«Influence of EU Law on Taxation in the EU Member States' Overseas Territories and Crown Dependencies IN-DEPTH ANALYSIS Abstract This legal study ...»
DIRECTORATE GENERAL FOR INTERNAL POLICIES
POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY
Influence of EU Law on Taxation in
the EU Member States' Overseas
Territories and Crown Dependencies
This legal study researches the influence on tax law and practice in the overseas
areas of the Member States by state aid rules, secondary EU tax law and the Overseas Association Decision. The state aid rules and secondary EU tax law apply to the outermost Regions, Gibraltar and the Åland Islands and not to the Overseas Countries and Territories and the Crown Dependencies, although the Savings Directive applies atypically. An amendment of the Overseas Association Decision might provide a solution.
This document was prepared by Policy Department A at the request of the TAXE2 Committee.
IP/A/TAXE2/2016-05 June 2016 PE 578.989 EN This document was requested by the European Parliament's Committee on TAXE2.
AUTHORSWessel GEURSEN Self-employed legal researcher / lawyer and affiliated PhD-Fellow Vrije Universiteit.
Coordinated and supervised:
René REPASI European Research Centre for Economic and Financial Governance (EURO-CEFG) Erasmus University Rotterdam Burgemeester Oudlaan 50 3000 DR Rotterdam email@example.com
RESPONSIBLE ADMINISTRATORDirk VERBEKEN
EDITORIAL ASSISTANTKarine GAUFILLET
LINGUISTIC VERSIONSOriginal: EN
ABOUT THE EDITORPolicy departments provide in-house and external expertise to support EP committees and other parliamentary bodies in shaping legislation and exercising democratic scrutiny over EU internal policies.
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Policy Department A: Economic and Scientific Policy European Parliament B-1047 Brussels E-mail: Poldep-Economy-Science@ep.europa.eu Manuscript completed in April 2016 © European Union, 2016
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Influence of EU law on Taxation in the EU Member States' Overseas Territories and Crown Dependencies
LIST OF ABBREVIATIONS 5
EXECUTIVE SUMMARY 6
1. INFLUENCE OF EU LAW ON THE MEMBER STATES' TAX LAW 8
EXECUTIVE SUMMARYBackground Since the discussion on harmful tax competition in the mid-nineties of the preceding century, the question arises to which extent national tax law can be influenced by EU law. The Commission started a first wave of state aid cases with regard to favourable tax measures in July 2001 and concluded that tax measures of several Member States constituted unlawful state aid. The tax laws had to be amended and the state aid in some cases recovered. State aid has shown to be a powerful tool to influence national tax legislation which was considered to be harmful. Not all harmful taxes can however be characterised as state aid. Furthermore, some overseas areas offering low tax offshore constructions are part of EU Member States or have a special relationship with them. For those areas the question arises whether their 'regional' tax laws can be influenced by EU law.
Aim The in-depth analysis should evaluate the impact of EU law on the tax law of the overseas' countries and territories (OCT) and the outermost regions of the EU Member States.
The research in this report will:
discuss the influence of EU law on the tax law and practices of the Member States in general (chapter 1);
establish the territorial scope of application of EU law with regard to the OCT and the outermost regions (chapter 2);
examine the application of EU State aid law and its enforcement in tax matters in overseas countries and territories and the outermost regions (chapter 3);
specify to which extent current and/or future EU secondary law concerning direct and indirect taxes has to be implemented by overseas countries and territories and the outermost regions (chapter 4);
conclude with an overview of the legal possibilities of the Union to influence the tax law and practices of the overseas countries and territories and the outermost regions (chapter 5);
present a case study on the absence of taxation of profits of companies established on the Dutch OCTs Bonaire, Sint Eustatius and Saba (chapter 6).
Conclusion For the purpose of this executive summary, an overview of the findings of this report is represented in the form of a matrix in the following table.
Since the UCC applies to goods coming from outside the Customs Territory, the sign √ means that the area is 2 included in the Customs Territory and the sign X means that the area is located outside the that territory.
Directive 2003/48/EC on taxation of savings income in the form of interest payments (the Savings Directive) 3 (OJ 2003, L157/38) applies only to the Dutch and five Caribbean British OCT, with the exception of Bermuda. As for the French OCT, it only applies to Saint-Barthélemy. It does not apply to the Danish OCT Greenland.
Except for agricultural products and limited to Articles 108(1) TFEU and the first sentence of Article 108(3) TFEU.
KEY FINDINGSDirect taxation remains Member States' jurisdiction.
That jurisdiction must, however, be exercised consistently with EU law.
Direct taxation is influenced by the provisions on free movement and state aid.
Secondary EU law in the field of direct taxation must be decided on unanimously by the Council.
Secondary EU law in the field of direct taxation of companies is only marginal, since the major areas of company taxation are not harmonised.
This chapter will discuss the legal possibilities of the Union to influence the tax law and practices of the Member States in general.
1.1.1. Influence of primary EU law The jurisdiction or competence5 to regulate direct taxation is retained by the Member States.
This does not mean that EU law has no influence on national tax law. As the CJEU expresses it: "the powers retained by the Member States must nevertheless be exercised consistently with [EU-]law".6 National tax rules of the Member States may unduly hinder free movement of mainly establishment (Article 49 TFEU), services (Article 56 TFEU), or capital (Article 63 TFEU). In cases coming to the CJEU by preliminary reference or by infringement procedure, the CJEU often ruled that national tax rules disallowing non-residents tax advantages granted to residents of a Member State infringed one of the free movement provisions of the TFEU without justification.7 This leads to so-called negative harmonisation.8 At the same time, tax law - both direct and indirect - of the Member States may not conflict with the state aid rules of Articles 107 TFEU et seq.9 Fiscal measures may also constitute state aid, even though no State resources have been transferred to the undertaking, as in Sometimes referred to as tax sovereignty, although according to Barents that is a false paradigm; R. Barents, 5 'The Single Market and National Tax Sovereignty', in: S.J.J.M. Jansen (ed.), Fiscal Sovereignty of the Member States in an Internal Market: Past and Future, Alphen a/d Rijn: Kluwer Law International, 2011, pp. 51-71, on p. 58 et seq.
Case C-279/93 Schumacker 1995 [ECR] I-225, para. 12; this is a standard formula/mantra used by the CJEU in free 6 movement cases with regard to national tax rules which (possibly) hinder free movement.
For a further description, see for example M. Dahlberg, Direct Taxation in Relation to the Freedom of Establishment 7 and the Free Movement of Capital, The Hague: Kluwer Law International, 2005 and P. Pistone, The Impact of Community Law on Tax Treaties: Issues and Solutions, The Hague: Kluwer Law International, 2002.
On positive and negative harmonisation, see for example A. Dashwood, 'The Harmonisation Process', in: C. Cosgrove 8 Twitchett (ed.), Harmonisation in the EEC, London: The MacMillan Press, 1981, p. 7-17, on p. 14.
For a further description, see for example L. Hancher, T. Ottervanger, P.J. Slot, EU State Aids, London: Sweet & 9 Maxwell, 2012, espec. chapter 10: State Aid in the Area of Taxation.
the case of a subsidy.10 Therefore they must be notified to and cleared by the European Commission on the basis of Article 108(3) TFEU, in default of which the state aid is unlawful.11 1.1.2. Influence of secondary direct tax law Positive harmonisation of the Member States' tax laws as such and by itself is not an objective of EU law. Secondary EU law in the domain of direct taxation of companies is found in the policy field of the internal market (Article 26 TFEU) in order to abolish tax obstacles to crossborder business.
With regard to internal market directives in the field of fiscal policy, the Council has to decide "unanimously in accordance with a special legislative procedure" according to Article 114(2) and 115 TFEU. This is one of the few domains in which Member States still hold a veto-right since unanimity is required. The European Parliament and the Economic and Social Committee have a consulting role in this procedure.
Positive harmonisation of direct taxation of companies has been effectuated by the following
directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (the Parent-Subsidiary Directive);12 directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (the Interest and Royalty Directive);13 directive 2009/133/EC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (the Merger Directive).14 directive 2011/16/EU as regards administrative cooperation in the field of taxation (the Administrative Cooperation Directive).15 The first two directives provide (under conditions) for tax-free intra-group payments of (i) dividends and (ii) interest and royalties. Furthermore, the Merger Directive provides (under conditions) for tax-free group restructuring. The Administrative Cooperation Directive provides for exchange of information between Member States' tax authorities and other forms of administrative cooperation. For further details on these directives and possible future directives regarding the direct taxation of companies, see section 4.1.1., below.
Cf. Joined cases C-78/08 to C-80/08 Paint Graphos and Others  ECR I-7611 ECLI:EU:C:2011:550, para. 46.
10 According to the definition of Article 1(f) of Regulation 2015/1589 laying down detailed rules for the application of 11 Article 108 of the Treaty on the Functioning of the European Union (OJ 2015, L248/9).
OJ 1990, L225/20.
12 OJ 2003, L157/49.
13 Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and 14 exchanges of shares concerning companies of different Member States (OJ 1990, L225/1), recast / codified by Directive 2009/133/EC (OJ 2009, L310/34).
Directive 2011/16/EU as regards administrative cooperation in the field of taxation and repealing Directive 15 77/799/EEC (OJ 2011, L64/1), as amended by directive 2014/107/EU for automatic exchange of financial account information (OJ 2014, L359/1).
The major areas of direct company taxation are however not harmonised, such as the definitions of taxable persons;
the tax base (i.e. the definition of taxable profit and deductible costs, period of amortisation of investments and R&D-costs, etc.); and tariffs.
The above mentioned four directives concern relatively minor details of the national tax legislation. Positive harmonisation of direct taxation of companies is in the author's view therefore only marginal.
1.2. Indirect taxation Since one of the main pillars of EU law is the customs union within which free movement of goods is allowed, all rules with regard to customs duties is harmonised in Regulation 952/2013 laying down the Union Customs Code (the Union Customs Code (UCC)).16 Related to that is that vast harmonisation of other indirect taxes, such as VAT through Directive 2006/112/EC on the common system of value added tax,17 excise duties18 on alcohol, tobacco and energy and indirect taxes on the raising of capital.19 In those areas, there is hardly any room left for the Member States to regulate indirect taxes on a national level independent of that vast harmonisation.
Directive 2008/118/EC concerning the general arrangements for excise duty and repealing Directive 92/12/EEC 18 (OJ 2009, L9/12).
Directive 2008/7/EC concerning indirect taxes on the raising of capital (OJ 2008, L46/11).
This chapter will discuss the territorial scope of application of EU law with regard to the overseas parts of Member States in general and the OCT and the OMR in particular.