Recent EU tax cases Daniel Jowell

1. Recent EU tax cases Daniel Jowell February 2010

2. Traditional 3 stage test • Restriction i.e. Is the exercise of the freedom impeded or made more onerous by the measure? • Justification i.e. Is the measure aimed at serving an “overriding reason of public interest”? • Proportionality i.e. Is the measure appropriate to the objective in question; was there a less restrictive alternative?

3. Restriction • Exercise “less attractive” • Capable of restricting: no need to show actual effect of deterring the exercise: Eg.Case C-231/05 Oy AA, [39] – [42] • No de minimis exception Eg.Case C-170/05 Denkavit at [50]

4. Overriding justifications • Balanced allocation of the powers to impose taxes between Member States • Preventing tax evasion: purely artificial arrangements • Fiscal cohesion: direct link • Preventing double use of losses: stand alone? • Fiscal supervision: still available?

5. Combinations of justifications • Case C-446/03 M&S: balanced allocation; double use of losses and preventing tax evasion • Case C-231/05 Oy AA: balanced allocation and preventing tax evasion • Case C-414/06 Lidl Belgium: balanced allocation

6. Geelhoed’s approach • No ‘true restriction’ where disadvantage stems purely from disparities or the division of tax jurisdiction between Member States’ different tax systems • Home state: to treat foreign-source income of its residents consistently with the way it has divided its tax base. If it has divided its tax base to include this foreign-source income – treating it as taxable income – it must not discriminate between foreign-source and domestic income • Source State: must not discriminate between residents and non-residents (insofar as latter fall within its tax jurisdiction)

7. Case C-418/07 Papillon (27/11/08) • Restriction • Justification: • No balanced allocation justification • Yes, fiscal coherence • Disproportionate

8. Case C-377/07 Finanzamt Speyer(22/01/09) • Restriction • No justification: • Transitional provision irrelevant • Fiscal coherence – no direct link • Fiscal control (assuming a justification, not applicable)

9. Case C-303/07 Aberdeen Property (18/06/09) • AG Mazak (Geelhoed approach): host state case and discrimination – hence infringement • Court (traditional 3 step analysis): • Restriction • No justification: • Prevention of tax evasion: not solely aimed at wholly artificial arrangements • Balanced allocation – chose not to tax • Fiscal coherence – no direct link

10. Case C-182/08 Glaxo(09/07/2009) • Restriction • Justifications: • Fiscal coherence rejected • Balanced allocation accepted • Prevention of tax evasion accepted • Proportionality – left to national court to determine

11. Case C-540/07 Commission v Italy (16/07/09) • Restriction: rejects comparison between individuals and companies • No justification in either fiscal coherence or balanced allocation (for same reason) • No justification in preventing tax evasion – not aimed only at wholly artificial arrangements and mutual assistance directive available

12. Case C‑569/07 HSBC, Vidacos(1/10/09) • Prohibited as a tax on issue under Article 11(a) of the Capital Duty Directive; not a tax on ‘transfer’ within the meaning of Article 12(1)(a) • Free movement of capital: • AG: was a restriction and not justified by need for effective fiscal supervision • Court: fully harmonised at Community level – hence not considered.

13. Case C-311/08 SGI (21/01/10) • Restriction • Justified by balanced allocation of power and preventing tax evasion • Proportionate • NB Advocate General: balanced allocation not restricted to cases preventing tax evasion.

14. Some notable domestic cases • Vodafone II [2009] EWCA Civ 446 • Test Claimants in Thin Cap [2009] EWHC 2908 • Phillips Electronics [2009] UKFTT 226 (TC) • F J Chalke Ltd [2009] EWHC 952 (Ch) • John Wilkins [2009] UKUT 175 (TCC) • Test Claimants in FII [2010] EWCA Civ 103

15. Thank you