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Academic Year 2018-2019 Prof. Pietro Boria

Understand the fundamental principles of EU tax regulation and the importance of free movement for economic integration in the European legal system. Explore the principles of non-restriction and non-discrimination in tax laws.

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Academic Year 2018-2019 Prof. Pietro Boria

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  1. European Tax Law The European freedoms and the principle of non-restriction for Taxpurposes Academic Year 2018-2019 Prof. Pietro Boria

  2. The fundamental role of the freedoms of movement within the European framework • The EU Tax Regulation value system follows on from a set of principles informing different aspects of interstate dynamics: • Free movement of goods, persons, services and capital (artt. 28 – 66 TFEU); • The prohibiting of fiscal discrimination (artt. 110-113 TFEU); • Treaty provisions on free movement of goods, persons, services and capital represent one of EU’s essentials; The European freedoms and the principle of non-restriction for Tax purposes

  3. The freedoms of movement as founding value of the European legal system • The aim is to ensure the functioning of the Internal Market, which comprises an area without internal frontiers; • The Internal Market is intended to (internal perspective): • increase competition and specialization; • larger economies of scale; • allow goods and factors of production to move to the area where they are most valued; • ensure a more efficient allocation of resources; • The Internal Market is also intended to drive the economic integration between Member States within a single European-wide economy (relationships and partnerships with third countries); The European freedoms and the principle of non-restriction for Tax purposes

  4. The principle of non-restriction of the freedoms of movement for tax purposes • The four freedoms of movements are specifically ensured, in the taxation field, by the general principle of non-restriction for tax purpose; • Such principle exclude the adoption of protectionist/interventionist policies by Member States, which would jeopardize the economic mobility within the common market; • National provisions clashing with non-restriction principle have to be removed; • Non-discrimination may be regarded as a species of the broader genus of the freedom of movement, as the protection of the freedoms often represents the logical ground of the relevance of the detected discrimination (i.e. ECJ, January 28th 1986, Avoir fiscal, Case C-270/83); • However, the non-discrimination principle has its own logical and juridical independence as its violation can be independently complained (ECJ, July 16th 1998, Imperial Chemical Industries, Case C-264/96); The European freedoms and the principle of non-restriction for Tax purposes

  5. The judgement concerning the non-restriction in the jurisprudence of ECJ • The principle of non-restrictionwasenunciated for the first time in the leading case Dassonville (ECJ, July 11th 1974, Case C-8/74); • In thatoccasion the ECJ statedthatall trading regulationsenanced by MemberStateswhich are capable of hinderingdirectly or indirectly, actually or potentially, intra-Community tradeshould be regardedas a measurehavingequivalenteffect to the quantitative restrictions; • The verification of the restrictiveeffects (test of restriction) has a binarystructure, involving: • the determination of a regulatoryhurdleabout the freedom of movement; • Assessment of a reasonable cause of justificationthatlegitimazesnationalrestrictivemeasures; • In the taxationfield the principle of non discriminationforbids the adoption of taxregulationswhichjeopardize the freedoms of movement by MemberStates (i.d. transfer pricingregulations, exit taxes); The European freedoms and the principle of non-restriction for Tax purposes

  6. The free movement of goods • Art. 28 TFEU - The Union shall comprise a customs union which shall cover all trade in goods and which shall involve: • the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect; • the adoption of a common customs tariff in their relations with third countries; • Article 34 TFEU - Quantitative restrictions on imports and all measures having equivalent effect are prohibited between Member States; The European freedoms and the principle of non-restriction for Tax purposes

  7. The free movement of goods • Article 35TFEU - Quantitative restrictions on exports, and all measures having equivalent effect, are prohibited between Member States; • Article 36 TFEU (Exceptions) - The provisions of Articles 34 and 35 do not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of: • public morality; • public policy or public security; • the protection of health and life of humans, animals or plants; • the protection of national treasures possessing artistic, historic or archaeological value; • the protection of industrial and commercial property. The European freedoms and the principle of non-restriction for Tax purposes

  8. The free movement of goods • Article 37 TFEU - Member States shall adjust any State monopolies of a commercial character; • The provision aims to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States; • The provision also applies to: • any body through which a Member State, in law or in fact, either directly or indirectly supervises, determines or appreciably influences imports or exports between Member States; • monopolies delegated by the State to other subjects. The European freedomsand the principle of non-restriction for Tax purposes

  9. The free movement of services • Article 56 TFEU - Restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended; • Services shall be considered to be ‘services’ within the meaning of the Treaties where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons; • In particular, services include: • activities of an industrial character; • activities of a commercial character; • activities of craftsmen; • activities of the professions. The European freedoms and the principle of non-restriction for Tax purposes

  10. The free movement of services • In the taxation field the free movement of services is mostly ensured by the indirect taxes harmonization policy; • However income taxes may as well have a restrictive effect on the free movement of services; • National income tax rule may, in fact (ECJ, January 30th 2007, Commission vs. Danimarca, Case C-150/04); • deter non-resident providers from carry out their activities in another Member State; • discourage national service recipients to seek or receive services from another member State; The European freedoms and the principle of non-restriction for Tax purposes

  11. The free movement of capital – The free movement of capital for fiscal puposes • Article 63 TFEU - All restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited; • All restrictions on payments between Member States and between Member States and third countries shall be prohibited; • The free movement of capital isstrictlyconnected to the targets of economicintegration, allowing the concrete development of productiveinitiatives and business in the EU territory (freedom of enterprise, establishment of parent companies); • In particular, the free movement of capital entitlesEuropeanoperators: • to raise capital for the development of economicactivities and enterprises (recipientpoint of view); • to invest capital in order to achieve an economicreturn (investorpoint of view). The European freedoms and the principle of non-restriction for Tax purposes

  12. The free movement of capital – The free movement of capital for fiscal puposes • In particular, the free movement of capital entitlesEuropeanoperators: • to raise capital for the development of economicactivities and enterprises (recipientpoint of view); • to invest capital in order to achieve an economicreturn (investorpoint of view). • Therefore, nationaltaxlawscannotdetermine a disadvantage or deter non-residentfreedom to move capital; • In thisperspective, the ECJ hasstatedthattaxadvantagesaccorded to the capital gainsarising from domesticinvestments produce a restrictiveeffect toward non-residentinvestors (ECJ, July 15th 2004, Lenz, Case C-315/02); The European freedoms and the principle of non-restriction for Tax purposes

  13. The free movement of capital – The exceptions to the free movement of the capital expressly provided by the Treaty • Article 65 TFEU - Free movement of capital does not jeopardize the right of Member States: • to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested; • to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information; • to take measures which are justified on grounds of public policy or public security; • Therefore, Member States may introduce distinctions in the fiscal treatment of resident/non-resident taxpayers on grounds of general interests as long as they do not constitute discriminatory or disguised restrictions to the free movement of capital (ECJ, July 6th 2000, Verkooijen, Case 35/98); The European freedoms and the principle of non-restriction for Tax purposes

  14. The free movement of people – The free movement of workers • Article 45 TFEU - Freedom of movement for workers shall be secured within the Union; • The free movement of workers represents an application of the general principle of non-discrimination on the basis of nationality stated by art. 18 TFEU; • Such freedom entails the abolition of any discrimination based on nationality between workers of the Member States as regards: • Employment; • Remuneration; • other conditions of work and employment. • Such freedom entails the right to: • accept offers of employment actually made; The European freedoms and the principle of non-restriction for Tax purposes

  15. The free movement of people – The free movement of workers • move freely within the territory of Member States for this purpose; • stay in a Member State for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action; • remain in the territory of a Member State after having been employed in that State, subject to conditions which shall be embodid in regulations to be drawn up by the Commission; • Free movement of workers is subject to limitations justified on grounds of: • public policy; • public security; • public health. • Free movement of workers does not apply to employment in the public service. The European freedoms and the principle of non-restriction for Tax purposes

  16. The free movement of people – The freedom of establishment • Art. 49 TFEU - Restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited (primary establishment); • Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State (subsidiary establishment); • The freedom of establishment represents a further application of the general principle of free movement (art. 18 TFEU) implicating the right to establish in another Member State productive economic activities not related to an employment; • Freedom of establishment includes the right: • to take up and pursue activities as self-employed persons; • to set up and manage undertakings, in particular companies or firms under the conditions laid down for its own nationals by the law of the country where such establishment is effected; The European freedoms and the principle of non-restriction for Tax purposes

  17. The free movement of people – The freedom of establishment • According to the freedom of establishment nationallawsconnot: • Produce direct/indirectdiscriminationsbetweenresidents/non-residents (market equality); • prevent/restrict the access of national market to non-residents (market access); • In the taxationfield the freedom of establishment implicates the prohibition to apply an inferior fiscal regime to non-residents’ subsidieries and permanent establishments (i.d. treatment of losses; • To fall under the freedom of establishment statute non-residentoperatorsneed to: • carry on an economicactivity in anotherMember State; • have a minimum level of fisicalpresece in the otherMember State; • Thus the Europeanprotectionisnotaccorded to purelyartificialsettlementaiming to obtain a taxsaving (ECJ, September 12th 2006, Cadbury Schweppes, Case C-196/04); The European freedoms and the principle of non-restriction for Tax purposes

  18. The free movement of people – The freedom of establishment • Article 54 TFEU (Fisical and legal persons equating) - 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 Union have to be treated in the same way as natural persons who are nationals of Member States; • ‘Companies or firms’ means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making; • The right of establishment does not apply to activities which in that State are connected, even occasionally, with the exercise of official authority; • The right of establishment cannot prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health. The European freedoms and the principle of non-restriction for Tax purposes

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