Preface Abbreviations and Terms v ix Chapter 1 Concepts and Basic Principles of EU Tax Law 1 1.1. Concepts 1 1.2. Relation to other legislation 3 1.2.1. Sovereignty and subsidiarity 3 1.2.2. Separateness and interaction 4 1.2.3. The primacy of EU law 5 1.2.4. The principle of the most lenient provision 6 1.2.5. Direct effect and application 8 1.3. Primary law 9 1.3.1. The founding treaties and the accession treaties 9 1.3.2. Fundamental rights 12 1.3.3. Legal principles of EU law 13 1.4. Secondary law 20 1.4.1. Concept 20 1.4.2. Directives 21 1.4.2.1. Authorization to issue directives 21 1.4.2.2. Impact of the directives 22 1.4.2.3. Directives on direct taxes 24 1.4.3. Recommendations and other measures 25 1.5. International conventions 26 1.5.1. Connection to EU law 26 1.5.2. Tax treaties between EU Member States 26 1.5.2.1. Right to conclude tax treaties 26 1.5.2.2. Primacy of EU law 28 1.5.2.3. Most favoured nation 29 1.5.3. Tax treaties with third countries 30 1.5.3.1. Right to conclude tax treaties 30 1.5.3.2. Primacy of EU law 31 1.5.4. Other treaties with non-member States 33 1.5.4.1. EEA Agreement 33 1.5.4.2. Other conventions 34 1.6. Harmful tax competition and forbidden state aid 35 1.6.1. Harmful tax competition 35 1.6.1.1. Concept 35 ix
1.6.1.2. Measures against harmful tax competition 35 1.6.1.3. Prevention of tax evasion 37 1.6.2. Prohibition of state aid 38 1.7. Elimination of international double taxation 43 1.7.1. Legal basis 43 1.7.2. Tax treaties and directives 44 1.7.3. Obligation to take into account taxes levied in another Member State 46 1.8. Interpretation of EU law 52 1.8.1. EU law method of interpretation 52 1.8.2. EU law-consistent interpretation of domestic law 54 Chapter 2 Non-Discrimination and Basic Freedoms 57 2.1. Discrimination based on nationality 57 2.1.1. General conditions for application 57 2.1.2. Concept of discrimination 59 2.1.3. Comparable situation or different situation 62 2.1.3.1. Different situation 62 2.1.3.2. Comparable situation 63 2.1.3.3. Resident companies of different states 64 2.2. Basic freedoms 65 2.2.1. General conditions for application 65 2.2.2. Free movement of goods 72 2.2.2.1. Applicable norms 72 2.2.2.2. Relevance to direct taxation 73 2.2.3. Free movement of EU citizens 73 2.2.4. Free movement of workers 75 2.2.4.1. General conditions for application 75 2.2.4.2. Different tax treatment on the basis of residence 78 2.2.4.2.1. Employment in several states 78 2.2.4.2.2. Most income from employment state 79 2.2.4.2.3. Small part of income from employment state 81 2.2.4.3. Social security contributions 83 2.2.5. Freedom of establishment 85 2.2.5.1. Relevance and scope of application 85 2.2.5.2. Undertakings in a comparable situation 91 2.2.5.2.1. Permanent establishments 91 2.2.5.2.2. No permanent establishment 94 2.2.5.3. Dividend taxation systems 94 x
2.2.5.3.1. Permanent establishment 94 2.2.5.3.2. Foreign-source dividends 95 2.2.5.3.3. Non-resident dividend recipient 99 2.2.5.3.4. Thin capitalization 102 2.2.5.4. Group taxation systems 104 2.2.5.4.1. Need for cross-border balancing of profits and losses 104 2.2.5.4.2. Permanent establishments 106 2.2.5.4.3. No permanent establishment 107 2.2.6. Free movement of capital and payments 111 2.2.6.1. Primary rule 111 2.2.6.2. Exceptions 115 2.2.6.3. Relations to non-member States 116 2.2.6.4. Right to capital in companies 120 2.2.7. Freedom to provide services 121 2.2.7.1. Scope of application 121 2.2.7.2. Cases on direct taxes 124 2.2.8. Overlapping scope of application 126 2.2.8.1. Freedom of establishment or free movement of capital? 126 2.2.8.2. Free movement of capital or services? 131 2.2.8.3. Freedom of establishment/free movement of capital or free movement of workers? 132 2.2.8.4. Free movement of capital or goods? 133 2.2.8.5. Simultaneous application 133 2.3. Justifications for discrimination or restrictions 133 2.3.1. Rule of reason 133 2.3.2. Effectiveness of fiscal supervision and the recovery of tax debt 137 2.3.3. Anti-avoidance purpose 138 2.3.3.1. Tax planning versus tax avoidance 138 2.3.3.2. CFC regimes as an example 142 2.3.4. Balanced allocation of taxing rights 145 2.3.5. Need to prevent double use of losses 147 2.3.6. Coherence of the national tax system 147 2.3.7. Territoriality 150 2.3.8. Treatment in the other state 151 2.3.9. Non-EU and non-eea States 152 xi
Chapter 3 Corporate Tax Directives 155 3.1. EU Parent-Subsidiary Directive 155 3.1.1. Background 155 3.1.2. Scope of application 156 3.1.2.1. Profit distributions between subsidiary and parent companies residing in different Member States 156 3.1.2.2. Profit distributions connected with a permanent establishment 158 3.1.2.3. Company of a Member State 162 3.1.2.4. Permanent establishment 165 3.1.2.5. Parent and subsidiary company 166 3.1.2.6. Profit distribution 167 3.1.2.7. Other requirements 169 3.1.2.8. EEA and other non-member States 170 3.1.3. Tax treatment 170 3.1.3.1. Tax treatment in the dividend recipient s state 170 3.1.3.1.1. Elimination of double taxation in the parent company state 170 3.1.3.1.2. Exemption or credit in the parent company state or in the permanent establishment state 171 3.1.3.1.3. Treatment of hybrid subsi diaries in the parent company state 174 3.1.3.1.4. Treatment of subsidiary-related costs in the parent company state 175 3.1.3.2. Tax treatment in the subsidiary state 176 3.1.3.2.1. No withholding tax 176 3.1.3.2.2. Withholding tax 177 3.1.4. Tax-avoidance situations 178 3.2. EU Interest-Royalty Directive 180 3.2.1. Background and force 180 3.2.2. Tax treatment 181 3.2.2.1. Tax consequences 181 3.2.2.2. Administrative prerequisites 183 3.2.2.3. Repayment of a tax levied in conflict with the directive 185 3.2.3. Intra-EU cross-border payment 185 3.2.4. Qualifying companies 193 xii
3.2.4.1. Company of a Member State 193 3.2.4.2. Permanent establishment 196 3.2.4.3. Associated companies 197 3.2.4.4. Beneficial owner 200 3.2.5. Source state 201 3.2.6. The concepts of interest and royalty 203 3.2.6.1. Interest 203 3.2.6.2. Royalty 203 3.2.6.3. Payments outside the scope of the directive 204 3.2.7. Tax-avoidance situations 205 3.3. EU Merger Directive 206 3.3.1. Background and force 206 3.3.1.1. Force 206 3.3.1.2. Relevance of the directive 207 3.3.2. Scope of application 208 3.3.2.1. Reorganizations covered 208 3.3.2.2. Company from a Member State 209 3.3.2.3. Merger 212 3.3.2.4. Division 217 3.3.2.5. Transfer of assets 221 3.3.2.6. Exchange of shares 223 3.3.3. Tax treatment of mergers, divisions and transfers of assets 226 3.3.3.1. Applicable provisions 226 3.3.3.2. Deferral of capital gains taxation 227 3.3.3.3. Carry-over of provisions and reserves 230 3.3.3.4. Takeover of losses 230 3.3.3.5. Holdings of the receiving company in the transferring company 232 3.3.3.6. Tax exemption of the shareholders 232 3.3.3.6.1. Situations covered 232 3.3.3.6.2. Situations not covered by the tax exemption 234 3.3.3.7. Transfer of a permanent establishment 235 3.3.4. Transfer of registered office of a European Company or European Cooperative Society 236 3.3.4.1. Background and relevance 236 3.3.4.2. Transfer of registered office 237 3.3.4.3. Tax consequences 237 3.3.5. Tax avoidance 240 3.3.5.1. Artificial tax-avoidance arrangements 240 xiii
3.3.5.2. Other situations 242 3.3.6. Employee representation 243 Chapter 4 EU Company Forms and the Future of Corporate Taxation 245 4.1. Introduction 245 4.2. European Company and European Cooperative Society 246 4.2.1. Formation 246 4.2.1.1. Company law 246 4.2.1.2. Tax treatment 248 4.2.2. Tax treatment of a European Company or a European Cooperative Society 253 4.2.2.1. Relevance of the SE Regulation and the SCE Regulation 253 4.2.2.2. National tax laws 254 4.2.2.3. Tax treaties 255 4.2.2.4. Founding treaties and directives 257 4.2.2.5. Tax-related problems 258 4.3. European Economic Interest Grouping 258 4.3.1. Company law 258 4.3.2. Tax treatment 259 4.4. Future of corporate taxation in the European Union 260 4.4.1. Need for development 260 4.4.2. CCCTB 261 4.4.3. Alternatives 264 Chapter 5 Transfer Pricing 267 5.1. Relevance 267 5.2. Code of Conduct on transfer pricing documentation 269 5.2.1. Background and purpose 269 5.2.2. General principles 271 5.2.2.1. Rights and obligations of enterprises 271 5.2.2.2. Rights and obligations of Member States 273 5.2.3. Content of documentation 274 5.2.3.1. General principles 274 5.2.3.2. Master file 275 5.2.3.3. Country-specific documentation 276 5.3. Advance pricing agreements 278 5.3.1. Background and purpose 278 5.3.2. Binding effect 279 5.3.3. Prerequisites for an advance pricing agreement 280 5.3.4. Conduct of the advance pricing agreement process 281 xiv
5.3.4.1. Preliminary negotiations and informal application 281 5.3.4.2. Formal application 282 5.3.4.3. Evaluation and negotiations 285 5.3.4.4. Formal advance pricing agreement 286 5.4. Arbitration Convention 288 5.4.1. Relevance, force and interpretation 288 5.4.1.1. Relevance 288 5.4.1.2. Force 290 5.4.1.3. Interpretation 291 5.4.2. Scope of application 292 5.4.2.1. Elimination of double taxation 292 5.4.2.2. Double taxation caused by a transfer pricing adjustment 292 5.4.2.3. Enterprise of a contracting state 294 5.4.2.4. Serious penalty 296 5.4.2.5. Taxes covered by the Arbitration Convention 296 5.4.2.6. Competent authority 296 5.4.2.7. Territorial scope of application 297 5.4.3. Arm s length principle and transfer pricing adjustment 297 5.4.4. Notification of a transfer pricing adjustment 299 5.4.5. Mutual agreement procedure 300 5.4.5.1. Institution of proceedings 300 5.4.5.2. Notifications and information request 301 5.4.5.3. Starting the negotiations 301 5.4.5.4. Negotiations 303 5.4.5.5. Agreement and implementation 305 5.4.6. Arbitration procedure 306 5.4.6.1. Starting the procedure 306 5.4.6.2. Advisory commission 308 5.4.6.3. Rights and obligations within the arbitration procedure 311 5.4.6.4. Opinion of the advisory commission 312 5.4.6.5. Costs 313 5.4.7. Correction of tax assessment 314 5.4.7.1. Abolition of international double taxation 314 5.4.7.2. Suspension of tax collection 315 xv
Chapter 6 Mutual Assistance and Recovery of Tax Claims 317 6.1. Directive on Administrative Cooperation 317 6.1.1. Background and relevance 317 6.1.2. Scope of application 320 6.1.3. Types of information exchange 323 6.1.3.1. Automatic exchange of information 323 6.1.3.2. Exchange on request 326 6.1.3.3. Spontaneous exchange of information 329 6.1.3.4. The exchanging authority 330 6.1.4. Limits for exchange of information 332 6.1.5. Disclosure of information 334 6.1.6. Presence in the requested state 335 6.1.7. Notification of tax decisions 336 6.1.8. Simultaneous controls 337 6.1.9. Consultations 338 6.2. Recovery Directive 339 6.2.1. The norms and scope of application 339 6.2.1.1. Norms 339 6.2.1.2. Taxes on income and capital 340 6.2.2. Competent authorities 341 6.2.3. Types of assistance 341 6.2.3.1. Exchange of information 341 6.2.3.2. Notification of documents 342 6.2.3.3. Recovery 343 6.2.3.4. Precautionary measures 348 6.2.4. Limits to the obligation to assist 348 6.2.5. Periods of limitation 349 6.2.6. Use of languages 350 6.2.7. Disclosure of information and documents 351 6.2.8. Costs linked to recovery 352 6.3. Savings Directive 353 6.3.1. Background and relevance 353 6.3.2. Scope of application 355 6.3.2.1. States applying the Savings Directive 355 6.3.2.2. Intra-EU cross-border interest payments to individuals 357 6.3.2.3. Beneficial owner 358 6.3.2.4. Paying agent 364 6.3.2.5. Competent authority 368 6.3.2.6. Interest payment 368 6.3.3. Exchange of information 377 6.3.3.1. Reporting by the paying agent 377 xvi
6.3.3.2. Automatic exchange of information 379 6.3.3.3. Relation to Directive on Administrative Cooperation 380 6.3.4. Withholding tax under transitional period 381 6.3.4.1. Withholding tax 381 6.3.4.2. Withholding tax base 382 6.3.4.3. Avoiding the withholding tax 383 6.3.4.4. Elimination of double taxation 384 Chapter 7 Legal Remedies 387 7.1. National legal remedies 387 7.2. Tax treaties 392 7.2.1. Mutual agreement procedure 392 7.2.2. Arbitration Convention 393 7.3. EU Court 393 7.3.1. Tasks of the EU Court 393 7.3.2. Preliminary rulings 395 7.3.3. Actions 398 7.3.3.1. Actions against a Member State 398 7.3.3.2. Infringement procedure 399 7.3.3.3. Actions of Member States 400 7.3.4. Costs 401 7.4. Effects of EU Court judgments 401 7.4.1. Repayment of taxes paid in conflict with EU law 401 7.4.2. Liability for damages 404 7.4.3. Consequences of the failure to comply with an EU Court judgment 406 References 407 Bibliography 407 EU Court cases (listed chronologically) 472 European Court of Human Rights 482 EFTA Cour 483 EU Court cases (listed alphabetically 483 Index 495 xvii
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