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Freedom of investment between EU and non-EU Member States and its impact on corporate income tax systems within the E

Freedom of investment between EU and non-EU Member States and its impact on corporate income tax systems within the European Union Dr. D.S. Smit LL.M. The Research Question. Starting point: international economic integration within the European Union

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Freedom of investment between EU and non-EU Member States and its impact on corporate income tax systems within the E

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  1. Freedom of investment between EU and non-EU Member States and its impact on corporate income tax systems within the European Union Dr. D.S. Smit LL.M.

  2. The Research Question • Starting point: international economic integration within the European Union • Free movement of persons, services & capital (“freedom of investment”) • Huge impact on Member States’ company tax regimes within the EU • International economic integration does not stop, however, at the borders of the EU • European Commission (2006): “European openness” • Article 63 TFEU: free movement of capital between Member States and between Member States and third countries • Various Association, Partnership and Cooperation Agreements with third countries

  3. The Research Question • Research question: • What is and should be the impact of the European free movement provisions on Member States’ company income tax systems in the relations between Member States and non-Member States?

  4. Scope of the Study • Focus on 6 corporate income tax measures in an international context*): • Direct third country investments between EU and non-EU Member States: • Indirect third country investments between EU and non-EU Member States through an EU intermediary: Non-EU EU *) 1 Withholding taxes 2 Limitations on the deduction of interest expenses 3 Relief for double taxation 4 CFC-legislation 5 Loss compensation 6 Transfer of business assets Non-EU EU Non-EU EU EU EU Non-EU EU

  5. Benchmark • Freedom of investment implies international tax neutrality • Inter-nations neutrality: • International tax neutrality can be best achieved if taxation does not adversely influence the relation between taxes and public goods to the disadvantage of transnational investment • Boils down, in its ultimate implications, to source-state based taxation • Neutrality considerations may be constrained by taxpayer equity considerations • Striking match with CJEU case law relating to freedom of investment: • Economic concept • Implies a genuine economic link with the territory of a Member State through the exercise of a genuine economic activity

  6. Structure and Conclusions of the Study • H1: Research question and acknowledgements • H2: Benchmark • H3: Dividing line between EU Member States and non-EU Member States • Position of associated and dependent territories: (part of a) Member State or third country? • Conclusion: third country to the extent not bound to apply the Treaty provision at stake • H4: Relevant positive integration between the Member States • H5: Relevant negative integration between the Member States • Conclusion: significant impact on Member States company tax systems

  7. Structure and Conclusions of the Study • H6: Access to freedom of investment vis-à-vis third countries • Conclusion: The bigger the investment, the lower the protection (benchmark of “definite influence”) • H7: Discrimination and justification grounds under freedom of investment vis-à-vis third countries • Conclusion: More room to successfully rely on justification grounds • H8: Temporal scope of freedom of investment vis-à-vis third countries • Conclusion: Limits the protection under the free movement of capital under Article 63 TFEU • Extends the protection under the APC Agreements

  8. Structure and Conclusions of the Study • H9: Indirectly held third country investments (intermediate companies & dual resident companies) • No protection in case of tax avoidance • Benchmark: Intermediate company has no genuine economic link with the economy of Member State • Requirement of proportionality: taxpayer must still be allowed to provide proof to the contrary

  9. Structure and Conclusions of the Study • H10: Recommendations & conclusions • Amendment of existing tax Directives • Definition of “third countries” • Common relief for double taxation for income from third country investments • Common CFC-provision for third country investments with no genuine economic link or subject to special tax regime • Common WHT system in case of intermediate EU companies with no genuine economic link

  10. Closing • Thank you for your attention…!

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