, namely, those which are not

referred to in Part Four of that treaty, not being applicable

to OCTs in the absence of an express reference.

As regards the OCT Decision, adopted by the Council

on the basis of Article 187 EC to implement the

arrangements for association, the CJ observed that

Article 47(1) specifies what restrictions on payment and

on movements of capital are prohibited between the EU

and OCTs. By prohibiting, inter alia, restrictions on the

acquisition of shares in companies and the repatriation

of profits stemming therefrom, Article 47(1)(b) of the

OCT Decision prohibits, among others, restrictions on

the payment of dividends between the EU and OCTs,

along the lines of the prohibition of such measures

set out in Article 56 EC as regards, inter alia, relations

between Member States and third countries. However,

the CJ considered it necessary to examine the question

referred from the point of view of Article 47(1) of the OCT

Decision and to verify whether the scope of that provision

is clarified or circumscribed by other rules of the special

arrangements applying to the EU-OCT association In

this respect, it noted that, upon the liberalisation, for the

EU-OCT association, of movements of capital, particular

attention was paid to the fact that numerous OCTs are

considered to be tax havens. Thus, the OCT Decision

includes, in Article 55, a tax carve-out clause expressly

aimed at preventing tax avoidance.

Therefore, the CJ considered that a tax measure such

as that at issue in the main proceedings, which is,

according to the referring court’s description of its history

and purpose, intended to prevent excessive capital flow

towards the Netherlands Antilles and to counter the

appeal of that OCT as a tax haven, comes under the tax

carve-out clause cited above and, consequently, remains

outside the scope of application of Article 47(1) of the

33

Is the present Article 64(1) TFEU to be understood

as meaning that it permits the application by the

Federal Republic of Germany of German legislation,

and provisions of double taxation conventions,

which have remained unchanged in substance since

31 December 1993 and, therefore, that it permits the

continuing exclusion of the offsetting of Canadian

corporation tax on dividends exempted from tax in

Germany?’

The CJ started analysing this case by considering that the

first question must be understood as being designed to

ascertain whether the compatibility with EU law of national

rules, such as those at issue in the main proceedings,

under which a company resident in a Member State

cannot set off corporation tax paid in another Member

State or in a third State by capital companies distributing

dividends, because of the exemption of those dividends

from tax in the first Member State when they stem from

shareholdings representing at least 10% of the capital

of the company making the distribution and, in the case

in point, the actual shareholding of the capital company

receiving the dividends exceeds 90% and the recipient

company has been incorporated in accordance with

the law of a third State, must be assessed in the light

of Articles 49 TFEU and 54 TFEU or rather Articles 63

TFEU and 65 TFEU.

The Court recalled its reasoning according to which

whether national legislation falls within the scope of one

or other of the freedoms of movement, the purpose of the

legislation concerned must be taken into consideration.

Therefore, national legislation intended to apply only to

those shareholdings which enable the holder to exert

a definite influence on a company’s decisions and to

determine its activities falls within the scope of Article 49

TFEU on freedom of establishment. On the other hand,

national provisions which apply to shareholdings acquired

solely with the intention of making a financial investment

without any intention to influence the management and

control of the undertaking must be examined exclusively

in light of the free movement of capital.

In the main proceedings, it follows from the double

taxation conventions concluded by Germany with

receiving the dividends has a holding of not less

than 10% in the distributing company, subject only

to freedom of establishment within the meaning of

Article 49 TFEU in conjunction with Article 54 TFEU

or also to the free movement of capital within the

meaning of Articles 63 TFEU to 65 TFEU, if the

actual holding of the capital company receiving the

dividends is 100%?

(2) Are the provisions concerning freedom of

establishment (now Article 49 TFEU) and, as the

case may be, also concerning the free movement of

capital (Article 67 EEC/EC until 1993, now Articles

63 TFEU to 65 TFEU) to be interpreted as meaning

that they preclude a provision which, where the

dividends of foreign subsidiaries are exempt from

tax, excludes the set-off and refund of corporation tax

on those dividend distributions even where the parent

company makes a loss, if, for distributions by German

subsidiaries, there is provision for relief by setting off

corporation tax?

(3) Are the provisions concerning freedom of

establishment (now Article 49 TFEU) and, as the

case may be, also concerning the free movement of

capital (Article 67 EEC/EC until 1993, now Articles 63

TFEU to 65 TFEU) to be interpreted as meaning that

they preclude a provision which excludes the set-off

and refund of corporation tax on dividends of second

and third-tier subsidiaries which are exempted from

tax in the country of the subsidiary and which are

(re)distributed to the German parent company and

likewise exempted from tax in Germany, but in the

case of purely domestic situations, as the case may

be by means of the set-off of corporation tax on the

second-tier subsidiary’s dividends in the hands of

the subsidiary and the set-off of corporation tax on

the subsidiary’s dividends in the hands of the parent

company, enables a refund in the event of a loss by

the parent company?

(4) If the provisions on the free movement of capital

are also applicable, a further question, depending

on the reply to question 2, arises with regard to the

Canadian dividends:

34

Therefore, a company or firm which is not formed in

accordance with the law of a Member State cannot enjoy

freedom of establishment. The Court, therefore concluded

that, in a situation such as that at issue in the main

proceedings, where freedom of establishment cannot be

relied upon because of the connection of the company

receiving the dividends to the legal system of a third

State, national rules which relate to the tax treatment of

dividends originating in another Member State or in a third

State and do not apply exclusively to situations in which

the parent company exercises decisive influence over

the company distributing the dividends must be assessed

in the light of Article 63 TFEU. Consequently, a company

incorporated in accordance with the law of a third State

that is resident in a Member State may, irrespective of

the extent of its shareholding in the company distributing

dividends resident in another Member State or in a third

country, rely upon that provision in order to call the legality

of such rules into question.

The Court then turned to deal with a second question,

whether Article 63 TFEU must be interpreted as

precluding application of the exemption method to

dividends distributed by companies resident in other

Member States and in third States, when the imputation

method is applied to dividends distributed by companies

resident in the same Member State as the company

receiving them and, if the latter company records losses,

the imputation method results in the tax paid by the

resident company that made the distribution being fully

or partially refunded. In essence, Kronos contended

that because of the refund of tax paid by the company

distributing the dividends, investment in a resident

company is be more advantageous than investment in a

non-resident company in a situation where the company

receiving the dividends makes losses. It further submitted

that the imputation regime would not be equivalent to

the exemption regime if account were also taken of the

taxation of the dividends in Germany when redistributed

to shareholders.

The CJ observed that in the context of the main

proceedings, the refusal to grant a refund and the

difference in treatment thus established can be explained

by an objective difference in situation. In relation to

the States where the subsidiaries were located, that

dividends paid to companies resident in Germany by

companies resident in those other States are exempt

from German corporation tax when the shareholding

of the company receiving the dividend in the company

distributing it reaches the threshold of 10%. The Court

considered that it could not be determined whether it

falls predominantly within the scope of Article 49 TFEU

or Article 63 TFEU, and in that case account should be

taken of the facts of the case in point in order to determine

whether the situation to which the dispute in the main

proceedings relates falls within the scope of Article 49

TFEU or of Article 63. As regards, on the other hand, the

tax treatment of dividends originating in a third country,

the Court held that it is sufficient to examine the purpose

of national legislation in order to determine whether the

tax treatment of such dividends falls within the scope

of the provisions of the TFEU on the free movement of

capital, as national legislation relating to the tax treatment

of dividends originating in third countries is not capable of

falling within the scope of Article 49 TFEU. In other words,

when a company distributing the dividends is located in

a third State, only the free movement of capital may be

relied upon against the national legislation relating to the

treatment of the dividends distributed by it, account does

not have to be taken of the size of the shareholdings in

the company making the distribution.

The Court further added that this reasoning is also

applicable, by analogy, where solely the free movement

of capital may be relied upon given the limits of the

personal scope of freedom of establishment. That is so in

a situation such as that at issue in the main proceedings,

where the company receiving the dividends is a company

formed in accordance with the law of a third State.

The Treaty rules concerning freedom of establishment

apply only to nationals of a Member State of the EU. In

accordance with Article 54 TFEU, companies or firms

formed in accordance with the law of a Member State

and having their registered office, central administration

or principal place of business within the European Union

are to be treated, for the purposes of the provisions of

the Treaty on freedom of establishment, in the same way

as natural persons who are nationals of Member States

35

subsequent tax years when the results of the company

receiving the dividends are positive. Differently, in the

context of the exemption method, as the losses are not

reduced, there is no risk of economic double taxation

of the dividends received. The lack of a refund is

counterbalanced by not taking the dividends into account

when determining the basis of assessment.

Therefore, the Court concluded that Article 63 TFEU

must be interpreted as not precluding application of the

exemption method to dividends distributed by companies

resident in other Member States and in third States, when

the imputation method is applied to dividends distributed

by companies resident in the same Member State as

the company receiving them and, if the latter company

records losses, the imputation method results in the tax

paid by the resident company that made the distribution

being fully or partially refunded.

In view of the conclusion of the CJ that the German

legislation did not contravene the free movement of

capital, it considered there was no need to answer the

third and fourth questions.

CJ rules that Belgian legislation on determining income from immovable property located abroad contravenes the free movement of capital (Verest and Gerards)On 11 September 2014, the CJ delivered its judgment

decision in case Ronny Verest, Gaby Gerards v Belgische

Staat (C-489/13). The case deals with the tax treatment

of income from immovable property that is not rented out

acquired in France by Belgian residents.

Under the convention for the prevention of double

taxation concluded between those two Member States,

the immovable property income relating to that property

is to be taxed in France alone. However, a clause,

‘on maintenance of progressivity’, allows the Belgian

authorities to take account of that income for the purpose

of determining the tax rate applicable to income taxable

only in Belgium. It happens that the rules for determining

the income deriving from buildings that are not rented

out differ according to whether the property is situated

in Belgium or in another Member State. In fact, in case

refund of the tax paid by the company distributing the

dividends, such as the refund requested by Kronos, a

company receiving foreign-sourced dividends is not in

a situation comparable to that of a company receiving

nationally-sourced dividends. The difference between

those situations stems first, from the fact that Germany,

following the conclusion of double taxation conventions

with other Member States and with third States, waived

the exercise of its powers of taxation over the dividends

distributed by companies resident in those States. The

free movement of capital, enshrined in Article 63(1)

TFEU, cannot have the effect of requiring Member

States to go beyond the cancelling of national income tax

payable by a shareholder in respect of foreign-sourced

dividends received and to reimburse a sum whose origin

is in the tax system of another Member State. The Court

further referred to the fact that the status of Member State

of residence of the company receiving dividends cannot

entail the obligation for that Member State to offset a

fiscal disadvantage arising where a series of charges to

tax is imposed entirely by the Member State in which the

company distributing those dividends is established, in

so far as the dividends received are neither taxed nor

taken into account in a different way by the first Member

State as regards investment enterprises established in

that State.

Consequently, in a situation where the Member State

does not exercise its powers of taxation over the incoming

dividends - either by taxing them or by taking them into

account in a different way - as regards the company

receiving them, its obligations, as the Member State of

residence of the company receiving the dividends, do

not go so far as to require that it offset the tax burden

resulting from the exercise of the tax powers of another

Member State or of a third State.

As regards the refund requested by Kronos, the CJ

drew a difference as regards the exemption method: it

constitutes, in the context of the imputation method,

the logical complement of taking the dividends into

account and of the previous reduction of the losses

that can be carried forward. Without such a refund, the

taking of the dividends into account and the reduction of

the losses of the company receiving them are liable to

result in economic double taxation of those dividends in

36

particular, the rules which allow the Autonomous Regions

of Spain to apply reduced rates which are applicable only

in the case there is a connexion with the Spanish territory.

The CJ started by observing that national measures that

allow a reduction on the value of the inheritance of gift

of a resident of a Member State other than the territory

where the donation or inheritance occurs or of a Member

State other than where the assets which are subject to

inheritance or donation constitutes a restriction to the free

movement of capital. Therefore, the rules of a Member

State, which make the application of a reduced taxation

of an inheritance or gift dependent from the place of

residence of the donator or the deceased at the time of

the donation or the time of death or also the place where

the immovable property is located, constitute a restriction

to the free movement of capital.

The Court stated that Law 22/2009 authorises the

Autonomous Regions to apply certain tax reductions

which are applicable only in the case of exclusive

connection with the territory of those regions. In that

regard, it stated that the possibility that such national

legislation provides for a different treatment between

taxpayers as regards residence is sufficient to create a

restriction to the free movement of capital irrespective

of whether the Autonomous Regions do indeed exercise

the possibility provided by such national legislation.

In addition, it should be taken into account that the

measures forbidden by Article 63 TFEU include, in

particular, measures able to dissuade non-residents from

making investments in another Member State. Therefore,

the CJ concluded that the Spanish legislation constituted

a restriction to the free movement of capital.

CJ finds UK legislation concerning the immediate the attribution of gains to participators in non-resident companies to contravene the free movement of capital (Commission v UK)On 13 November 2014, the CJ issued its judgment in

case Commission v UK (C-112/14). The case deals with

the compatibility of the UK tax legislation concerning

the attribution of gains to participators in non-resident

companies with the free movement of capital.

of property situated in Belgium which is not rented out,

income from that property is determined on the basis

of cadastral income. However, income from immovable

property that is not rented out, but situated in a State

other than Belgium, would be determined on the basis

of its rental value alone. Belgian cadastral income and

French cadastral income are comparable, but cadastral

income is, as a general rule, lower than rental value.

In other words, income from immovable property situated

in France that is not rented out is determined on the basis

of the rental value, the amount of which is higher than the

cadastral income from a comparable property situated

in Belgium. The CJ was confronted with the question to

determine whether Article 63 TFEU must be interpreted

as precluding legislation of a Member State, such as

the legislation at issue in the main proceedings, which,

when a progressivity clause contained in a convention

for the prevention of double taxation is applied, lays down

that, in order to establish the tax rate on income, income

derived from immovable property situated in another

Member State that is not rented out is to be determined

on the basis of its ‘rental value’, whereas income derived

from such property but situated in the first Member State

is to be determined on the basis of its ‘cadastral income’

and the latter is, generally, lower than the ‘rental value’.

The CJ considered that the legislation in Belgium may

constitute a difference in treatment likely to dissuade

Belgian residents from making immovable property

investments in Member States other than Belgium,

which is such as to give rise to a restriction on the free

movement of capital, prohibited, in principle, by Article 63

TFEU. The CJ concluded therefore that this difference

in treatment is likely to constitute a restriction to the free

movement of capital. The Belgian government did not put

forward any justification.

CJ rules that Spanish rules on inheritance and gifts tax contravene the free movement of capital (Commission v Spain)On 3 September 2014, the CJ delivered its judgment in

case Commission v Spain (C-127/12). The case concerns

the Spanish rules on the taxation of inheritance and gift, in

37

that section 13 of the TCGA may affect both the freedom

of establishment and the free movement of capital.

However, and given that the Commission had requested

only an analysis based on the possible breach of the

free movement of capital, the CJ decided to confine its

judgment to that fundamental freedom.

The CJ started by pointing out firstly, that section 13 of the

TGGA discouraged residents of the UK, whether natural

or legal persons, from contributing their capital to non-

resident close companies and, secondly, impeded the

possibility of such a company attracting capital from the

UK. Such legislation, therefore, constitutes prima facie a

restriction of the free movement of capital. Classification

cannot be called into question by the fact that the tax

burden on a participator in such a company may, in some

cases, be reduced or eliminated. The CJ considered it

sufficient to note that those possibilities do not allow the

restriction to be eliminated in all cases in which it occurs.

The Court then went on to examine whether the

restriction can be objectively justified by legitimate

interests recognised by EU Law, namely, the need to

prevent tax avoidance and evasion. In this regard, it

started by recalling the settled case law that in order

for such justification to be accepted, it must specifically

target wholly artificial arrangements which do not reflect

economic reality and whose sole purpose is to avoid

the tax normally payable on the profits generated by

activities carried out on national territory. In the present

case, the CJ considered that section 13 of the TCGA

is not confined specifically to targeting wholly artificial

arrangements which do not reflect economic reality

and are carried out for tax purposes alone, but also

affects conduct the economic reality of which cannot be

disputed. The section applies generally to gains made on

the disposal of assets by companies not resident in the

United Kingdom controlled by no more than five persons,

in particular, without taking into account whether or not

the taxpayer resident in the UK to whom the gain resulting

from such a disposal is to be attributed is one of those

persons, with its application being excluded only in a few

circumstances, such as the disposal of an asset used

exclusively for the purposes of a trade carried on by that

company outside the UK. Furthermore, the section does

Section 13 of the Taxation of Chargeable Gains Act 1992

(‘TCGA’) provides that, where chargeable, gains accrue

to a company not resident in the UK which would be

regarded as a close company if it were resident there

(‘non-resident close company’), those gains, or part of

them, are taxed immediately in the United Kingdom.

They are immediately attributed to participators in such

a company who are United Kingdom residents if they

hold more than 10% of the company’s shares and,

consequently, hold rights to more than 10% of those

gains, whether or not they actually receive the gains.

According to the Commission, the attribution of gains

under Section 13 of the TCGA takes place at the time

when the company disposes of assets and makes a

gain, which is included in the tax base of the participators

concerned. In the Commission’s view, the participators

are then liable to tax, either capital gains tax for a natural

person or corporation tax for a company, even though

they have not personally made any disposals and may

never receive the proceeds of the disposal made by

the company. The Commission stated that, differently,

where a close company resident in the United Kingdom

disposes of assets and makes taxable gains, tax is

charged only in the event of a distribution of the gains

to participators or if they dispose of their interests in the

company. Moreover, it pointed out that that tax is based

on the amount actually received by the participator, not

on the amount of the gains made by the company itself.

The Commission concluded that section 13 of the TCGA

is a restriction within the meaning of free movement of

capital. While the Commission accepted that the tax

burden on a resident participator may be reduced or

even eliminated in certain circumstances, it submitted

that those mechanisms do not enable the restriction to

be removed entirely.

As a preliminary comment, the CJ started by observing

that where a participator resident in the United Kingdom

holds more than 10% of the shares of the non-resident

close company in question, it can therefore apply both

to holdings enabling their holder to exert a definite

influence over the decisions of that company and

determine its activities and to holdings acquired for

investment purposes. It, therefore, cannot be ruled out

38

Spain which wish to provide tax representation services

to entities or natural persons operating in Spain.

The CJ started by considering that the legislation at stake

- and which was not disputed by Spain - constitutes a

restriction of the freedom to provide services. The Court

observed that the obligation to appoint a tax representative

in Spain is likely to involve additional costs for pension

funds established in Member States, other than Spain,

offering occupational pension schemes in that Member

State, and for insurance companies operating in Spain

under the freedom to provide services. Consequently,

that obligation makes the provision of services by those

entities to persons residing in Spain more difficult and

less attractive than the provision of similar services to the

same persons by entities established in Spain which are

not subject to that obligation.

Subsequently, the CJ went on to analyze the justification

brought forward by Spain, namely the necessity of

effective fiscal supervision and the prevention of tax

evasion. As a preliminary remark, the CJ noted that

the obligations to disclose information and to withhold

and pay sums due to the public treasury, which the tax

representatives referred to in the legislation at issue

must perform for the pension funds and insurance

companies established in Member States other than

Spain, constitute an appropriate means of ensuring the

effective collection of the tax due on income paid by the

occupational pension schemes. In accordance therewith,

the Court analyzed whether this legislation goes beyond

what is necessary to attain those objectives.

In this regard, the Court stressed that the Spanish

legislation giving pension funds, established in Member

States other than Spain and offering occupational

pension schemes in that Member State and insurance

companies operating in Spain under the freedom to

provide services, the choice of either appointing a tax

representative or carrying out the tasks themselves,

in accordance with the solution which they consider to

be the most advantageous from the economic point of

view, would be less prejudicial to the freedom to provide

services than the general obligation to appoint such a

representative. In addition, and as regards the obligation

for the tax representative to be resident in Spain, the

not allow the taxpayer concerned to provide evidence

to show the economic reality of his participation in the

company in question.

The CJ therefore concluded that section 13 of the

TCGA goes beyond what is necessary for achieving its

objective and therefore, restricts the free movement of

capital as provided in Art. 63 TFEU. In addition, and since

it is common ground that section 13 of the TCGA also

applies to companies resident in a Member State of EFTA

which is party to the EEA Agreement, and insofar as the

provisions of Article 40 of the EEA Agreement have the

same legal scope as the substantially identical provisions

of Article 63 TFEU, the reasoning is applicable mutatis

mutandis to Article 40 of the EEA Agreement.

CJ rules that Spanish legislation that requires the appointment of a tax representative for pension funds and insurance companies established in another Member State which offer their services in Spain contravenes the free movement of capital (Commission v Spain) (EUTA 136)On 11 December 2014, the CJ delivered its judgment in

case Commission v Spain (C-678/11). The case deals

with the Spanish legislation requiring pension funds

established in other Member States offering occupational

pension schemes in Spain, insurance companies

operating in Spain under the freedom to provide services

and certain non-resident entities and natural persons

to designate a tax representative resident in Spain. In

particular, the Commission claims that such obligation

for pension funds established in Member States, other

than Spain, offering occupational pension schemes

in that Member State and for insurance companies

operating in Spain under the freedom to provide services

to designate a tax representative resident in that Member

State constitutes a restriction of the freedom to provide

services as provided in Article 56 EC and Article 36 EEA

Agreement. The Commission considers that first, that

obligation involves an additional burden on those pension

funds and those insurance companies. Secondly, it

impedes the freedom to provide services for persons and

undertakings established in Member States other than

39

On its invoices, TVI added 4% screening tax to the price

charged for the screening of the commercial advertising.

The taxable amount for VAT purposes was determined

based on the total amount of the invoice inclusive of the

screening tax.

However, TVI was of the view that the taxable amount

for VAT purposes should not have included the amount

payable by way of the screening tax and applied for a

review of the VAT assessment notices for the respective

periods. In this regard, TVI put forward that the screening

tax was owed by the advertisers, but was paid by the

supplier of the screening services by operation of a

mechanism known as ‘fiscal substitution’. The Portuguese

tax authorities disagreed with TVI. Eventually, the matter

ended up before the Supremo Tribunal Administrativo,

which court decided to refer preliminary questions to the

CJ.

According to the CJ, the chargeable event for the

screening tax coincides with that for the VAT payable on

the commercial advertising services. Therefore, the CJ

ruled that a tax such as the screening tax has a direct

link with the supply of commercial advertising screening

services and falls within the concept of ‘taxes, duties,

levies and charges’ referred to in article 78(1)(a) of the EU

VAT Directive. Moreover, the CJ ruled that a substitution

mechanism such as in the case at hand is not akin to the

repayment of expenses for the purposes of article 79(1)

(a) of the EU VAT Directive. Consequently, the CJ ruled

that the screening tax should be included in the taxable

amount for VAT purposes.

CJ rules that deduction of incorrectly charged VAT was rejected justly (Fatorie)On 6 February 2014, the CJ delivered its judgment in the

case of SC Fatorie SRL v Direcţia Generală a Finanţelor

Publice Bihor (C-424/12). Fatorie had concluded a

framework contract with SC Megasal Construcţii SRL

(‘Megasal’) relating to works for the building and fitting

out of pigpens and for the modernization of a pig-

rearing farm. Megasal issued an invoice stating the total

value of the work carried out and on which it charged

VAT. Fatorie paid the VAT to Megasal, after which the

Romanian tax authorities refunded the VAT to Fatorie.

CJ reasoned that that Spanish reasoning according

to which the residence condition is the best way of

ensuring that the tax obligations incumbent on the tax

representative are performed effectively was irrelevant.

True, the supervision of such a representative by the

tax authorities of a Member State may prove to be more

difficult where that representative is in another Member

State. In this regard, the Court recalled its previous

case law that administrative difficulties do not constitute

a ground that can justify a restriction on a fundamental

freedom guaranteed by EU law.

Therefore, the CJ concluded that the Spanish legislation

contravenes the free movement of services in Article 56

EC.

As a final remark, the Court observed that as regards the

possible infringement of Article 36 EEA Agreement, there

is a different legal framework as the Directives for mutual

cooperation and assistance do not exist within the scope

of the EEA. Therefore, and given that the Commission

has not alleged that there are any bilateral agreements

on mutual assistance in tax matters between Spain and

the States party to the EEA Agreement which are non-

EU members, it has not established that the existence

of mechanisms for the exchange of information and

for cooperation is sufficient to enable Spain to obtain

information on the taxes due and the collection of those

taxes. Therefore, the Court concluded that it cannot be

regarded as established that the obligation to appoint a

tax representative resident in Spain goes beyond what

is necessary to achieve the objective of ensuring the

effectiveness of tax supervision and the prevention of tax

avoidance.

VATCJ rules that screening tax forms part of taxable amount for VAT purposes (TVI - Televisão Independente SA)On 5 December 2013, the CJ delivered its judgment in

joined cases TVI - Televisão Independente SA v Fazenda

Pública (C-618/11, C-637/11 and C-659/11). In the

course of its activities, Televisão Independente SA (TVI)

screened commercial advertising for various advertisers.

40

re-invoiced transport services, in respect of which it

issued tax invoices in the name of E.ON. Haarmann

stopped issuing tax invoices on behalf of E.ON after

1 January 2007, since the obligation to designate a tax

representative was abolished when Romania became

a member of the EU. Haarmann, however, continued to

represent E.ON in Romania.

The tax authorities took the position that the tax

representative had incorrectly deducted VAT on behalf of

E.ON concerning transactions carried out after 1 January

2007. According to the tax authorities, E.ON ceased

to be a taxable person for VAT purposes in Romania

in respect of energy supplies as from 1 January 2007.

Subsequently, EO.N as a foreign taxpayer applied for a

VAT refund based on the Eight VAT Directive. However,

this request was also denied by the tax authorities,

because the Romanian rules provided that such request

cannot be made by a taxable person that is identified

for VAT purposes in Romania and EO.N was regarded

as such due to the fact it was still represented by the

tax representative. EO.N went to court. In the ensuing

proceedings, preliminary questions were referred to the

CJ.

The CJ ruled that a taxable person who is established

in one Member State and who has made supplies of

electricity to taxable dealers established in another

Member State has the right to rely on the Eighth EU VAT

Directive in order to obtain a refund of VAT. According

to the CJ, that right is not precluded merely by the

designation of a tax representative in that Member State,

because the mere designation of a tax representative

is not equivalent to having an establishment within the

meaning of Article 1 of the Eight VAT Directive.

CJ rules that the right to deduct VAT may be denied in case of VAT fraud (Maks Pen EOOD)On 13 February 2014, the CJ delivered its judgment in case

Maks Pen EOOD v Direktor na Direktsia “Obzhalvane i

danachno-osiguritelna praktika” Sofia (C-18/13). Maks

Pen EOOD (‘Maks Pen’) is a Bulgarian company which

operates as a wholesaler of office supplies and advertising

material. Following a tax inspection, the Bulgarian tax

authorities contested the validity of VAT deductions made

However, following a tax investigation, the tax authorities

decided that the reverse charge mechanism applied to

the services and that Megasal had therefore incorrectly

charged VAT. Consequently, the Romanian tax authorities

decided to recover the VAT that had been refunded. In the

meantime, Megasal had been declared insolvent and the

VAT charged on its invoice to Fatorie had not been paid

to the tax authorities. Seeking annulment of the decision

to recover the VAT and of the tax assessment, Fatorie

brought proceedings against the tax authorities.

The matter ended up before the Court of Appeal. Fatorie

claimed, in line with CJ’s case law resulting from case

C-90/02 (Bockemühl), that the fact that the conditions

relating to invoices had not been satisfied did not affect

the right to deduct. The Court of Appeal decided to stay

the proceedings and referred questions to the CJ for a

preliminary ruling.

In answering these questions, the ECJ ruled that the EU

VAT Directive and the principle of fiscal neutrality do not

preclude that the recipient of the services is deprived of

the right to deduct VAT which has been paid based on

an incorrect invoice when that VAT was not due to the

service supplier. The fact that correction of that error is

impossible because the supplier is insolvent, according

to the CJ, is not relevant in this regard. Furthermore,

the CJ ruled that the principle of legal certainty does not

preclude an administrative practice of the tax authorities

whereby, within a limitation period, they revoke a decision

by which they granted the taxable person the right to

deduct VAT and then, following a new investigation, order

him to pay that VAT together with default interest.

CJ rules that designation of tax representative did not preclude VAT refund request (E.ON Global Commodities SE)On 6 February 2014, the CJ delivered its judgment in

the case of E.ON Global Commodities SE v Agenţia

Naţională de Administrare Fiscală etc. (C-323/12).

E.ON, a company active in the energy sector in

Romania, designated SC Haarmann Hemmlrath &

Partner Management Consulting SRL (‘Haarmann’)

as its representative in Romania. Up to and including

December 2006, Haarmann supplied electricity and

41

Dresser-Rand Italy. Furthermore, Dresser-Rand France

brought several components necessary for the use of the

compressors to Italy. FB ITMI, an Italian subcontractor

that also supplied components for the compressors,

directly dispatched the assembled goods from Italy to

the Spanish end customer, in the name and on behalf

of Dresser-Rand Italy, acting as fiscal representative of

Dresser-Rand France.

With regard to the goods and services supplied by FB

ITMI, Dresser-Rand France took the view that it could

acquire those without having to pay VAT, which the

Italian tax authorities disputed. The main question was

whether the transfer of compressors from France to Italy

qualified as a fictional intra-Community supply on the

basis of Article 17(1) of the EU VAT Directive or whether

the exception of Article 17(2)(f) of that Directive applied.

The Provincial Tax Court referred questions to the CJ for

a preliminary ruling regarding the interpretation of Article

17(2)(f) of the EU VAT Directive.

The CJ ruled that Article 17(2)(f) of the EU VAT Directive

must be interpreted as meaning that the dispatch or

transport of goods is not classified as a fictional intra-

Community supply, only if the goods - after the work on

them has been carried out in another Member State -

return to the taxable person in the Member State from

which they were initially dispatched or transported.

CJ rules that certain pension funds qualify as special investment funds for the application of the VAT exemption for management of special investment funds (ATP PensionService A/S) On 13 March 2014, the CJ delivered its judgment in the

case ATP PensionService A/S v The Skatteministeriet

(C-464/12). ATP PensionService A/S (‘ATP’) is a Danish

company that supplies services to pension funds. Within

this framework, ATP opens an account for each pension

customer who is a member of one of the pension funds

included in the pension scheme managed by ATP. The

employer informs ATP of the pension contributions

which are payable for all its employees and transfers a

total sum of contributions to the pension fund’s account.

Subsequently, ATP credits the payable amount to the

employee’s account. ATP carries out administrative

on invoices issued by some of the suppliers of Maks

Pen. Considering that it was not possible to establish

whether some of the suppliers, or their sub-contractors,

had the necessary resources to have made the supplies

invoiced, the tax authorities took the position that it had

not been proven that the supplies had been carried out or

that they have been carried out by the suppliers referred

to on the invoices. Eventually the matter ended up before

the Administrativen sad Sofia-grad, which court decided

to refer preliminary questions to the CJ.

The CJ ruled that a taxable person is precluded from

deducting VAT included on invoices issued by a supplier

where, although the supply was made, it is apparent that

the supply was not actually made by that supplier or by its

sub-contractor, if fraud is involved and the taxable person

knew or should have known that the transaction relied on

giving entitlement to the right to deduct was connected

with that fraud. According to the CJ, it is for the referring

court to determine whether this is the case.

Furthermore, the CJ ruled that Member States, within the

limits provided for in Article 273 of the EU VAT Directive,

are not precluded from requiring that a taxable person

observes all the national accounting rules consistent

with international accounting standards, provided that

the measures adopted to that effect do not go beyond

what is necessary to attain the objectives of ensuring

correct levying and collection of VAT and preventing tax

evasion. According to the CJ, the EU VAT Directive in this

regard precludes a national provision according to which,

a service is deemed to have been supplied at the time

when the conditions governing recognition of the revenue

arising from that service are satisfied.

CJ clarifies scope of provision on fictional intra-Community supplies (DresserRand SA) On 6 March 2014, the CJ rendered its judgment in the case

of DresserRand SA v Agenzia delle Entrate, Direzione

Provinciale, Ufficio Controlli di Genova (C-606/12 and

C-607/12). The French company Dresser-Rand France

manufactures industrial natural gas compressors. In

the course of that activity, it concluded a contract with

a Spanish customer for the supply of complex goods. In

order to complete the order, Dresser-Rand French used

compressors imported from its factories in China by

42

CJ rules that deduction of VAT should be adjusted when ultimately the taxable supply does not take place (FIRIN OOD)On 13 March 2014, the CJ delivered its judgment in the

case FIRIN OOD v Direktor na Direktsia ‘Obzhalvane I

danachno-osiguritelna praktika’ etc. (C-107/13). FIRIN is

a Bulgarian company that produces and markets bread

and pastries. In 2010, FIRIN placed an order for 10,000

tonnes of wheat with Agra Plani EOOD (‘Agra Plani’),

a company that is fully owned by a 1% shareholder in

FIRIN. Agra Plani issued an invoice with VAT. Following

an audit, the Bulgarian tax authorities challenged the

deduction of VAT that FIRIN had made in its VAT return

from November to December 2010. According to the tax

authorities, the supply had not been made, the invoice

was part of a fraudulent scheme, and FIRIN should

have been aware that Agra Plani was not authorized

to trade in grain under national law. Furthermore, the

total amount of the payments made amounted a greater

sum than the amount payable according to the invoice.

The referring court was unsure whether a right to deduct

VAT could be accepted in a situation where, for various

reasons, the supply envisaged could not be made and

whether a subsequent adjustment remained possible.

The referring court, therefore, stayed the proceedings

and referred questions to the CJ for a preliminary ruling.

The CJ ruled that the deduction of VAT made by the

recipient of an invoice, drawn up with a view to a payment

being made on account, in relation to the supply of goods,

should be adjusted where ultimately, that supply is not

made. According to the CJ, this is even the case if the

supplier remains liable for that VAT and has not refunded

the payment made on account.

CJ concludes that input VAT relating to acquisition of client base cannot be deducted if that client base is made available free of charge (Malburg) On 13 March 2014, the CJ delivered its judgment in the

case Finanzamt Saarlouis v Heinz Malburg (‘Malburg’)

(C-204/13). Mr Malburg held a 60% share in the German

partnership, Malburg & Partner (‘M&P’). This partnership

was dissolved on 31 December 1994, with a portion of the

tasks, system maintenance and development and

services related to payments.

Until June 2002, ATP paid VAT on the consideration

received from pension funds for those services. In the

light of the judgment in the case SDC (CJ 5 June 1997,

C-2/95) however, ATP concluded that services relating

to payments into and disbursements from pension funds

were VAT exempt. The Danish tax authorities did not

fully agree with ATP’s view: it agreed with the fact that

the disbursements from pension funds were VAT exempt,

but stated that the payments into the pension funds were

VAT taxed. The matter ended up before the High Court of

Eastern Denmark, which referred questions to the CJ for

a preliminary ruling in order to find out inter alia whether

the services rendered by ATP could benefit from the VAT

exemption for the management of special investment

funds within the meaning of Article 13B(d)(6) of the Sixth

EU VAT Directive.

The CJ ruled that pension funds such as those at

issue may qualify as special investment funds if they

are funded by the persons to whom the retirement

benefit is to be paid, if the funds are invested using a

risk-spreading principle, and if the pension customers

bear the investment risk. According to the CJ, the term

‘management of special investment funds’ covers

services by means of which an undertaking establishes

the rights of pension customers vis-à-vis pension funds

through the opening of accounts in the pension scheme

system and the crediting to such accounts of the

contributions paid, as well as accounting services and

account information services. Finally, the CJ ruled that

the VAT exemption for transactions concerning payments

and transfers of Article 13B(d)(3) of the Sixth EU VAT

Directive covers services consisting of the creation of

accounts for the customers within the pension scheme

and the crediting of those accounts of the contributions

paid, and any transactions ancillary to those services

or which combine with those services to form a single

economic supply.

43

In February 1993, however, La Caixa applied for

reimbursement of the tax paid on capital transfers,

including interest, on the grounds that the Spanish

national provision - based on which the tax was levied -

was contrary to the Sixth EU VAT Directive. Moreover, it

stated that the acquisition of the shares was not subject

to the tax on capital transfers, because the acquisition

was not a means of disguising a sale of immovable

property. The referring court, being in some doubt, in

particular as to the relation between the tax on capital

transfers and VAT, decided to stay the proceedings and

to refer questions to the CJ for a preliminary ruling.

With reference to its case law, the CJ recalled that

a tax with characteristics such as the tax on capital

transfers differs from VAT in such a way that it cannot

be characterized as a turnover tax within the meaning of

the Sixth Directive. Therefore, the CJ ruled that the Sixth

EU VAT Directive does not preclude share purchase

transactions from being made subject to an indirect tax

distinct from VAT.

CJ rules that reduction of taxable amount in case of non-payment may in principle be refused (Almos)On 15 May 2014, the CJ delivered its judgment in case

Almos Agrárkülkereskedelmi Kft (C-337/13). In August

and September 2008, Almos Agrárkülkereskedelmi

Kft (‘Almos’) sold rapeseed to another Hungarian

undertaking, Bio-Ma. The rapeseed was delivered and

placed in a warehouse but the purchaser did not pay the

purchase price. The parties agreed that the rapeseed

was the property of Almos and that it would be returned

ten days later. However, the goods were not returned by

Bio-Ma, because they had been seized in the meantime.

Almos issued credit invoices to Bio-Ma for the sale of

the rapeseed and tried to recover the VAT stated on the

credit invoices in its periodic VAT return. However, the

Hungarian law on VAT does not contain any provision

which allows the subsequent reduction of the taxable

amount solely by reason of total or partial non-payment

for the goods at issue. Therefore, the tax authorities

refused the recovery of the VAT and imposed a penalty

client base being transferred to each of the partners. On

that same date, Mr Malburg founded a new partnership

in which he held a 95% share, and he made his portion

of the client base available free of charge to the new

partnership for use in its business.

The tax authorities assessed the former partnership as

liable for payment of VAT for 1994, based on the transfer

of the client base and the tax due was paid. M&P issued

an invoice and addressed it to Mr Malburg for the ‘division

of assets on 31 December 1994’. In his VAT return,

Mr Malburg deducted the VAT which had been invoiced

to him in respect of the acquisition of the client base.

The tax authorities however, refused the VAT deduction

because Mr Malburg had not used the client base in his

own business. The economic asset, which that client

base constitutes, had been used by the new partnership

(to be distinguished from Mr Malburg).

Further to the questions referred by the Bundesfinanzhof

for a preliminary ruling, the CJ ruled that Mr Malburg was

not entitled to deduct input VAT paid on the acquisition of

the client base concerned. According to the CJ, a partner

who acquires from his partnership a portion of its client

base for the sole purpose of making that client base

available directly and free of charge to a newly founded

partnership of tax advisors, in which he is the principal

partner, is not allowed to make such deduction. In this

respect, the CJ also considered that the client base

had not become part of the capital assets of the newly

founded partnership.

Spanish tax on capital transfers is not contrary to Sixth EU VAT Directive according to CJ (La Caixa) On 20 March 2014, the CJ delivered its judgment in

the case Caixa d’Estalvis i Pensions de Barcelona v

Generalidad de Cataluña (C-139/12). Caixa d’Estalvis i

Pensions de Barcelona (‘La Caixa’) decided to increase

its shareholding in a company of which the assets

essentially comprised immovable property. Since La

Caixa had acquired more than 50% of the capital in the

company, it filed a self-assessment tax return in March

1992 in respect of Spanish tax on capital transfers.

44

With regard to the situation, the Customs Agency claimed

that the application of the law on VAT warehouses is

subject to the necessary condition that the imported goods

are ‘physically’ placed in the warehouses. Therefore,

the postponement of payment of VAT on importation

was unjustified and the Customs Agency took the view

that Equoland had not paid the VAT due on importation.

Consequently, the Customs Agency sought payment

of the VAT on importation plus a penalty of 30% of the

VAT amount. Equoland opposed this view and argued

that it had regularized its situation by paying the VAT on

importation through the reverse charge mechanism to

the tax authorities instead of to the Customs Agency. In

the end, the matter ended up before the Regional Tax

Court of Tuscany, which Court referred the question to

the CJ for a preliminary ruling.

The CJ ruled that Article 16 (1) of the EU Sixth

Directive does not preclude national legislation which

makes the grant of an exemption, such as the one at

hand, conditional on the fact of whether the goods are

physically placed in a tax warehouse. Furthermore, the

CJ concluded that the penalty procedure may prove to

be disproportionate, given the impossibility of adapting it

to the specific circumstances of each case, which is for

the referring court to decide. Finally, according to the CJ,

national legislation may not require the payment of VAT

on importation even though that VAT has already been

settled under the reverse charge mechanism through

self-invoicing.

Place of supply is where goods have become compliant with contractual obligations according to CJ (Fonderie)On 2 October 2014, the CJ delivered its judgment in

the case Sociéte Fonderie 2A (‘Fonderie’) v Ministre

de l’Economie et des Finances (C-446/13). In 2001,

Fonderie, an Italian company, sold metal components to

its customer (Atral) in France. Before supplying them to

Atral, the goods were varnished in France by Saunier-

Plumaz, for the account of Fonderie. For this activity,

Saunier-Plumaz invoiced an amount including French

VAT to Fonderie, for which VAT Fonderie wished to obtain

a refund.

of 10%. It pointed out that there had been a supply of

goods, despite the failure to pay the consideration by

Bio-Ma. Almos stated that what took place was not an

independent transaction but a transaction closely and

intrinsically connected with the original contract of sale.

Under these circumstances, the Supreme Court decided

to stay the proceedings and to refer the questions to the

CJ for a preliminary ruling.

First, the CJ ruled that the provisions of Article 90 of the

EU VAT Directive do not preclude a national provision,

based on Article 90 (2), which does not provide for the

reduction of the taxable amount for VAT in the case of non-

payment of the purchase price. However, that provision

must then mention all the other situations in which part

or all of the consideration has not been received by the

taxable person. Second, the CJ concluded that taxable

persons may rely on Article 90 (1) of the EU VAT Directive

before national courts to obtain a reduction of their

taxable amount. Member States may provide that the

exercise of the right to a reduction of that taxable amount

is conditional on compliance with certain formalities, but

the measures cannot exceed what is necessary for the

proof that part or all of the consideration was definitely

not received.

CJ rules that Member State is not allowed to require payment of import VAT when reporting of that VAT has already taken place under the reverse charge mechanism (Equoland)On 17 July 2014, the CJ delivered its judgment in the case

Equoland Soc. coop. (‘Equoland’) v Ufficio delle Dogane

di Livorno (C-272/13). Equoland, an Italian company,

imported in June 2006 a consignment of goods from a

third country. On the customs declaration, it was stated

that those goods were destined for the tax warehouse for

the purposes of VAT. Consequently, no payment of VAT

on importation was requested on the date of transaction.

On the day after the import, the goods were listed in a

warehouse register. As it was discovered that the goods

had never been physically stored in the warehouse,

the goods were immediately withdrawn from the tax

warehouse arrangements. Accordingly, VAT was paid by

Equoland under the reverse charge mechanism.

45

later VAT inspection, the Bulgarian tax authorities again

consulted the VIES database and found that the Greek

company had been de-registered for VAT purposes since

15 January 2006. On 17 May 2011, the tax authorities

therefore issued an adjustment notice with regard to

Traum, rendering the sale transactions to the Greek

company subject to VAT on that ground that that company

was not registered for VAT purposes in another Member

State, therefore, that the condition for exemption from

VAT that the purchaser must be a taxable person, had

not been satisfied.

After Traum lodged an administrative appeal against

the adjustment notice, the tax authorities confirmed the

adjustment notice because there was no evidence of the

transport of the goods outside Bulgaria and no written

confirmation of receipt of the goods by the purchaser.

Traum, however, submitted that it had provided the tax

authorities with all the documents required. Furthermore,

it argued that it had carried out the transactions in good

faith, having verified the VAT identification number of

the Greek Company before concluding the transactions

at issue. With regard to the question whether the

evidentiary requirements applied under Bulgarian law

are in conformity with EU law, the Administrative Court

referred to the CJ for a preliminary ruling.

The CJ ruled that the evidence establishing entitlement

to the exemption submitted by the supplier in support of

its declaration was consistent with the list of documents

to be submitted to those authorities under national law

and had been accepted by them, initially, as supporting

evidence, which was a matter for the referring court to

verify. In that case, the tax authorities of a Member State

are precluded from refusing to grant a VAT exemption in

respect of an intra-Community supply of goods on the

ground that the purchaser was not registered for VAT

purposes in another Member State and the supplier

had not proven additional requirements. Furthermore,

Article 138 (1) of the VAT Directive must, according to

the CJ, be interpreted as having direct effect, such that

it may be relied upon by taxable persons before national

courts against the Member State in order to obtain a VAT

exemption in respect of an intra-Community supply of

goods.

Fonderie took the view that the supply of the goods to

Atral was an Intra-Community supply of goods and that

the supply had taken place in Italy, where the transport of

the metal components started. Consequently, Fonderie

took the view that it had not made any transactions for

which it required a VAT registration in France and that it

was, therefore, entitled to reclaim the French VAT on the

invoice issued by Saunier-Plumaz based on the refund

procedure of the Eighth EU VAT Directive. The French

tax authorities, however, opposed this view and stated

that the supply of goods was a local supply in France, as

the varnished metal components were dispatched from

Saunier-Plumaz to Atral. In that case, Fonderie could

only deduct French input VAT by registering and filing

VAT returns in France.

The CJ ruled that when a supplier of goods, in the situation

of the applicant in the main proceedings, dispatches the

goods to a service provider to have finishing work carried

out on those goods, such a dispatch is concerned solely

with rendering the goods in question compliant with the

supplier his contractual obligations such that a supply

to its customer may subsequently take place. In those

circumstances, the place of the supply to the customer,

according to the CJ, is deemed to be the place where

the goods have become compliant with the contractual

obligations between the two parties, which is France.

CJ rules that Member State is not allowed to establish additional requirements for VAT exemption for intra-Community supplies (Traum) On 9 October 2014, the CJ delivered its judgment in the

case Traum EOOD v Direktor na Direktsia “Obzhalvane

i danachno-osiguritelna praktika” etc. (C-492/13). Traum

is a Bulgarian taxable person which was engaged in the

general construction of buildings and works of art. In

its VAT return of the period 1 September to 31 October

2009, Traum declared that it had made intra-Community

supplies exempt from VAT to a Greek company. After a

search in the VAT Information Exchange System (‘the

VIES database’), the Bulgarian tax authorities confirmed

on 2 November 2009 that the Greek company was

registered for VAT purposes and had held a valid VAT

identification number since 15 November 2005. In a

46

supplied to it by the Polish company, and to use them

for running the electronic auction system in question and

issuing and selling bids. It is for the referring court to

ascertain if such a structure is present.

Customs Duties, Excises and other Indirect TaxesCJ rules on the neutrality of the Netherlands car registration tax (X)On 19 December 2013, the CJ delivered its judgment in

case X (C-437/12). The case has regard to the neutrality

of the Netherlands car registration tax between imported

used cars and similar cars already present on the

Netherlands market.

Article 1 of the Private Motor Vehicle and Motorcycle

Tax Act 1992 (Wet op de belasting personenauto’s en

motorrijwielen 1992), in the version applicable to the

facts at the time in the main proceedings (the ‘BPM Act’),

provides:

A tax called BPM shall be charged on passenger

cars, motorcycles and vans. The tax shall become

chargeable when a passenger car, a motorcycle or a

van is registered in the register of issued registration

numbers maintained pursuant to the 1994 Road Traffic

Act (Wegenverkeerswet).

From 2006 to 2009, under Article 9 of the BPM Act, the

BPM was calculated as a percentage of the ‘net list

price’ of the vehicle concerned, subject to increases and

decreases as provided for in that provision.

Article 9(3) and (6) of the BPM Act provides as follows

with respect to the net list price:

The net list price shall mean the list price less the turnover

tax (VAT) included therein.

For a used passenger car, the applicable list price is that

which applied at the time that the passenger car was first

put into service.

CJ rules that fixed establishment requires structure with a sufficient degree of permanence (Welmory) On 16 October 2014, the CJ delivered its judgment in

the case Welmory sp. z.o.o. v Dyrektor Izby Skarbowej

w Gdańsku (C-605/12). Welmory Ltd., a Cypriot

company concluded a cooperation agreement with a

Polish company, Welmory sp. z.o.o., under which it

agreed to provide the Polish company with the service

of making available an Internet auction, including the

supply of associated services relating to the leasing

of the necessary servers. The Polish company on its

own account offered and sold products on the website

to customers, which could take part in the auction after

they had purchased a number of ‘bids’ from the Cypriot

company. The Polish company was entitled to a part of

the proceeds of sale of the ‘bids’ and the selling price

obtained in the auctions. Moreover, the Polish company

issued four invoices for services supplied to the Cypriot

company.

With regard to these four invoices, the Polish company

took the view that the services had been supplied at

the place of establishment of the Cypriot company and

accordingly, should be subject to Cypriot VAT. However,

the Polish tax authorities considered that the services

had been supplied to a fixed establishment of the Cypriot

company in Poland and consequently, should be taxed

in Poland. Finally, the matter ended up before the

Supreme Administrative Court, which decided to stay

the proceedings and to refer questions to the CJ for a

preliminary ruling.

With its question, the referring Polish Court is, in the view

of the CJ, essentially asking in what circumstances a first

taxable person who has established his business in one

Member State and receives services supplied by a second

taxable person established in another member State,

must be regarded as having a ‘fixed establishment’ in that

other Member State, for the purpose of determining the

place of supply of services. According to the CJ, in order

to be considered as having such fixed establishment,

the Cypriot company must at the very least have a

structure in Poland characterized by a sufficient degree

of permanence, suitable in terms of human and technical

resources to enable it to receive in Poland the services

47

The dispute in the main proceedings and the questions

referred for a preliminary ruling

On 11 January 2010, with a view to registering a

passenger car in the Netherlands, X submitted a tax

return for the BPM in the amount of EUR 5,766 and paid

that amount. The vehicle had been put into circulation for

the first time in Germany on 30 May 2006 and at the time,

bore a German registration plate.

X lodged objection against the amount of the BPM owing

and paid. When the objections were dismissed, X lodged

an appeal before the Rechtbank Breda. That court upheld

the appeal in part and granted a refund of EUR 1,233 of

the BPM.

X appealed against the judgment of the Rechtbank Breda

before the Gerechtshof ’sHertogenbosch. X submitted

that, for the calculation of the amount of the BPM owing,

the starting point should be the amount of tax still levied

on similar used vehicles registered during the period

from 1 February 2008 to 31 December 2009, the basis

of assessment of which did not include the share relating

to CO2 emissions. X requested a refund of EUR 2,809 of

the BPM paid.

X submitted that the BPM is incompatible with EU law.

The amount of the BPM is higher than the amount still

levied on similar used vehicles put into service for the first

time before 1 February 2008 and which, unlike the vehicle

at issue in this case, were imported and registered during

the period from 1 February 2008 to 31 December 2009.

Used vehicles imported after that period are thus taxed

more heavily than comparable vehicles registered during

that period.

The tax authorities took the view that, for the calculation

of the amount of the BPM owing, the starting point should

be the amount of tax still levied on similar vehicles which,

like the vehicle in the present case, were first put into

service in 2006 and were registered as new vehicles in

the Netherlands in that year.

The referring court had some doubts as to the compatibility

of the BPM with Article 110 TFEU. It was uncertain as

to whether the charging of the BPM upon registration

of the vehicle at issue in the main proceedings in the

The basis of assessment of the BPM was amended with

effect from 1 February 2008. It is no longer calculated

solely on the basis of the net list price, but also includes

an amount based on the carbon dioxide (CO2) emission

rate, measured in accordance with Council Directive

80/1268/EEC of 16 December 1980 on the approximation

of the laws of the Member States relating to the fuel

consumption of motor vehicles. Accordingly, in the basis

of assessment of the BPM, the share relating to the net

list price decreased gradually, whilst the share relating to

the CO2 emission rate increased.

In the years 2006 to 2009, the percentages of the net list

price taken into account in the basis of assessment of the

BPM were as follows:

• from 2006 to 31 January 2008: 45.2%;

• as from 1 February 2008: 42.3%, and

• in 2009: 40%.

During the period from 1 February 2008 to 31 December

2009, under the transitional provisions, used vehicles

imported and registered during that period which were

first put into service before 1 February 2008 were not

subject to the BPM calculated on the basis of CO2

emissions.

As from 1 January 2010, the BPM, calculated on the

basis of both the net list price and the CO2 emission rate,

applies to the registration of all vehicles, including those

which were first put into service before 1 February 2008.

Article 10 of the BPM Act provides as follows with respect

to the amount of the BPM for used vehicles:

‘1. The amount of tax applicable to [the vehicle] shall

be calculated taking into account a reduction.

2. The reduction referred to in the first paragraph is

the depreciation, expressed as a percentage of the

purchase value in the Netherlands at the time that

the vehicle was first put into service.’

The BPM Act allows the taxpayer to opt for a reduced

BPM, provided that the amount of the BPM which ought

to have been applied when the vehicle was first put

into service in the Netherlands as a new vehicle, under

the legal provisions relating to the taxable amount and

rate as in force at that date, is lower than the amount

calculated for 2010.

48

vehicles after 30 May 2006 (after 30 May 2006

and up to 2009)?

(2) In the appraisal of the question as to whether

Article 110 TFEU precludes the levying of BPM in

respect of the registration of the [vehicle in question]

in 2010 in so far as that levy is based on the CO2

emission, should that part of the levy be deemed

to be a new tax, to be distinguished from the BPM

up to 1 February 2008, which was based solely on

the [net] list price, with the result that, to the extent

to which the levy is based on the CO2 emission, a

comparison with (similar) used vehicles which were

registered before 1 January 2010 is not relevant?

3. If there is no question of a new tax as contemplated

in Question 2: is the levying of BPM in respect of

the registration of the vehicle in question in 2010,

in so far as that levy is based on the CO2 emission,

precluded by the fact that, pursuant to Article 110

TFEU, the levy based on the CO2 emission was not

imposed in respect of vehicles comparable to the

vehicle in question which were first put into service

before 1 February 2008 and which, in the period

from 1 February 2008 to 31 December 2009, were

imported and registered as used vehicles, whereas

that levy based on the CO2 emission was imposed

in respect of the registration, in the aforementioned

period, of used vehicles which were first put into

service after 1 February 2008 but were otherwise

comparable to the vehicle in question?’

Consideration of the questions referred

In order to answer the questions, the CJ considered

with regard to the similarity to domestic products that

when those products are placed for sale on the used

vehicle market of that Member State, they must be

considered ‘similar products’ to imported used vehicles

if their characteristics and the needs which they serve

place them in a competitive relationship. The degree of

competition between two models depends on the extent

to which they meet the same requirements of price,

size, comfort, performance, fuel consumption, durability,

reliability and so forth. The reference vehicle must be

the one whose characteristics are closest to those of

the imported vehicle, which implies that account must

be taken of the model, type and other characteristics

vehicle registry should be disallowed on the ground that

it is based on CO2 emissions. It was also uncertain as to

whether the amount of the BPM claimed at the time of

registration of that vehicle in 2010 should be compared

with the residual amount of the BPM, still included in 2010

in the value of similar vehicles which were imported and

registered in the Netherlands in 2006 as new vehicles, or

also with the residual amount of the BPM incorporated in

2010 into the value of vehicles which, like the vehicle in

the present case, were first put into service in 2006 and

subsequently imported and registered as used vehicles

during the period from 1 February 2008 to 31 December

2009.

In those circumstances, the Gerechtshof ’sHertogenbosch

decided to stay the proceedings and to refer the following

questions to the Court for a preliminary ruling:

‘(1) In the appraisal of the question - to be answered

in the context of Article 110 TFEU - as to whether

the amount of the levy in 2010 in respect of the

registration of the passenger car vehicle in question

is (not) higher than the residual amount of the levy

which is incorporated into the value of similar used

passenger cars already registered within national

territory, should the following be considered to be

similar for purposes of determining that residual

amount:

- a comparable vehicle which, in the year in which

the vehicle in question was first put into service

(2006), was registered as an unused passenger

car, or

- also the (other) vehicles which were available

on the market for used vehicles in 2010, and

which, like the vehicle in question, were first put

into service on 30 May 2006 and are otherwise

comparable, but which were (imported and)

registered as used vehicles after 30 May 2006

(after 30 May 2006 and up to 2009), and/or

- also the (other) vehicles which were available

on the market for used [vehicles] in 2010, and

which, unlike the vehicle in question, were

first put into service after 30 May 2006, but

are otherwise comparable, and which were

(imported and) registered as unused or used

49

If the latter amount exceeds the lowest residual amount

still incorporated into the value of similar used vehicles

already registered on national territory, then it has not

been established that the BPM Act is so structured as to

exclude any possibility of imported products being taxed

more heavily than domestic products, so that it cannot in

any event have discriminatory effect.

Such discriminatory effect can be avoided only if it is

possible to opt for the lowest registration tax amount

still incorporated into the value of similar used vehicles

already registered on national territory.

It is for the national court to ascertain whether or not the

amount of the BPM levied on a used vehicle, such as

the one at issue in the main proceedings, exceeds the

lowest residual amount of the BPM still incorporated into

the value of similar used vehicles already registered on

national territory.

It follows that Article 110 TFEU precludes a tax such as

the one provided for by the BPM Act, if and insofar as the

amount of that tax levied on used imported vehicles upon

their registration in the Netherlands exceeds the lowest

residual amount of BPM incorporated into the value of

similar used vehicles already registered in that same

Member State.

Having regard to all the foregoing considerations, the CJ

ruled as follows:

For the purpose of applying Article 110 TFEU, the similar

domestic products which are comparable to a used

vehicle such as the one at issue in the main proceedings,

which was first put into service before 1 February 2008

and was imported and registered in the Netherlands

in 2010, are the vehicles already present on the

Netherlands market whose characteristics are closest to

those of the vehicle in question. Article 110 TFEU must be

interpreted as precluding a tax, such as the passenger-

car and motorcycle tax (belasting personenauto’s en

motorrijwielen) as in force in 2010, if and insofar as the

amount of that tax levied on used imported vehicles upon

their registration in the Netherlands exceeds the lowest

residual amount of BPM incorporated into the value of

similar used vehicles already registered in that same

Member State.

such as drive and equipment, age and mileage, general

condition and brand.

The list of criteria in the previous paragraph is not

exhaustive and nor are those criteria imperative. The

reference vehicle may of course vary, depending on

the individual characteristics of the imported vehicle.

Two vehicles first put into service on the same date

are not necessarily similar, as their wear and tear may

differ, for example. It is for the national court, taking into

consideration characteristics such as those referred to

in the previous paragraph, to determine which domestic

products are the ones whose characteristics are closest

to those of the imported vehicle in question.

With regard to the question whether the BPM is

compatible with Article 10 TFEU, the CJ considered

that, as observed by the Netherlands Government and

the European Commission, it appears that, despite the

change made to the method of calculating the BPM, the

event triggering the BPM, namely the first registration of a

vehicle on Netherlands territory, remains the same, both

before and after the change in question. In the present

case, it is therefore the same tax as previously.

Even if it were a new tax, the total prohibition laid down

in Article 110 TFEU applies whenever a fiscal charge is

liable to discourage imports of goods originating in other

Member States in favour of similar domestic goods, as

noted in paragraph 34 of this judgment.

In the main proceedings, it is apparent from the file

submitted to the Court that, due to an exemption relating

to the share of the BPM linked to the CO2 emission rate,

used vehicles which were first put into service before

1 February 2008 but which were imported and registered

in the Netherlands between 1 February 2008 and

31 December 2009 were subject to a lower BPM than

similar used vehicles which were imported and registered

from 1 January 2010 onwards.

In that scenario, there are, on the Netherlands market,

similar used vehicles which are comparable to the one at

issue in the main proceedings, the residual BPM of which

still incorporated into their value is lower than the amount

of the BPM levied on the vehicle in question.

50

carried out, at the end of 2007 and the beginning of

2008, by SICES, Agrima KG D. Gritsch Herbert & Gritsch

Michael & Co., Agricola Lusia srl, Romagnoli Fratelli SpA,

Agrimediterranea srl, Parini Francesco, Novafruit srl and

Evergreen Fruit Promotion srl. Those importers, which

had the status of new importers within the meaning of

Article 4(3) of Regulation No 341/2007, were holders of

‘A’ licences issued in accordance with that regulation. In

that respect, the imports concerned benefited from the

exemption from the specific duty of EUR 1,200 per tonne

net.

Following ex post facto checks of customs declarations

relating to the above-mentioned imports of garlic, the

Agenzia Dogane issued, at the end of 2010, correction

and recovery notices. Those notices were based on

the revocation of the exemption from the specific

duty of EUR 1,200 per tonne net, under Article 4 of

Regulation No 2988/95, on the ground that those imports

circumvented that specific duty.

In particular, the Agenzia Dogane called into question the

following mechanism, which it considers to have been

fraudulent:

• first, Duoccio srl or Tico srl (‘Tico’) purchased the

garlic from a Chinese supplier;

• second, before the import into the European Union,

Duoccio and Tico sold the goods to the importers at

issue in the main proceedings, holders of ‘A’ licences,

which then carried out the import; and

• third, after the import, those importers resold those

goods to Duoccio.

Duoccio was active both on the market for imports of garlic,

as traditional importer, within the meaning of Article 4(2)

of Regulation No 341/2007, and on the market for the

distribution of garlic in the European Union, as wholesaler.

At the time of the facts of the main proceedings, Duoccio

had to meet the demand of European Union consumers,

but had exhausted its own ‘A’ licences and therefore, was

no longer capable of importing garlic at the preferential

rate of duty. Furthermore, as the specific duty was fixed

at a level, the import of garlic outside the tariff quota was

not profitable.

According to the Agenzia Dogane, the two successive

sales of garlic, by Duoccio and Tico to the importers at

EFTA surveillance authority brings Norway to the EFTA Court regarding legislation on registration tax (EFTA Surveillance Authority v Kingdom of Norway)On 14 January 2014, the EFTA surveillance authority

brought an action before the EFTA Court against Norway

regarding its legislation which provides that foreign-

registered leased cars which are temporarily imported

by Norwegian residents are, in principle, subject to the

full registration tax from the moment they are used in

Norway. The case is now pending as case E-7/14 (EFTA

Surveillance Authority v Kingdom of Norway).

The EFTA Surveillance Authority is of the view that this

Norwegian legislation is contrary to the principle of free

movement of services. It maintains that Norway has so

far failed to adopt the necessary legislative measures to

ensure compliance with Article 36 EEA. In that regard, it

has requested before the EFTA Court to:

‘Declare that by maintaining in force national rules which

provide that a full amount of registration tax is due for

foreign-registered leased motor vehicles temporarily

imported by Norwegian residents to Norway, without the

person having any right to an exemption or refund where

the vehicle is neither intended to be used essentially

in Norway on a permanent basis or in fact used in that

manner, Norway has failed to fulfil its obligations arising

from Article 36 of the EEA Agreement.’

CJ rules on whether the use of import licenses for garlic results in abuse of rights (Società Italiana Commercio e Servizi)On 13 March 2014, the CJ delivered its judgment in

case Società Italiana Commercio e Servizi srl (SICES)

and Others v Agenzia Dogane Ufficio delle Dogane di

Venezia (C-155/13). The case has regard to the use of

non-transferable rights for import certificates that are

used upon import of garlic in the EU.

The dispute in the main proceedings and the question

referred for a preliminary ruling

The dispute in the main proceedings concerned imports

of garlic of Chinese origin into the European Union

51

2013. It stated that, by the question referred, the Court

is asked whether it suffices, for the use of import

licences at a preferential rate of duty to be lawful, that

the holder of those licences release the garlic in question

for free circulation, without regard to all the commercial

transactions preceding and following that release for free

circulation.

Given that Article 6(4) of Regulation No 341/2007

provides only for a prohibition of the transfer of rights

arising under ‘A’ licences, it appears that that provision

does not regulate the situation in which the holder of the

reduced rate import licences purchases goods before

they are imported from a given operator, then sells them

to that operator after having imported them into the

European Union.

Moreover, it is apparent from the order for reference

that, taken individually, the purchase, import and resale

transactions at issue in the main proceedings were

legally valid. In particular, with regard to the imports, all

the formal conditions for the grant of the preferential rate

of duty were satisfied, since the importers at issue in the

main proceedings carried out customs clearance of the

goods at issue by means of ‘A’ licences obtained lawfully.

Nevertheless, it is apparent from the observations

submitted to the Court that, by those transactions, the

objective pursued by the purchaser in the European

Union, who was also a traditional importer, within the

meaning of Article 4(2) of Regulation No 341/2007, was

to enable it to be supplied with imported garlic in the

context of the tariff quota provided for by that regulation.

According to the referring court, that fact could be

accepted in order to establish the existence of an abuse

of rights.

Therefore, the question referred must be regarded

as concerning whether Article 6(4) of Regulation

No 341/2007, although it does not as such regulate

transactions by which an importer, holding reduced

rate import licences, purchases goods before they are

imported into the European Union from an operator, itself

a traditional importer within the meaning of Article 4(2)

of that regulation, but having exhausted its own reduced

rate import licences, then resells them to that operator

after having imported them into the European Union,

issue in the main proceedings, then by those parties to

Duoccio, were designed to circumvent the prohibition of

the transfer of rights arising under ‘A’ licences, referred

to in Article 6(4) of Regulation No 341/2007. The

circumvention has the consequence that Duoccio agreed

to purchase the garlic in free circulation even before the

imports had taken place. That company should, therefore,

be regarded as the actual importer which benefited from

the preferential rate of duty without being entitled to do

so.

The applicants in the main proceedings brought actions

against the correction and recovery notices before the

Commissione tributaria provinciale di Venezia. After

having joined the actions, the latter dismissed them. It

stated that, although the various sales operations were

valid, the actual importer was Duoccio and not the

importers at issue in the main proceedings who hold

‘A’ licences. In its opinion, there is serious, precise and

consistent evidence making possible a finding that the

legal instruments were fictitious, having been used only

in order to allow the import of garlic at a preferential rate

of duty and the circumvention of the prohibition of the

transfer of rights arising under ‘A’ licences. According to

the Commissione tributaria provinciale di Venezia, the

facts of the case constituted an abuse of rights.

The Commissione tributaria regionale di Venezia-Mestre,

before which the applicants in the main proceedings

brought an appeal against the judgment of the

Commissione tributaria provincial di Venezia, decided to

stay the proceedings and to refer the following question

to the Court of Justice for a preliminary ruling:

‘On a proper construction of Article 6 of Regulation (EC)

No 341/2007, is there an unlawful transfer of licences for

the importation at a preferential rate of duty of garlic of

Chinese origin under the GATT quota, where the holder

of those licences, following payment of the duty due,

places the garlic in question on the market by means of a

transfer to another trader who holds import licences and

from whom it had - prior to the importation - acquired the

garlic concerned?’

CJ’s considerations

By decision of 28 May 2013, the referring court decided

to supplement the order for reference of 12 February

52

Article 68 of the Customs Code. Due to doubts as to

whether the declared value represented the price actually

paid or to be paid, the customs authorities took samples

of the goods and requested additional information from

Global Trans Lodzhistik, pursuant to Articles 178(4) and

181a(2) of Regulation No 2454/93. On 15 September

(Case C30/13) and 23 September (Case C29/13) 2010,

Global Trans Lodzhistik replied that it was not in a position

to provide the information requested and stated that the

international contract of sale made provision for deferred

payment of the goods.

By Decision No 9600-0561/01.10.2010 (Case C29/13)

and Decision No 9600541/24.09.2010 (Case C30/13),

the Nachalnik na Minitsa Stolichna set a new customs

value for part of the goods, which was determined

pursuant to Article 30(2)(b) of the Customs Code. On

the basis of that reassessment of the customs value, the

decisions ordered tax adjustments of 3,083.38 Bulgarian

leva (BGN) and BGN 2,192.13 respectively in relation to

the additional VAT due (‘the decisions at issue’).

The decisions at issue expressly stated that, in

accordance with Article 221 of the Customs Code,

Global Trans Lodzhistik was notified of the amount of the

customs debts.

Global Trans Lodzhistik challenged the decisions at issue

directly before the referring court, the Administrativen sad

Sofia-grad (Administrative Court, Sofia), without making

use of the possibility of a prior administrative review

before the Nachalnik na Minitsa Stolichna. Global Trans

Lodzhistik claimed that the customs value had not been

determined correctly and that on account of procedural

defects, right to be heard and to raise objections before

the final decision was adopted, as provided for under

Article 181a(2) of Regulation No 2454/93, had not been

observed.

The referring court rejected both applications as

inadmissible.

In each of the inadmissibility orders, the referring court

found that prior administrative review was mandatory,

given that Article 243 of the Customs Code makes

provision for an appeal procedure in two stages. It

must nevertheless be interpreted as precluding such

transactions on the ground that they constitute an abuse

of rights.

According to settled case law, EU law cannot be relied on

for abusive or fraudulent ends.

Ruling

On basis of its considerations the CJ ruled that Article 6(4)

of Regulation No 341/2007 must be interpreted as not

precluding, in principle, transactions by which an importer,

holding reduced rate import licences, purchases goods

outside the European Union from an operator, itself a

traditional importer within the meaning of Article 4(2) of

that regulation, but having exhausted its own reduced

rate import licences, then resells them to that operator

after having imported them into the European Union.

However, such transactions constitute an abuse of rights

where they are artificially created with the essential aim of

benefiting from the preferential rate of duty. The checking

for abuse requires the referring court to take into account

all the facts and circumstances of the case, including

the commercial transactions preceding and following the

import at issue.

CJ rules on application of the principle of respect for the right of defence (Global Trans Lodzhistik)On 13 March 2014, the CJ delivered its judgment in

joint cases Global Trans Lodzhistik OOD v Nachalnik

na Mitnitsa Stolichna (C-29/13 and C-30/13). The cases

concern the question whether the principle of respect for

the rights to defence have been respected in the situation

that the customs value of imported goods have been

amended.

The disputes in the main proceedings and the questions

referred for a preliminary ruling

On 15 September (Case C30/13) and 23 September

(Case C29/13) 2010, Global Trans Lodzhistik filed two

customs declarations for goods imported from Turkey

under the customs procedure of release for consumption

with release for free circulation.

The Bulgarian customs authorities checked the

documents and examined the goods in accordance with

53

of Regulation No 2454/93, so that they constitute acts

which may be challenged under European Union law, or

whether those decisions are acts governed by national

law, which must be classified as ‘measures’ for the

purposes of Article 232(1)(a) of the Customs Code.

In those circumstances, the Administrativen sad Sofia-

grad decided to stay the proceedings and to refer the

following questions to the Court for a preliminary ruling:

‘1. Does Article 243(1) of the Customs Code, read in

conjunction with Article 245 of that code, and having

regard to the principles of respect for the rights of

defence and res judicata, permit a national provision

such as Article 220 and Article 211a of the ZM under

which more than one decision of a customs authority

which fixes an additional customs debt with a view

to its subsequent recovery may be challenged,

even where, under the circumstances of the main

proceedings, a final decision within the meaning of

Article 181a(2) of Regulation No 2454/93 could be

adopted in order to fix that customs debt?

2. Is Article 243(2) of the Customs Code on the right

of appeal to be interpreted as meaning that it does

not provide that a final decision within the meaning

of Article 181a(2) of Regulation No 2454/93 must first

be the subject of an administrative appeal in order for

judicial proceedings to be permitted?

3. Is Article 181a(2) of Regulation No 2454/93 to be

interpreted, under the circumstances of the main

proceedings, as meaning that, if the procedure laid

down in that provision in relation to the right to be heard

and the right to raise objections was not observed,

the decision of the customs authority adopted in

contravention of those rules does not constitute a

final decision within the meaning of that provision, but

is merely part of the procedure for the adoption of the

final decision? In the alternative, is that provision to

be interpreted, under the circumstances of the main

proceedings, as meaning that the decision adopted in

breach of the abovementioned procedural provisions

is directly subject to judicial proceedings before a

court which must give judgment on the merits of the

action?

4. Is Article 181a(2) of Regulation No 2454/93 to be

interpreted, under the circumstances of the main

proceedings and having regard to the principle of

therefore ordered that both cases be referred to the

Nachalnik na Minitsa Stolichna.

The Varhoven administrativen sad (Supreme

Administrative Court) set aside the two orders of the

referring court and referred the two cases back to it on the

ground that an administrative appeal was not mandatory

in this case as Article 243(2) of the Customs Code was

not applicable.

The referring court, relying on national case law which

shows that the decisions at issue cannot be regarded

as definitive acts, but form part of the procedure for

adopting the decision to enforce recovery of public debts

of the State, again dismissed as inadmissible the actions

brought against those decisions and classified them as

preparatory acts, regarding them as ‘communications’ for

the purposes of Article 221 of the Customs Code.

The Varhoven administrativen sad set aside the

inadmissibility orders of the referring court on the ground

that, in that they set a new customs value, the decisions

at issue constitute decisions for the purposes of Article

4(5) of the Customs Code and may be challenged before

a court under Article 243(1) of that Code. The Varhoven

administrativen sad also stated that the case law cited

by the referring court applies only in a situation where

the act in question constitutes a communication, for the

purposes of Article 206 of the ZM, which forms part of the

procedure for adopting the decision to enforce recovery

of public debts of the State.

The referring court, to which both cases were once

again referred by the Varhoven administrativen sad,

was uncertain as to the scope of Articles 243 and 245

of the Customs Code. It considered that the admissibility

of those actions and the mandatory nature of the prior

administrative appeal were not clear from the wording

of Article 243 of the Customs Code. The definition of an

act which may be challenged in a procedure to establish

and recover a customs debt depends on the extent of

the procedural autonomy left to the Member States under

Article 245 of that Code.

In that respect, the referring court considered that it

should be clarified whether the decisions at issue must

be regarded as final for the purposes of Article 181a(2)

54

administrative remedies available to challenge those

decisions have been exhausted beforehand.

3. Article 181a(2) of Regulation No 2454/93, as

amended by Regulation No 3254/94, must be

interpreted as meaning that a decision adopted

under that article must be regarded as final and

capable of being challenged by way of a direct action

before an independent judicial authority, even where

it was adopted in breach of the right of the person

concerned to be heard and to raise objections.

4. In the event of a breach of the right of the person

concerned to be heard and to raise objections under

Article 181a(2) of Regulation No 2454/93, as amended

by Regulation No 3254/94, it is for the national

court to determine, having regard to the particular

circumstances of the case before it and in the light

of the principles of equivalence and effectiveness,

whether, where the decision which was adopted in

breach of the principle of respect for the rights of the

defence must be annulled on that ground, it must give

a ruling in the action brought against that decision or

whether it can consider referring the matter back to

the competent administrative authority.

CJ rules on application of the results of examination of goods to identical goods covered by earlier customs declarations after release of goods (Greencarrier Freight Services)On 27 February 2014, the CJ delivered its judgment in

case Greencarrier Freight Services Latvia SIA v Valsts

ieņēmumu dienests (C-571/12). The case has regard to

the application of the results of an examination of goods

to identical goods for which customs declarations had

been filed in an earlier stage and that have regard to

goods that already had been released.

Greencarrier Freight Services Latvia SIA (GFSL) imports,

on behalf of Hantas SIA, biscuits and chocolate bars from

Russia for release for free circulation in the European

Union.

In April and May 2007, the VID carried out an examination

of the customs duties paid by Hantas SIA between 1 May

2004 and 31 December 2006 on the basis of 35 customs

legality, as meaning that, if the procedure laid down in

that provision in relation to the right to be heard and the

right to raise objections was not observed, the decision

of the customs authority adopted in contravention of

those rules is null and void on account of a material

procedural defect which is comparable to an

infringement of an essential procedural requirement,

non-compliance with which results in the nullity of the

act irrespective of the actual consequences of the

infringement, with the result that the court is required

to rule on an action brought against that act, without

being able to consider referring the matter back to the

administrative authority for it to make a final decision

on the basis of the applicable rules?’

By order of the President of the Court of 8 March 2013,

Cases C29/13 and C30/13 were joined for the purposes

of the written procedure and the judgment.

CJ’s ruling

The CJ ruled as follows:

1. First, a decision, such as one of those at issue in the

main proceedings, rectifying, on the basis of Article

30(2)(b) of Council Regulation (EEC) No 2913/92

of 12 October 1992 establishing the Community

Customs Code, as amended by Regulation (EC) No

82/97 of the European Parliament and of the Council

of 19 December 1996, the customs value of goods

with the consequence that the declarant is served

with a tax adjustment in respect of value added tax,

constitutes a challengeable act for the purposes of

Article 243 of Regulation No 2913/92. Secondly,

having regard to the general principles of respect

for the rights of the defence and res judicata, Article

245 of Regulation No 2913/92 does not preclude

national legislation, such as that at issue in the main

proceedings, which makes provision for two separate

appeal procedures for challenging decisions of the

customs authorities, where that legislation does not

run counter to either the principle of equivalence or

the principle of effectiveness.

2. Article 243 of Regulation No 2913/92 does not provide

that the admissibility of judicial proceedings against

decisions adopted on the basis of Article 181a(2) of

Regulation No 2454/93, as amended by Regulation

No 3254/94, is subject to the condition that the

55

Since the VID was not entitled to find that incorrect codes

had been applied to the goods in question, GFSL was

under no obligation to adduce evidence concerning the

objective characteristics of those goods, especially since

it was no longer in a position to have examinations of

those goods carried out.

Both the VID and GFSL brought appeals on points of

law against that judgment before the Augstākās tiesas

Senāts (Senate of the Supreme Court).

In support of its appeal, the VID claimed that the goods

relating to the earlier customs declarations were identical

to those covered by the customs declarations at issue,

having the same composition, name, appearance and

manufacturer, which was borne out by the information in

the certificates provided by the manufacturer. The VID

was therefore entitled, in its view, in accordance with

the principle of procedural economy, not to examine the

remainder of the goods and to apply the results of the

identification to the other identical goods, GFSL being

under an obligation, for its part, to provide evidence of

the difference between the goods.

The referring court observed, however, that the earlier

customs declarations had been made more than one

year prior to the customs declarations at issue. According

to GFSL, it was not objectively possible either to subject

the goods which had been covered by the earlier customs

declarations to an examination subsequent to customs

clearance, or to exercise the right to request a further

examination.

In those circumstances, the Augstākās tiesas Senāts

decided to stay the proceedings and to refer the following

questions to the Court for a preliminary ruling:

‘1. May the first subparagraph of Article 70(1) of the

Customs Code be interpreted as meaning that it is

possible to apply the results of the examination of part

of the goods in a customs declaration also to goods

included in earlier declarations which were not the

subject of the partial examination, but which had been

declared with the same Combined Nomenclature

code, came from the same manufacturer and which,

according to information concerning the name and

composition of the goods on that manufacturer’s

declarations completed by GFSL, which would have to be

regarded as the debtor if a customs debt were incurred.

That examination was carried out following the sampling

and analysis, by the VID, of samples concerning

six customs declarations made during October and

November 2005 (‘the customs declarations at issue’).

Relying on the results of that examination, the VID

noted that, in 29 customs declarations made between

4 June 2004 and 29 November 2005, including the 6

customs declarations at issue, GFSL had declared the

goods imported into the European Union for release for

free circulation there under Combined Nomenclature

codes for their classification in the Integrated Tariff of the

European Communities (TARIC) instituted in Article 2 of

Council Regulation (EEC) No 2658/87 of 23 July 1987 on

the tariff and statistical nomenclature and on the Common

Customs Tariff, as amended, which were incorrect.

By decision of 31 May 2007, the VID informed GFSL that

a customs debt had been incurred, set the amounts of

import duties and value added tax (‘VAT’), together with

default interest, and imposed on it a fine for incorrect

application of the Combined Nomenclature codes.

GFSL’s objection to that decision was rejected by a

decision of the VID of 14 September 2007.

An action against that rejection decision was brought

before the administratīvā rajona tiesa (Regional

Administrative Court), which upheld it in part by

judgment of 29 June 2009, which was confirmed by the

Administratīvā apgabaltiesa (Regional Administrative

Court of Appeal). By a judgment of 8 December 2011, the

latter held that, although the import duties, the VAT and

the fine concerning the goods covered by the customs

declarations at issue had been rightly determined, by

contrast, the remainder of the decision of 14 September

2007 had to be annulled on the ground that the VID,

contrary to Article 70(1) of the Customs Code, had

wrongly applied the results of the examination of the

goods covered by the customs declarations at issue

to the goods covered by 23 other declarations made

between 4 June 2004 and 6 September 2005 (‘the earlier

customs declarations’), that is, goods imported more

than one year before the goods which were examined.

56

been granted, where those goods are identical, which it

is for the referring court to ascertain.

CJ rules on the consequences of the refusal to make own resources available to the European Union (Commission v UK) On 3 April 2014, the CJ delivered its judgment in case

European Commission v United Kingdom of Great Britain

and Northern Ireland (C- 60/13). The case has regard

to the refusal of United Kingdom of Great Britain and

Northern Ireland to make import duty (own resources) to

an amount of GBP 20,061,462.11 available to the budget

of the European Union.

Pre-litigation procedure

In July 2006, as part of an investigation into imports of

fresh garlic originating in China, the European Anti-Fraud

Office (‘OLAF’) carried out an inspection in the United

Kingdom and informed the Commission that, in 2005,

the UK customs authorities had issued four erroneous

Binding Tariff Information (‘BTIs’), in that garlic preserved

at temperatures of 3oC to 8oC had been classified as

‘frozen garlic’ (the ‘disputed BTIs’). Three of the disputed

BTIs were used for the import of fresh garlic from China.

According to OLAF, the UK customs authorities had made

obvious administrative errors by issuing the disputed

BTIs solely on the basis of the description given by the

importers and without requesting samples or documents

which might have assisted them in determining the

correct classification of the goods. The disputed BTIs

were revoked in June 2006.

On the basis of that information and in view of the fact

that imports of fresh garlic (CN heading 0703) originating

in China outside the applicable tariff quota are subject to

customs duties considerably higher than those for frozen

garlic (CN heading 0710), the Commission found that the

customs duties not collected as a result of that erroneous

classification amounted in total to GBP 20,061,462.11. By

letter of 22 March 2007, the Commission sent a request

to the United Kingdom for information on the imports of

garlic originating in China made between 24 January

2005 and 28 December 2006.

certificates, were identical to the goods in the

declaration in respect of which samples had been

taken for partial examination?

In other words:

Does the concept of “declaration” within the meaning

of the first subparagraph of Article 70(1) of the

Customs Code also include declarations [relating

to goods] in respect of which samples have not

been taken for examination, but in which identical

goods have been declared (that is, the goods are

declared under the same Combined Nomenclature

code, come from the same manufacturer and on

the manufacturer’s certificates the same name and

composition of goods are given)?

2. If the first question is answered in the affirmative, may

the results of the partial examination of the goods

under the first subparagraph of Article 70(1) of the

Customs Code be applied also to declarations in

respect of which, for objective reasons, the declarant

is unable to request a further examination under the

second subparagraph of Article 70(1) of Regulation

No 2913/92 since it is not possible to produce the

goods for examination pursuant to Article 78(2) of

that Code?’

The CJ ruled as follows:

Article 70(1) of Council Regulation (EEC) No 2913/92 of

12 October 1992 establishing the Community Customs

Code must be interpreted as meaning that, since it applies

only to goods covered by ‘a single declaration’ where

those goods are examined by the customs authorities

before those authorities grant the release of those goods,

that provision does not permit those authorities, in a

case such as that in the main proceedings, to apply the

results of the partial examination of goods covered by a

customs declaration to goods covered by earlier customs

declarations which have already been released by those

authorities.

However, Article 78 of that Code is to be interpreted as

meaning that it permits the customs authorities to apply

the results of a partial examination of goods covered by

a customs declaration, carried out by way of sampling of

them, to goods covered by earlier customs declarations

submitted by the same customs declarant, which were

not and can no longer be examined since the release has

57

In those circumstances, it is necessary to determine

whether the United Kingdom was required to establish

the existence of the European Union’s entitlement to the

own resources and, if that is indeed the case, to examine

whether the United Kingdom, in accordance with the

conditions laid down in Article 17(2) of Regulation No

1150/2000, was released from the obligation to make

those resources available to the European Union.

First, as regards the obligation to establish the existence

of the European Union’s entitlement to the own resources,

it is clear from Article 2(1)(b) of Decision 2000/597, read

in conjunction with Article 8(1) thereof, that the revenue

from Common Customs Tariff duties are own resources of

the European Union which are collected by the Member

States, and that the latter are obliged to make those

resources available to the Commission.

Article 2(1) of Regulation No 1150/2000 provides that

Member States must establish the European Union’s

entitlement to own resources ‘as soon as the conditions

provided for by the customs regulations have been met

concerning the entry of the entitlement in the accounts

and the notification of the debtor’.

The United Kingdom contended, however, that Article

217(1)(b) of the Customs Code precluded it from entering

in the accounts the amounts that the Commission

considers to be due, since the amount corresponding to

the import duties applicable to fresh garlic originating in

China is higher than the amount determined on the basis

of the disputed BTIs issued in relation to the import of

frozen garlic.

That line of argument cannot be accepted. The Court

held that the obligation of Member States to establish the

European Union’s entitlement to own resources arises

as soon as the conditions provided for by the customs

regulations have been met and that, accordingly, it is not

necessary for the entry in the accounts to have actually

been made.

As regards the exemption under Article 217(1)(b) of

the Customs Code, it must be noted that the purpose

of that exemption is to protect the debtor’s legitimate

expectation which is based on the valid BTI held by that

On 22 March 2010, after an exchange of correspondence

with the UK authorities, the Commission sent the United

Kingdom a letter of formal notice in which it stated its

view that the United Kingdom was financially liable for the

loss of own resources and asked the United Kingdom to

submit its observations in that regard within two months.

In its response of 12 May 2010, the United Kingdom

conceded that it had issued the disputed BTIs indicating

the incorrect tariff heading, but argued that this error had

not led to a loss of own resources because it had not

given rise to any customs debt.

Unconvinced by the arguments presented by the United

Kingdom, the Commission sent it a reasoned opinion on

25 November 2011, reiterating its position and asking the

United Kingdom to make available to the Commission the

sum of GBP 20,061,462.11 as soon as possible, together

with late payment interest calculated on the basis of the

date of the import declarations and the date of payment.

The United Kingdom responded by letter of 25 January

2012, denying liability for the sum claimed by the

Commission. As it was not satisfied with that reply, the

Commission decided to bring the present action.

Findings of the Court

The Court remarks that the United Kingdom does

not deny that the disputed BTIs issued by its customs

authorities contain erroneous information and that the

sum claimed by the Commission represents the total

value of the customs duties that would have been due if

the imported garlic had been declared as fresh garlic and

not as frozen garlic.

On the other hand, the United Kingdom contests the

existence of a customs debt, which, in its opinion,

constitutes a prerequisite for the European Union’s

entitlement to own resources; in the alternative, the

United Kingdom contests the imputability to the UK

customs authorities of the error committed in issuing the

disputed BTIs, in the light of Article 17(2) of Regulation

No 1150/2000.

58

resources without paying them and one in which it has

wrongfully omitted to establish them.

In particular, the Court held that a Member State which

fails to establish the European Union’s own resources

and to make the corresponding amount available to the

Commission, without one of the conditions laid down in

Article 17(2) of Regulation No 1150/2000 being met, falls

short of its obligations under EU law and, in particular,

under Articles 2 and 8 of Decision 2000/597.

In paragraph 61 of the judgment in Case C334/08

Commission v Italy, the Court stated that Article 17(2)

of Regulation No 1150/2000, in the version applicable

to the present case, establishes a procedure enabling

a Member State’s administrative authorities either to

declare certain amounts of established entitlements

irrecoverable or to consider the amounts of established

entitlements to be deemed irrecoverable at the latest

after a period of five years from the date on which the

amount has been established.

In that context, the Court stated inter alia in paragraph

65 of that judgment that, in order for a Member State

to be released from its obligation to make available to

the Commission the amounts corresponding to the

established entitlements, not only must the conditions

laid down in Article 17(2) of Regulation No 1150/2000

be met; the condition that those entitlements must have

been properly entered in the account provided for in

Article 6(3)(b) of that regulation - that is to say, in the B

account - must also have been satisfied.

It follows that, in order to rely on the exemption provided

for in Article 17(2)(b) of that regulation, the United

Kingdom must also have entered the entitlements in

question in the B account. As it is, both in its defence

and in its rejoinder, the United Kingdom stated that it had

decided not to seek post-clearance recovery from the

holders of the disputed BTIs.

In those circumstances, the United Kingdom cannot rely

on an exemption under Article 17(2)(b) of Regulation

No 1150/2000.

In any event, the reason why it is impossible to effect

a recovery is attributable to the UK customs authorities.

debtor. Accordingly, that provision covers situations in

which the Member States’ customs authorities cannot

make a subsequent entry in the accounts of the duties

in question, but it does not release Member States

from their obligation to establish the European Union’s

entitlement to own resources.

Indeed, according to well established case law of the

Court, if an error committed by the customs authorities

of a Member State results in the debtor not having to

pay the duties in question, it does not affect that Member

State’s obligation to pay duties that should have been

established in the context of making available own

resources, together with default interest.

In the present case, the fact that the UK customs

authorities applied an erroneous tariff to the imports

of fresh garlic originating from China and established

customs duties in an amount lower than that applicable to

those goods does not prejudice the obligation to establish

the European Union’s entitlement to own resources

arising out of those imports.

Secondly, it is necessary to examine the United Kingdom’s

alternative argument that its liability for the loss of own

resources is precluded on the basis of Article 17(2) of

Regulation No 1150/2000, since the administrative errors

are not attributable to it.

Under the terms of Article 17(1) of Regulation No

1150/2000, Member States are obliged to take all

necessary measures to ensure that the amounts

corresponding to the entitlements established pursuant

to Article 2 of that regulation are made available to the

Commission in accordance with the conditions laid

down in that regulation. Article 17(2) of the regulation

provides that Member States are to be exempted from

that obligation if recovery did not take place for reasons

of force majeure or for other reasons not attributable to

them.

It is clear from the case law of the Court that there is

no need to distinguish between a situation in which a

Member State has established the duties on the own

59

and Northern Ireland failed to fulfil its obligations under

Article 8 of Council Decision 2000/597/EC, Euratom of

29 September 2000 on the system of the Communities’

own resources and Articles 2, 6, 9, 10 and 11 of Council

Regulation (EC, Euratom) No 1150/2000 of 22 May

2000 implementing Decision 2000/597, as amended

by Council Regulation (EC, Euratom) No 2028/2004 of

16 November 2004.

CJ rules on the powers of customs authorities to establish the infringement of an intellectual property right (Sintax Trading)On 9 April 2014, the CJ delivered its judgment in case

Sintax Trading (C- 583/12). The case has regard to the

question whether customs authorities have powers to

establish the infringement of an intellectual property right

upon importation of pirated goods.

Syntax Trading imported into Estonia bottles of bath

products supplied by a Ukrainian company. When they

were imported, Acerra OÜ (‘Acerra’) informed the

Customs Authorities that those bottles infringed a patent

registered in its name.

As a result, the Customs Authorities suspended the

release for free circulation of the goods concerned in

order to carry out a further investigation which revealed

a strong similarity between the shape of the bottles

imported and Acerra’s patent. Suspecting an infringement

of an intellectual property right it seized the goods and

requested an opinion from Acerra. The latter confirmed

those suspicions.

On that basis, the Customs Authorities found that the

goods infringed an intellectual property right within the

meaning of Regulation No 1383/2003 and therefore, on

11 February 2011, it rejected the application by Syntax

Trading to obtain the release of the goods.

Syntax Trading brought an action against the decision of

the Customs Authorities before the Tallinna halduskohus

(Administrative Court, Tallin), which was confirmed

by a second judgment of 17 February 2011. Finding

procedural irregularities, that court ordered the release

of those goods. On another ground, that judgment was

upheld on appeal by the Tallina ringkonnakohus (Court

Indeed, it is because those authorities issued the disputed

BTIs that the amounts corresponding to the entitlements

in question in the present case prove irrecoverable.

It follows from the above considerations that, under

Article 2(1) of Regulation No 1150/2000, the United

Kingdom was required to establish the existence of

the European Union’s own resources and, pursuant to

Articles 6, 9 and 10 of that regulation, to make them

available to the European Union. By failing to do so, the

United Kingdom also made itself liable for late payment

interest, in accordance with Article 11 of that regulation.

In that regard, it must be recalled that, according to

settled case law, there is an inseparable link between

the obligation to establish the European Union’s

own resources, the obligation to credit them to the

Commission’s account within the prescribed time-limits

and the obligation to pay default interest, that interest

being payable regardless of the reason for the delay in

making the entry in the Commission’s account.

Under Article 11 of Regulation No 1150/2000, any delay in

making the entry in the account referred to in Article 9(1)

of that regulation gives rise to the payment of default

interest by the Member State concerned at the interest

rate applicable to the entire period of delay.

Therefore, the United Kingdom failed to fulfil its obligations

under Article 8 of Decision 2000/597 and Articles 2, 6, 9,

10 and 11 of Regulation No 1150/2000.

Lastly, as regards the infringement of Article 4(3) TEU,

also relied on by the Commission, there are no grounds

for holding that the United Kingdom has failed to fulfil

the general obligations under that provision, which is

separate from the established failure to fulfil the more

specific obligations incumbent upon that Member

State under the provisions referred to in the preceding

paragraph.

In the light of all the foregoing considerations, the CJ

ruled that by refusing to make available the amount of

GBP 20,061,462.11 corresponding to the duties payable

on imports of fresh garlic covered by erroneous binding

tariff information, the United Kingdom of Great Britain

60

3. Is it compatible with those objectives if the measures

laid down in Article 17 of Regulation No 1383/2003

can be applied only if the right-holder initiates the

procedure mentioned in Article 13(1) of the regulation

for determination of an infringement of an intellectual

property right, or must it also be possible, for the

effective pursuit of those objectives, for the customs

authorities to initiate the corresponding procedure?’

The CJ ruled as follows:

Article 13(1) of Council Regulation (EC) No 1383/2003

of 22 July 2003 concerning customs action against

goods suspected of infringing certain intellectual property

rights and the measures to be taken against goods

found to have infringed such rights must be interpreted

as meaning that it does not preclude the customs

authorities, in the absence of any initiative by the holder

of the intellectual property right, from initiating and

conducting the proceedings referred to in that provision

themselves, provided that the relevant decisions taken

by those authorities may be subject to appeal ensuring

that the rights derived by individuals from EU law and, in

particular, from that regulation are safeguarded.

CJ rules on the scope of Articles 203 and 204(1)(a) of the Community Customs Code (X BV)On 15 May 2014, the CJ delivered its judgment in case

X BV (C- 480/12). The case concerns the customs debt

that is incurred through non-fulfilment of the obligation to

present goods, transported under cover of the Transit

system, within the time-limit of validity to the Customs

office of destination.

The dispute in the main proceedings and the questions

referred for a preliminary ruling

On 26 October 2005, X made an electronic application

for a diesel engine to be placed under the external

Community transit procedure. The deadline by which

that engine should have been presented at the office of

destination was set at 28 October 2005.

That engine was presented to that office only on

14 November 2005, that is to say, 17 days after expiry

of the time-limit prescribed, and was placed under the

of Appeal, Tallin), which held that Article 10 of Regulation

No 1383/2003 did not authorise the customs authorities

to give a decision themselves as to the existence of an

infringement of an intellectual property right. According

to that court, in the absence of proceedings to establish

whether there had been an infringement of Acerra’s

intellectual property right, the Customs Authorities

could not detain the goods after the expiry of the period

prescribed to that effect by Article 13(1) of Regulation

No 1383/2003.

Hearing an appeal in cassation by the customs

administration, the Riigikohus (Supreme Court) was

unsure as to whether that interpretation was well

founded, given that Estonian law authorises the

Customs Authorities to conduct, themselves and on

their own initiative, adversarial proceedings in order to

give a decision on the merits as to the existence of an

infringement of an intellectual property right. However,

the referring court wished to know whether national law

was compatible with Regulation No 1383/2003.

In those circumstances, the Riigikohus decided to stay

its proceedings and to refer the following questions to the

CJ for a preliminary ruling:

‘1. May the “proceedings to determine whether an

intellectual property right has been infringed” referred

to in Article 13(1) of Regulation No 1383/2003 also

be conducted within the customs department or must

“the authority competent to decide on the case” dealt

with in Chapter III of the regulation be separate from

the customs authorities?

2. Recital 2 in the preamble to Regulation No 1383/2003

mentions as one of the objectives of the regulation the

protection of consumers, and according to recital 3 in

the preamble a procedure should be set up to enable

the customs authorities to enforce as effectively as

possible the prohibition of the introduction into the

European Union customs territory of goods infringing

an intellectual property right, without impeding the

freedom of legitimate trade in accordance with recital

2 in the preamble to the regulation and recital 1 in

the preamble to Regulation (EC) No 1891/2004

of 21 October 2004 laying down provisions for the

implementation of Regulation No 1383/2003.

61

considered that if it is decided that a customs debt was

incurred on the basis of Article 204(1) of the Customs

Code, the question then arises whether turnover tax is

due in addition to customs duties.

It was on that basis that the Hoge Raad der Nederlanden

decided to stay proceedings and to refer the following

questions to the CJ for a preliminary ruling:

‘(1) a) Must Articles 203 and 204 of the Customs

Code, read in conjunction with Article 859 (in

particular Article 859(2)(c)) of the Implementing

Regulation, be interpreted as meaning

that (merely) exceeding the transportation

time-limit set under Article 356(1) of the

Implementing Regulation does not lead to a

customs debt being incurred by reason of a

removal from customs supervision within the

meaning of Article 203 of the Customs Code,

but to a customs debt being incurred on the

basis of Article 204 of the Customs Code?

(b) For Question 1(a) to be answered in the

affirmative, is it necessary that the persons

concerned supply the customs authorities with

information on the reasons for which the time-

limit was exceeded or that they at least explain

to the customs authorities where the goods

were held during the time which elapsed

between the time-limit set under Article 356

of the Implementing Regulation and the time

at which they were actually presented at the

customs office of destination?

(2) Must the Sixth Directive, in particular Article 7 of

that directive, be interpreted as meaning that VAT is

due when a customs debt is incurred exclusively on

the basis of Article 204 of the Customs Code?’

The CJ ruled as follows:

1. Articles 203 and 204 of Council Regulation (EEC)

No 2913/92 of 12 October 1992 establishing

the Community Customs Code, as amended by

Regulation (EC) No 648/2005 of the European

Parliament and of the Council of 13 April 2005, read

inward processing customs procedure with the application

of the drawback system. The customs office in question,

after accepting that application, found that the previous

customs procedure, namely, the external Community

transit procedure, had not been properly terminated and

invalidated that placement.

After apprising X of that situation, the inspector

responsible (‘the inspector’) gave X the opportunity

to provide proof that it had completed the customs

procedure properly, proof which it could not provide. The

inspector therefore concluded that the engine at issue in

the main proceedings had been removed from customs

supervision, within the meaning of Article 203(1) of the

Customs Code. On that basis, it requested that X pay

customs duties and turnover tax.

X brought an action before the Rechtbank te Haarlem

(District Court, Haarlem), which granted the action and

ordered the inspector to repay the amount of customs

duties and VAT which X had paid. The inspector brought

an appeal against that decision before the Gerechtshof

te Amsterdam (Regional Court of Appeal, Amsterdam),

which upheld the Rechtbank te Haarlem’s decision.

The Minister van Financiën (Minister for Finance) brought

an appeal on a point of law before the Hoge Raad der

Nederlanden (Supreme Court of the Netherlands).

The Hoge Raad der Nederlanden asked what legal

consequences should be drawn from the time-limit laid

down on the basis Article 356(1) of the Implementing

Regulation being exceeded. In particular, according

to that court, the question arises whether the failure to

respect that time-limit should automatically be regarded

as amounting to removal from customs supervision within

the meaning of Article 203(1) of the Customs Code,

resulting in customs dues being due, or if is it then a

question of non-fulfilment of one of the obligations arising

from the use of the customs procedure in question, in

which case the levy of those duties should be waived if it

is established that it is a failure with no significant effect

on the correct operation of the customs procedure within

the meaning of the final sentence of Article 204(1) of the

Customs Code, read in conjunction with Article 859 of the

Implementing Regulation. In addition, the referring court

62

signed on 16 May 2014. Under the agreement, the EU

and China commit to recognizing each other’s certified

safe traders, thereby allowing these companies to

benefit from faster controls and reduced administration

for customs clearance. Mutual recognition of trusted

traders also allows customs to focus their resources on

real risk areas, thereby improving supply chain security

on both sides. The EU is the first trading partner to enter

into such an agreement with China, having already

signed similar deals with the USA (2012) and Japan

(2011). EU Commissioner for Taxation and Customs,

Algirdas Šemeta, was at the Joint Customs Cooperation

Committee (JCCC) meeting in Beijing, for the signing of

the agreement.

Two other important initiatives were also signed at the

JCCC on 16 May 2014. The first is a new Strategic

Framework for Customs Cooperation, which defines

ambitious priorities and objectives for EU-China

collaboration in this field. Key areas of focus for the

coming years will be trade facilitation, supply chain

security and fighting counterfeit and illicit trade. An

important new priority is a joint approach to tackling

illegal waste shipments, thereby tackling an area of

high concern for both sides and supporting important

environmental objectives.

The second initiative, signed in Beijing on 16 May 2014,

is a new EU-China Action Plan on Intellectual Property

Rights (IPR). This aims to improve the clamp-down on

counterfeit goods by intensifying EU-China cooperation,

communication and coordination in this field.

Trusted Traders

The EU Authorized Economic Operator (AEO) status was

launched in 2008, offering simplified customs procedures

to companies that prove to be safe, reliable and compliant

with security standards. Certified AEOs have fewer

inspections on goods and speedier customs procedures

and formalities. This benefits the companies because the

goods can move faster from one destination to another,

lowering transport costs and facilitating more efficient

trade. It also benefits EU customs administrations, who

can concentrate their resources on checking high risk

transactions.

in conjunction with Article 859(2)(c) of Commission

Regulation (EEC) No 2454/93 of 2 July 1993

laying down provisions for the implementation

of Regulation No 2913/92, as amended by

Commission Regulation (EC) No 444/2002 of

11 March 2002 must be interpreted as meaning that

merely exceeding the time-limit for presentation,

set under Article 356(1) of Regulation No 2454/93,

as amended by Regulation No 444/2002, does

not lead to a customs debt being incurred for

removal from customs supervision of the goods

in question within the meaning of Article 203 of

Regulation No 2913/92, as amended by Regulation

No 648/2005, but to a customs debt being incurred

on the basis of Article 204 of that regulation and

that it is not necessary, for a customs debt to be

incurred under Article 204 of that regulation, that the

interested parties supply to the customs authorities

information on the reasons for exceeding the

timelimit set under Article 356 of Regulation

No 2454/93, as amended by Article No 444/2002,

or on the location of the goods during the time which

elapsed between that timelimit and the time at which

they were actually presented at the customs office

of destination.

2. The first paragraph of Article 7(3) of the Sixth

Council Directive 77/388/EEC of 17 May 1977

on the harmonization of the laws of the Member

States relating to turnover taxes - Common system

of value added tax: uniform basis of assessment,

as amended by Council Directive 2004/66/EC of

26 April 2004 must be interpreted as meaning that

value added tax is due where the goods in question

are not covered by the arrangements provided

for in that article, even where a customs debt is

incurred exclusively on the basis of Article 204 of

Regulation No 2913/92, as amended by Regulation

No 648/2005.

EU and China sign landmark mutual recognition agreement and intensify their customs cooperation EU and Chinese trusted traders will enjoy lower costs,

simplified procedures and greater predictability in their

activities, thanks to a mutual recognition agreement

63

carriers. SEK Zollagentur replied that the bicycle carriers

had not been loaded on 17 January 2010. It stated that

the owner of the temporary storage facility had not been

able to keep the stored consignments in its warehouse

and hand them over to the haulage company, which was

why the bicycle carriers had not been handed over to the

haulage company as planned and had remained at the

temporary storage facility.

On 1 February 2010, a new consignment for the bicycle

carriers was arranged under a fresh transit procedure.

The recipient then released the bicycle carriers for free

circulation and paid import duties of EUR 2,000.

The Hauptzollamt Gießen also charged the same amount

to SEK Zollagentur on the ground that the latter had

removed the bicycle carriers from customs supervision by

failing to present them at the customs office at the place

of destination at the time of the first transit procedure.

SEK Zollagentur took the view that the customs duties

being charged were not legally owed and requested

repayment pursuant to Article 236 of the Customs Code.

It asserted that a transit procedure began only when

the goods were actually collected from the storage

depot, irrespective of the declaration made by it. Before

the transport began, the external Community transit

procedure had not commenced, with the result that the

only party responsible for the removal from customs

supervision was the owner of the temporary storage

facility.

Following the dismissal of its action brought against

the decision refusing it repayment, SEK Zollagentur

brought an action before the Finanzgericht Hessen

(Finance Court, Hessen), which upheld the refusal of

repayment on the ground that the duties could not be

repaid because they were legally owed. SEK Zollagentur

brought an appeal on a point of law (‘revision’) before the

Bundesfinanzhof (Federal Finance Court).

In those circumstances, the Bundesfinanzhof decided to

stay proceedings and to refer the following questions to

the Court for a preliminary ruling:

Currently, there are around 15,000 companies approved

as authorized economic operators (AEOs) in the EU - a

number which is continually rising. The agreement with

China makes the EU certified trader system the most

widely accepted in the world, given that the USA and

Japan (as well as the EEA countries) are already in

mutual recognition agreements with the EU.

Mutual recognition of certified traders prevents a

proliferation of incompatible standards amongst

international trade partners, and helps promote a more

harmonized approach to customs practices worldwide.

CJ rules on the incurrence of a customs debt resulting from an unlawful removal of goods from customs supervision (SEK Zollagentur GmbH)On 12 June 2014, the CJ delivered its judgment in case

SEK Zollagentur GmbH (C- 75/13). The case concerns

the unlawful removal of bicycle carriers that were placed

under temporary storage.

On 15 January 2010, a shipment of 12 bicycle carriers

was brought into the customs territory of the European

Union. The shipment was placed in temporary storage

and the owner of the storage facility presented the goods

to customs and drew up a summary declaration thereof.

On 17 January 2010, SEK Zollagentur declared the

bicycle carriers for transit under the external Community

transit procedure. The bicycle carriers were released for

transit the same day.

The following day, the haulage company designated by

SEK Zollagentur, the approved consignor, was meant

to collect a number of consignments, including the

aforementioned articles, at the temporary storage location

and deliver them to a recipient in Greven (Germany).

When the articles arrived, the recipient established that

the bicycle carriers were not included in the consignments

and accordingly, notified the customs office at the place

of destination.

The Hauptzollamt Gießen then wrote to SEK Zollagentur,

requesting information on the whereabouts of the bicycle

64

CJ rules on the repayment of taxes levied in breach of EU law (Ilie Nicolae Nicula) On 15 October 2014, the CJ delivered its judgment in

case Ilie Nicolae Nicula (C-331/13). The case concerns

the repayment of car taxes levied by Romania in breach

of EU law.

In 2009, Mr Nicula, a Romanian national residing in

Romania, bought a second-hand motor vehicle which

was registered for the first time in Germany. In order to

register the vehicle in Romania, he was required to pay

the sum of RON 5,153 by way of pollution tax, pursuant

to Article 4 of OUG No 50/2008 (Romanian national car

tax legislation).

By judgment of 3 May 2012, the Tribunalul Sibiu upheld

the action brought before it by Mr Nicula against the

Administraţia Fondului pentru Mediu, which is the

recipient of the pollution tax, and ordered that authority to

repay that tax on the ground that it had been introduced

in breach of Article 110 TFEU, as interpreted by the

Court in its judgment in Tatu (C402/09). However, the

Tribunalul Sibiu dismissed the action insofar as it was

brought against the Administraţia Finanţelor Publice a

Municipiului Sibiu, the collector of the tax.

Following the appeal against that judgment brought

before the Curtea de Apel de Alba-Iulia (Court of Appeal

of Alba-Iulia, Romania), on 25 January 2013, that court

quashed the judgment and referred the case back to the

court of first instance, stating, for the purposes of the

fresh procedure, that in disputes of this kind, the persons

against whom proceedings for repayment of a tax levied

in breach of EU law may be brought include not only the

recipient of the tax but also the collector of the tax.

OUG No 9/2013 entered into force on 15 March 2013,

which is after this case had been re-entered on the roll

at the Tribunalul Sibiu. The Tribunalul Sibiu stated that,

pursuant to that order, pollution tax already paid may be

repaid only where the amount of that tax is greater than

the amount of the environmental stamp duty, repayment

being provided for in strictly defined circumstances and

limited to any possible difference in amount.

‘1. Are the relevant provisions of the Customs Code,

in particular Article 50 thereof, to be interpreted

as meaning that an article left with a person by

the customs authority for temporary storage in an

approved place is deemed to have been removed from

customs supervision if it is declared for an external

transit procedure, but it does not in fact accompany

the prepared transit papers on the transport planned

and is not presented to the customs office at the

place of destination?

If the answer to the first question is affirmative:

In such circumstances is the person who, as the approved

consignor, placed the goods in the transit procedure a

customs debtor under the first indent of Article 203(3)

of the Customs Code or under the fourth indent of

Article 203(3) of the Customs Code?’

The CJ ruled as follows:

‘1. Articles 50 and 203 of Council Regulation (EEC)

No 2913/92 of 12 October 1992 establishing

the Community Customs Code, as amended by

Regulation (EC) No 648/2005 of the European

Parliament and of the Council of 13 April 2005, must

be interpreted as meaning that an article left for

temporary storage must be deemed to have been

removed from customs supervision if it is declared

for an external Community transit procedure, but

it does not in fact leave the storage facility and is

not presented to the customs office at the place of

destination, although the transit documents have

been presented there.

2. The fourth indent of Article 203(3) of Regulation No

2913/92, as amended by Regulation No 648/2005,

must be interpreted as meaning that, in circumstances

such as those of the main proceedings, where an

article is removed from customs supervision, the

person who, as the approved consignor, placed that

article in the external Community transit procedure is

a customs debtor under that provision. ‘

65

by OUG No 9/2013, the Romanian Government, in its

written observations, has asked the Court to limit the

temporal effects of the present judgment.

In that regard, it should be noted that, by the interpretation

of EU law requested, the referring court is not asking

the Court whether EU law precludes a tax such as the

environmental stamp duty, but only whether it precludes

a system such as that introduced by OUG No 9/2013

which provides for repayment of the tax unduly levied

under OUG No 50/2008.

In those circumstances, suffice it to state that the

arguments relied on by the Romanian Government

in favour of a limitation of the temporal effects of the

judgment of the Court relate to circumstances other than

those in the main proceedings and, accordingly, that it

is not necessary to rule on that Government’s request

for the temporal effects of the present judgment to be

limited.’

CJ rules on the principle of one excise rate of excise duty for all cigarettes (Yesmoke Tobacco SpA) On 9 October 2014, the CJ delivered its judgment in case

Yesmoke Tobacco SpA (C-428/13). The case concerned

the question whether it was allowed that applied a higher

excise duty rate for cigarettes of a lower price category.

By the contested decision, the Director-General of the

AAMS, acting pursuant to Article 39g(4) of the Legislative

Decree, set at 115% of the basic rate the minimum excise

duty payable on cigarettes with a retail selling price lower

than that of cigarettes in the most popular price category.

Yesmoke Tobacco SpA, a company that produces and

markets cigarettes at a lower price than that of the most

popular price category, challenged the contested decision

before the Tribunale amministrativo regionale per il

Lazio (Lazio Regional Administrative Court), claiming

that that measure was equivalent, in its effects, to the

establishment of a minimum selling price for cigarettes.

By judgment of 5 April 2012, the Tribunale amministrativo

regionale per il Lazio annulled the contested decision

after declining to apply Article 39g of the Legislative

In Mr Nicula’s specific case, the amount of environmental

stamp duty calculated in accordance with OUG

No 9/2013 for the vehicle concerned amounts up to

RON 8,126.44, while the pollution tax paid previously

amounted to RON 5,153. According to the Tribunalul

Sibiu, the applicant in the main proceedings incorrectly

claimed that the equivalent amount of the environmental

stamp duty for his vehicle was only RON 3,779.74, since,

pursuant to the second sentence of Article 12(1) of OUG

No 9/2013, the difference to be repaid is calculated on

the basis of the formula laid down in that order, using

information relating to the date of registration of the

vehicle in Romania rather than information relating to the

present.

According to that court, by virtue of OUG No 9/2013,

Mr Nicula was not entitled to recover the pollution tax

and any interest thereon because the corresponding

amount would be withheld by the tax and environmental

authorities in lieu of environmental stamp duty, since the

amount of the environmental stamp duty was greater

than the pollution tax paid by Mr Nicula on the registration

of his vehicle.

Accordingly, the Tribunalul Sibiu decided to stay the

proceedings and to refer the following question to the

Court for a preliminary ruling:

‘Are the provisions of Article 6 TEU, Articles 17, 20

and 21 of the Charter of Fundamental Rights of the

European Union and Article 110 TFEU, the principle of

legal certainty and the principle prohibiting reformatio in

peius, both affirmed in European Union law and in the

case-law of the Court of Justice (judgments in Belbouab,

10/78, and Belgocodex, C381/97), to be interpreted as

precluding legislation such as OUG No 9/2013?’

The CJ ruled that it must be concluded that EU law must

be interpreted as precluding a system of repayment of

a tax levied in breach of EU law, such as the system at

issue in the main proceedings.

With regard to the limitation of the temporal effects of the

judgment of the Court, the CJ considered as follows.

‘In the event that the Court finds that EU law precludes

a tax such as the environmental stamp duty introduced

66

all cigarettes, establishes a minimum excise duty that

is applicable only to cigarettes with a retail selling price

lower than that of cigarettes in the most popular price

category.’

Customs Tariff 2015 On 31 October 2014, the Commission published

Commission Implementing Regulation (EU) No

1101/2014 of 16 October 2014 amending Annex I to

Council Regulation (EEC) No 2658/87 on the tariff and

statistical nomenclature and on the Common Customs

Tariff.

The regulation, which includes the Combined

Nomenclature for year 2015, will enter into force on

1 January 2015.

European Court of Human RightsEuropean Court of Human Rights rules that Finland contravened the principle of non bis in idemOn 20 May 2014, the European Court of Human Rights

(ECHR) delivered four judgements (cases Glatz v Finland

- Application no. 37394/11; Hakka v Finland - Application

no. 758/11; Nykänen v Finland - Application 11828/11;

and Pirttimäki v Finland - Application no. 35232/11. In

all four cases, the applicants complained that Finland

breached Article 4 of Protocol No. 7 to the European

Convention on Human Rights on double jeopardy (ne

bis in idem) involving taxation proceedings in which a tax

surcharge had been imposed, and criminal proceedings

for tax fraud.

In two of those cases - Nykänen v. Finland and Glantz v.

Finland - the ECHR concluded that Finland breached the

principle of non bis in idem. In essence, the reasoning

adopted by the Court was that that Article 4 of Protocol

No. 7 prohibits the repetition of criminal proceedings that

have been concluded by a ‘final’ decision. Article 4 of

Protocol No. 7 is confined not only to the right not to be

punished twice but also extends to the right not to be

prosecuted or tried twice. Article 4 of Protocol No. 7 applies

even when the individual has merely been prosecuted in

Decree. That court held that the decision had effectively

reintroduced a minimum resale price for manufactured

tobacco, which was contrary, in its view, to the judgment

in Commission v Italy (C571/08).

The Ministero dell’Economia e delle Finanze and the

AAMS lodged an appeal against that judgment before the

Consiglio di Stato (Council of State; or ‘the referring court’)

on 5 June 2012. The appellants claimed that the national

legislation on the minimum selling price for cigarettes

on which the Tribunale amministrativo regionale per il

Lazio ruled has no connection with the provisions laid

down in Article 39g. On the contrary, that legislation is

entirely consistent with EU law, since Directive 2011/64

permits Member States to levy a minimum excise duty

on cigarettes.

The referring court considered that the outcome of the

dispute in the main proceedings turns on the interpretation

of Directives 95/59 and 2011/64.

In those circumstances, the Consiglio di Stato decided to

stay the proceedings and to refer the following question

to the Court of Justice for a preliminary ruling:

‘Do Article 8(2) of Directive 95/59 and Article 7(2) of

Directive 2011/64, by providing, respectively, that the

proportional rate and ad valorem rate, and the amount

of the specific excise duty must be the same for all

cigarettes, preclude a provision of national law such as

Article 39g(4) of the Legislative Decree, which provides

that the excise duty payable on cigarettes with a retail

selling price lower than that of cigarettes in the most

popular price category is to be 115% of the basic amount,

thereby establishing an excise duty at a fixed minimum

rate specific to cigarettes with a lower selling price

and not a minimum amount of excise duty for all price

categories of cigarettes, as permitted by Article 16(7) of

Directive 95/59 and Article 14(2) of Directive 2011/64?’

The CJ ruled as follows:

‘Articles 7(2) and 8(6) of Council Directive 2011/64/EU of

21 June 2011 on the structure and rates of excise duty

applied to manufactured tobacco must be interpreted as

precluding a provision of national law, such as that at issue

in the main proceedings, which, rather than establishing

an identical minimum excise duty that is applicable to

67

of each other. Moreover, neither of the sanctions is

taken into consideration by the other court or authority

in determining the severity of the sanction, nor is there

any other interaction between the relevant authorities.

More importantly, the tax surcharges, under the Finnish

system, are imposed following an examination of the

applicants’ conduct and their liability under the relevant

tax legislation which is independent of the assessments

made in the criminal proceedings. Therefore, it concluded

that it cannot be said that, under the Finnish system, there

is a close connection, in substance and in time, between

the criminal and the taxation proceedings.

proceedings that have not resulted in a conviction. The

Court reiterated that Article 4 of Protocol No. 7 contains

three distinct guarantees and provides that no one shall

be (i) liable to be tried, (ii) tried, or (iii) punished for the

same offence. In that regard, the Court noted that Article

4 of Protocol No. 7 prohibits consecutive proceedings

if the first set of proceedings has already become final

at the moment when the second set of proceedings is

initiated.

As concerns parallel proceedings, the Court noted that

Article 4 of Protocol No. 7 does not prohibit several

concurrent sets of proceedings. In such a situation, it

cannot be said that an applicant is prosecuted several

times ‘for an offence for which he has already been finally

acquitted or convicted’. There is no problem from the

Convention point of view either when, in a situation of two

parallel sets of proceedings, the second set of proceedings

is discontinued after the first set of proceedings has

become final However, when no such discontinuation

occurs, the Court considers that there is a violation. As

regards the scope of Article 4 of Protocol No. 7, the Court

recalled its previous case law (that although different

sanctions (suspended prison sentences and withdrawal

of driving licences) concerning the same matter (drunken

driving) have been imposed by different authorities in

different proceedings, there has been a sufficiently close

connection between them, in substance and in time. In

those cases, the Court found that the applicants were not

tried or punished again for an offence for which they had

already been finally convicted in breach of Article 4 § 1 of

Protocol No. 7 to the Convention and that there was thus

no repetition of the proceedings.

As regards the cases under analysis and whether there

was repetition in breach of Article 4 § 1 of Protocol No. 7

to the Convention, the Court noted that it is true that the

applicants convictions and the tax surcharges imposed

on them formed a part of the sanctions under Finnish law

for the failure to provide information about income in a tax

declaration with a result that too low a tax assessment

was made. However, under the Finnish system, the

criminal and the administrative sanctions are imposed

by different authorities without the proceedings being in

any way connected: both sets of proceedings follow their

own separate course and become final independently

68

Correspondents● Gerard Blokland (Loyens & Loeff Amsterdam)

● Kees Bouwmeester (Loyens & Loeff Amsterdam)

● Almut Breuer (Loyens & Loeff Amsterdam)

● Robert van Esch (Loyens & Loeff Rotterdam)

● Sarah Van Leynseele (Loyens & Loeff Brussel)

● Raymond Luja (Loyens & Loeff Amsterdam;

Maastricht University)

● Arjan Oosterheert (Loyens & Loeff Amsterdam)

● Lodewijk Reijs (Loyens & Loeff Rotterdam)

● Bruno da Silva (Loyens & Loeff Amsterdam;

University of Amsterdam)

● Patrick Vettenburg (Loyens & Loeff Rotterdam)

● Ruben van der Wilt (Loyens & Loeff Amsterdam)

www.loyensloeff.com

About Loyens & LoeffLoyens & Loeff N.V. is the first firm where attorneys at

law, tax advisers and civil-law notaries collaborate on a

large scale to offer integrated professional legal services

in the Netherlands, Belgium and Luxembourg.

Loyens & Loeff is an independent provider of corporate

legal services. Our close cooperation with prominent

international law and tax law firms makes Loyens & Loeff

the logical choice for large and medium-size companies

operating domestically or internationally.

Editorial boardFor contact, mail: eutaxalert@loyensloeff.com:

● René van der Paardt (Loyens & Loeff Rotterdam)

● Thies Sanders (Loyens & Loeff Amsterdam)

● Dennis Weber (Loyens & Loeff Amsterdam;

University of Amsterdam)

Editors● Patricia van Zwet

● Bruno da Silva

Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any

consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended

for general informational purposes and can not be considered as advice.

www.loyensloeff.com

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