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«Influence of EU Law on Taxation in the EU Member States' Overseas Territories and Crown Dependencies IN-DEPTH ANALYSIS Abstract This legal study ...»

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2.1. The general framework: Art. 52 TEU & Art. 355 TFEU and Accession Protocols The territorial scope of EU law is defined by Article 52 TEU. According to Article 52(1) TEU the Treaties (i.e. the TEU and TFEU;20 thus primary EU law) shall apply to the Member States.21 This implies that (primary) EU law applies to the complete territory of the Member States. The territorial scope of EU law is according to Article 52(2) TEU further specified in Article 355 TFEU. Especially with regard to the overseas parts of some Member States further specifications are made in that provision. Some group-wise as the so-called Outer-Most Regions (OMR) and Overseas Countries and Territories (OCT) (the OMR and OCT concerned are enumerated in Annex 1 to this report) and others are distinguished individually to which

a status sui generis. It concerns in:

 Article 355(1) TFEU: the French, Portuguese and Spanish OMR;

 Article 355(2) TFEU: the British, Danish, Dutch and French OCT;

 Article 355(3) TFEU: Gibraltar;

 Article 355(4) TFEU: the Finnish Åland Islands;

 Article 355(5)(c) TFEU: the Crown Dependencies of the Channel Islands and Isle of Man.

On the basis of Article 355(6) TFEU, the status of an OMR may be changed to the OCT and vice versa by an unanimous decision of the European Council. The first decisions of this kind were taken with regard to the French island of Saint-Barthélemy, whose status was changed from OMR to OCT22 and a status change from OCT to OMR was adopted with regard to the French island Mayotte.23 Next to the specifications made in Article 355 TFEU, some (protocols to) treaties of accession also provide for further specification of the territorial scope in relation to the new Member According to Article 1 TEU.

20 The Euratom-Treaty has defined its own territorial scope in Article 198 and slightly differs from the other Treaties.

21 Since the Euratom-Treaty is outside the scope of the report, that treaty and the differences will not be treated further.

2010/718/EU: European Council Decision of 29 October 2010 amending the status with regard to the European 22 Union of the island of Saint-Barthélemy (OJ 2010, L325/4).

2012/419/EU: European Council Decision of 11 July 2012 amending the status of Mayotte with regard to the 23 European Union (OJ 2012, L204/131).

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States, without Article 355 TFEU referring to those protocols. For example, Article 25 (1) of the Act of Accession of Spain and Portugal24 determines that "[t]he Treaties and the acts of the institutions of the European Communities shall apply to the Canary Islands and to Ceuta and Melilla, subject to the derogations referred to in paragraphs 2 and 3 and to the other provisions of this Act."

Protocol 2 to the Act of Accession of Spain and Portugal contains further specifications on the (territorial) application of EU law to the Canary Islands and Ceuta and Melilla. This study will not research the application of EU law in Ceuta and Melilla further. The Canary Islands are a Spanish OMR.

2.1.1. Article 355(1) TFEU: Outermost Regions According to Article 355(1) TFEU "[t]he provisions of the Treaties shall apply to [the OMR] in accordance with Article 349."

On the basis of Article 349 TFEU, further measures "shall [be] adopted" by the Council "[t]aking account of the structural social and economic situation of [the OMR], which is compounded by their remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development".

On the basis of this provision, secondary EU law has been adopted which applies specifically to the OMR.25 The main rule is that EU law applies to the OMR. Therefore the OMR are part of the internal market, but (tailor-made) exceptions are allowed.26 2.1.2. Article 355(2) TFEU: Association of the OCT According to Article 355(2) TFEU only Part Four of the TFEU will apply to the OCT (Articles 198-204 TFEU). This is the so-called Association Regime. Based on this regime (i.e. Article 203 TFEU) is the so-called Overseas Association Decision (OAD) which contains more detailed rules. The OAD is replaced periodically. Since 1 January 2014 the Eighth OAD27 is in force.

The OCT are listed in Annex II to the TFEU (see also annex 1 to this report).

Although Article 355(2) TFEU suggests that only the Association regime of Part IV TFEU applies to the OCTs, it is not excluded that EU law of more general nature which are not contained in the Association Regime apply to the OCT. For example, judges from OCTs are judges from a Member State who can ask the CJEU for a preliminary ruling on the basis of Article 267 TFEU.28 Nevertheless, the main rule stays that only the Association Regime of Part Four TFEU and the OAD applies to the OCT; material rules such as the internal market and state aid rules do not apply (see chapters 3 and 4 below).

The importance of the OAD for the definition of the legal relationship between EU rules and the law of the covered OCT suggest to take a deeper look into the decision-making process of the OAD and the role of the OCTs therein.

Act concerning the conditions of accession of the Kingdom of Spain and the Republic of Portugal and the adjustments 24 to the Treaties of 12 June 1985 (OJ 1985, L302/23).





25 For a description of the specific secondary legislation for the OMR, cf. P. Wolfcarius, 'Les effets de l’octroi du statut de région ultrapériphérique: l’exemple de Mayotte', L'Obeservateur de Bruxelles, Nr 97, July 2014, p. 14-24.

Case 148/77 Hansen 1978 [ECR] 1787, para. 9 and 10.

26 Council Decision 2013/755/EU of 25 November 2013 on the association of the overseas countries and territories 27 with the European Union (OJ 2013, L344/1).

Joined cases C-100/89 and C-101/89, Kaefer and Procacci [1990] ECR I-4647, para. 8-10.

28

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The decision making process of the OAD and the role of the OCTs After a proposal from the Commission, the Council decides unanimously on the basis of Article 203 TFEU on (the content of) the OAD in accordance with a special legislative procedure and after consulting the European Parliament.

The (representatives of the) OCTs are formally not involved in the decision making process of the OAD. This might lead to (possible) conflicts of interest between a Member State and its 'own' OCTs when voting for (an amendment of) the OAD. The following example is illustrative of such a conflict. With regard to the preferential treatment of sugar and rice coming from the Dutch OCTs, the Kingdom of the Netherlands intended to vote for an amendment of the OAD limiting the amount of sugar and rice under the preferential treatment. This was not in the direct interest of the Dutch OCT. The Dutch OCT tried fruitlessly to obtain a judicial order from a Dutch judge to prohibit its government / minster of external affairs to vote in the Council's meeting on the amendment.29 Even though, the (representatives of the) OCTs are formally not involved, they were however (informally) involved in the preparation of the Eighth OAD as stakeholders.30 Furthermore, an OCT can request the Council to be outside the territorial scope of application of the OAD. At first sight, one might expect that the OAD applies de jure to all OCTs listed in Annex II to the TFEU. Nevertheless, the Council may decide otherwise and limit the territorial scope of the OAD by excluding specific OCTs. The following example is illustrative of such an exclusion. Although the British OCT Bermuda has been mentioned as OCT in the list of OCTs in Annex II to the TFEU since the accession of the UK to the EU, the OADs which were in force before the current Eighth OAD were not applicable to Bermuda "in accordance with the wishes of the Government of Bermuda."31 Since the entry into force of the Eighth OAD, the OAD is applicable to Bermuda since it "decided to join the [OAD]"32 and therefore applies to all OCTs listed in Annex II to the TFEU. In the author's view, the statement that Bermuda decided to join the OAD, is not relevant under Article 203 TFEU. It was the Council in the first place which decided to limit the territorial scope of the preceding OADs by excluding Bermuda from its application. And with the Eighth OAD, it was the Council which decided to include Bermuda. By doing so, it respected the wishes of the government of Bermuda, but was not obliged to do so.

This case demonstrates that Bermuda (wished to be) opted-out till the Eighth OAD and optedin to the Eighth OAD. With regard to opting-out/-in, it is in the author's view - in the future

- not up to OCTs to opt-out from the OAD. At least, the OAD is legally binding for the OCTs, since the Member States to which the OCTs 'belong' are party to the TFEU and bound by the Association regime of Part IV. Whether ignoring the wishes of an OCT is politically feasible and whether a request for an opt-out from the OAD can be denied by the Council, seems to be questionable in the author's view, having regard to the colonial history of most of the OCTs and consequent (sensitive) discussions on autonomy of the OCTs within the These cases concerned the limitation of the quantities of rice and sugar which could be imported against preferential 29 tariff from the Netherlands Antilles into the internal market on the basis of the OCT Decision applicable at the time;

the OCT Decision was amended for that reason. The Dutch Government voted in favour of that amendment. See further: L.F.M. Besselink, 'Suiker en rijst uit de West - over Europees recht en de Koninkrijksverhoudingen', NJB 1998, nr. 29, p. 1291.

Commission staff working document impact assessment accompanying the document Council Decision on the 30 association of the overseas countries and territories with the European Union ("Overseas Association Decision") of 16 July 2012 (SWD(2012) 194 final).

Recital 22 of the preamble of the Seventh OAD (OJ 2001, L314/1).

31 https://ec.europa.eu/europeaid/countries/bermuda_en; visited on 24 April 2016.

32

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constitutional order of the Member States and the history of many OCTs becoming independent third States.

2.1.3. Article 355(3) TFEU: Gibraltar Article 355(3) TFEU specifies that "[t]he provisions of the Treaties shall apply to the European territories for whose external relations a Member State is responsible." The Member State of the United Kingdom of Great Britain and Northern Ireland is responsible for the external relations of Gibraltar.33 Therefore, the general rule for Gibraltar is that EU law applies to its territory. However, specific exceptions have been made for Gibraltar in the UK Act of Accession34, such as the exclusion of Gibraltar from the customs territory.35 That exclusion further "entails the inapplicability of the Treaty provisions and secondary legislation on trade in goods, unless otherwise expressly provided."36 Other primary EU law, such as the state aid rules (see Chapter 2 below), is nevertheless applicable.

2.1.4. Article 355(4) TFEU: Finnish Åland Islands Article 355(4) TFEU specifies that EU law "shall apply to the Åland Islands in accordance with the provisions set out in Protocol 2 to [the Act of Accession of Austria, Finland and Sweden37]." According to that Protocol "the Treaties on which the European Union is founded shall apply to the Åland islands with the [...] derogations" specified in that Protocol. For the purposes of this report only the derogation of Article 2(a) of that Protocol is relevant,38 since it determines that indirect tax directives will not apply to the Åland Islands. 39 No derogation was made for the application of primary EU law.40 As stated by the CJEU in Cases C-30/01 Commission/United Kingdom [2003] ECR I-9481, ECLI:EU:C:2003:489, 33 para. 47 and C-145/04 Spain/United Kingdom [2006] ECR I-7917, para. 19 and as confirmed by the UK in Declaration 55 to the Treaty of Lisbon: "The Treaties apply to Gibraltar as a European territory for whose external relations a Member State is responsible. This shall not imply changes in the respective positions of the Member States concerned."

The act concerning the conditions of accession for the Kingdom of Denmark, Ireland and the United Kingdom of 34 Great Britain and Northern Ireland and the adjustments to the Treaties (OJ 1972, L73/14).

Article 29 of that the UK Act Of Accession and Annex I, Section I, point 4, thereto.

35 Confirmed by the CJEU in Case C-30/01 Commission/United Kingdom [2003] ECR I-9481, ECLI:EU:C:2003:489, 36 para. 60.

Act concerning the conditions of accession of the Republic of Austria, the Republic of Finland and the Kingdom of 37 Sweden (OJ 1994, C241/358).

For a further description, cf. N. Fagerlund, 'The Special Status of the Åland Islands in the European Union', in: L.

38 Hannikainen, F. Horn (eds.), Autonomy and Demilitarisation in International Law: The Åland Islands in Changing European Context, The Hague: Kluwer Law International, 1997, pp. 189-256.

With the exception of Directive 69/335/EEC concerning indirect taxes on the raising of capital (OJ 1969, L249/25), 39 repealed and recast directive 2008/7/EC (OJ 2008, L46/11), which therefore applies.

Cf. e.g. Case C-42/02 Lindman [2003] ECR I-13519 ECLI:EU:C:2003:613 on the application of the freedom to 40 provide services in relation to local lottery taxes on the Åland Islands; this case demonstrates that primary EU law is applicable. Although, it should be noted that Article 1 of Protocol 2 allows for non-discriminatory restrictions for EU-citizens who do not possess the regional citizenship of the Åland Islands.

14 PE 578.989 Influence of EU law on Taxation in the EU Member States' Overseas Territories and Crown Dependencies 2.1.5. Article 355(5)(c) TFEU: The Channel Islands and Isle of Man According to British (unwritten) constitutional law, 41 the Crown Dependencies are not part (of the territory) of the United Kingdom.42 Parts of EU law nevertheless apply to those islands on the basis of Article 355(5)(c) TFEU and Protocol 3 to the UK Act of Accession.

According to Article 355(5)(c) TFEU "the Treaties shall apply to the Channel Islands and the Isle of Man only to the extent necessary to ensure the implementation of the arrangements for those islands set out in the [Protocol 3 to the UK Act of Accession43]". According to Art. 1 of that Protocol the Union Customs Code applies to these British Crown Dependencies.



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