«Influence of EU Law on Taxation in the EU Member States' Overseas Territories and Crown Dependencies IN-DEPTH ANALYSIS Abstract This legal study ...»
Nevertheless, France took up the obligation to extend the scope of the mutual assistance directive 77/799/EEC to 56 its OCT Saint-Barthélemy upon its change of status from OMR to OCT; Recital 4 of European Council Decision 2010/718/EU of 29 October 2010 amending the status with regard to the European Union of the island of SaintBarthélemy (OJ 2010, L325/4).
Confirmed by the CJEU concerning the failure to partially implement the mutual assistance directive 77/799/EEC in 57 Case C-349/03 Commission / UK 2005 [ECR] I-7321 ECLI-code: ECLI:EU:C:2005:488.
Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of profits of 58 associated enterprises (OJ 1990, L225/10).
4.1.2. Proposed directives in the field of direct taxation As to possible future harmonisation in the field of direct taxation of companies, the
Commission has issued three proposals for directives:
on a Common Consolidated Corporate Tax Base (CCCTB);59 on anti tax avoidance;60 on the automatic exchange of information on tax rulings; 61 Since these are also internal market directives, it meets the same fate: only applicable to the overseas' parts of the Member State which are part of the internal market; i.e. the OMR, Gibraltar and the Åland Islands.
4.2. Indirect taxes This section focuses on VAT and Custom duties. Other indirect taxes, such as excise duties 62 on alcohol, tobacco and energy and indirect taxes on the raising of capital 63 are outside the scope of this report, since - in the author's understanding - they fall outside the scope of the aim of the TAXE 2 Committee.
4.2.1. Fiscal Territory for VAT purposes With regard to the overseas' areas of the Member States on which this report focuses, the VAT Directive64 determines that it does apply to the Portuguese OMR,65 but does not apply to the French66 and Spanish67 OMR and to the Åland Islands.68 Gibraltar also falls outside the territorial scope of the VAT Directive on the basis of Article 28 of the UK Act of Accession to the European Communities determines that "the acts on the harmonization of legislation of Member States concerning turnover taxes, shall not apply to Gibraltar unless the Council, acting unanimously on a proposal from the Commission, provides otherwise."
As for the Crown Dependencies a division has to be made, since the VAT Directive does apply to the Isle of Man69 and does not apply to the Channel Islands.70 Proposal for a directive on a Common Consolidated Corporate Tax Base (COM(2011) 121/4 final).
59 Proposal for a Directive laying down rules against tax avoidance practices that directly affect the functioning of the 60 internal market (COM(2016) 26 final).
Proposal for a Directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information 61 in the field of taxation (COM(2015) 135 final).
Directive 2008/118/EC concerning the general arrangements for excise duty and repealing Directive 92/12/EEC (OJ 62
Directive 2008/7/EC concerning indirect taxes on the raising of capital (OJ 2008, L46/11).
63 Directive 2006/112/EC on the common system of value added tax (OJ 2006, L347/1).
64 Nevertheless, particular provisions on the Azores and Madeira may be found in the VAT Directive in Articles 105, 65
Article 6(1)c of the VAT Directive.
66 Article 6(1)b of the VAT Directive.
67 Article 6(1) of the VAT Directive.
68 Article 7(1) of the VAT Directive.
69 Article 6(1)e of the VAT Directive.
4.2.2. Customs Territory According to Article 4(1) of the Union Customs Code71, the British, Danish, Dutch and French OCT are excluded from the Customs Territory. The OMR and Åland Islands are not excluded from the customs territory. The Isle of Man and Channel Islands are explicitly mentioned as being part of the Customs Territory. Gibraltar is outside the customs territory in accordance with Article 29 of that the UK Act of Accession and Annex I, Section I, point 4, thereto.72 Regulation 952/2013 laying down the Union Customs Code (OJ 2013, L269/1).
71 Confirmed by the CJEU in Case C-30/01 Commission/United Kingdom  ECR I-9481, ECLI:EU:C:2003:489, 72
This chapter will discuss the legal possibilities of the Union to influence the tax law and practices of the overseas countries and territories and the outermost regions in particular.
5.1. The direct tax directives do not apply overseas, except for Savings Directive As mentioned in section 1.1, above, direct taxation remains one of the few policy fields where Member States have the general competence to regulate and on which the Council has to vote unanimously when it comes to harmonisation. To the OCTs which offer attractive tax structures from a company point of view, the internal market directives on direct taxation of companies do not apply, since the OCTs are not part of the internal market. Nevertheless, the internal market Directive 2003/48/EC on taxation of savings income in the form of interest payments (the Savings Directive)73 demonstrates that even within this domain, where consensus is complicated because of veto-right, a solution was found to extend the territorial scope to the (most) Caribbean OCTs and to the Crown Dependencies, even though those areas are outside the internal market.
5.1.1. Extension of the territorial scope outside the internal market The Netherlands and the United Kingdom committed themselves to introduce, within the framework of their constitutional arrangements, measures equivalent to the Directive within the territory of their OCTs.74 As for the UK these were the Crown Dependencies and only its Caribbean OCTs with the exception of Bermuda. The territorial scope of the Savings Directive was even extended to five third countries on the basis of bilateral agreements concluded with the European Community.75 OJ 2003, L157/38.
73 Cf. 2181st ECOFIN Council meeting of 25 May 1999 (PRES/99/165) and the written implementation guarantees as 74 included in the Follow-up of 31 May 2005 to ECOFIN-Council on 12 April 2005 (9536/05).
Andorra (OJ 2004, L359/33), Liechtenstein (OJ 2004, L379/84), Monaco (OJ 2005, L19/55), San Marino (OJ 2004, 75 L381/33) and Switzerland (OJ 2004, L385/30). “This marks the first time ever that the Commission has received a mandate to negotiate with countries outside the Union on taxation matters.”; Results of the Council of Economics and Finance Ministers, Luxembourg, 16th October 2001, ref. MEMO/01/330 of 17 October 2001. See further on this issue W.W. Geursen, 'Harmonization in a Globalizing Market Place', in: Bulterman, Hancher, McDonnell and Sevenster (eds), Views of European Law from the Mountain - Liber Amicorum Piet Jan Slot, Alphen a/d Rijn: Kluwer Law International, 2009, pp. 19-26.
With the status change from OMR to OCT of Saint-Barthélemy "France has undertaken to conclude the agreements [to ensure that the Savings Directive] will continue to apply in future to the territory of Saint-Barthélemy." 76 5.1.2. Implementation through a range of international treaties The savings directive was implemented for those Crown Dependencies and British, Dutch and French OCT by all sorts of international treaties. As for the French OCT Saint-Barthélemy this was done by an agreement between the European Union and France. 77 For all other overseas areas this was done in form of bilateral treaties often by an exchange of letters bases on model agreements agreed upon between the territories concerned and the Council. As an example of the amount of bilateral treaties to be concluded: for the Crown Dependencies this had to result in 75 bilateral Agreements between the (then) 25 existing and acceding Member States and the three Crown Dependencies in 2004.78
5.2. Influence trough the Overseas Association Decision
5.2.1. Including State Aid Rules in the Overseas Association Decision Although the application of the state aid rules is excluded for the OCT, the OAD contains a provision on competition law, albeit limited to the cartel prohibition and the prohibition to abuse a dominant position. In the author's view this could be extended with the state aid rules. And - if appropriate - such an extension can be limited to fiscal state aid (alone) or even more specifically only to offshore financial services.79 This probably would not be in the interest of the OCTs which offer fiscal state aid trough attractive tax law and practices, since the economies of many OCTs are largely dependent on the tax revenues and related financial services. Nevertheless, the Council decides unanimously (Article 203 TFEU) on (the content of) the OAD and not (the representatives of) the OCTs as described section 2.1.2, above. As the abovementioned example on preferential treatment of sugar and rice coming from the Dutch OCTs demonstrates, the Member States can take decisions against the interests of their 'own' OCTs. Furthermore, the case of the Savings directive demonstrate that the UK, the Netherlands and (even) their OCTs were not unwilling to cooperate. Eventually, exchange for economic loss might be found in an increase of the (financial) instruments for sustainable development which are already included in Part Four of the OAD (Articles 74 et seq.).
5.2.2. Cooperation in taxation matters According to Article 66(2) of the OAD "[n]othing in this Decision may be construed so as to prevent the adoption or enforcement of any measure aimed at preventing tax fraud or avoidance or evasion of taxes pursuant to the tax provisions of agreements to avoid double taxation or other tax arrangements, or domestic tax legislation in force."
Recital 4 of European Council Decision 2010/718/EU of 29 October 2010 amending the status with regard to the 76 European Union of the island of Saint-Barthélemy (OJ 2010, L325/4).
OJ 2013, L313/1.
77 According to Outcome of proceedings of 15 December 2004 on the two Model Agreements agreed upon between the 78 Crown Dependencies and the Council (7408/3/04)).
A tailor made solution is in the author's view possible, as is demonstrated by the Crown Dependencies to which state 79 aid rules only apply to (trade in) agricultural products; see section 3.5, above.
However, this does not mean that any enforceable specific measures of such nature are provided for by the OAD. Article 73 of the OAD provides for a 'promotion' only of cooperation in taxation matters.
"The Union and the OCTs shall promote cooperation in the tax area in order to facilitate the collection of legitimate tax revenues and to develop measures for the effective implementation of the principles of good governance in the tax area, including transparency, exchange of information and fair tax competition."
Although this provision is in the author's view a soft-law obligation and not a hard legal obligation, it might form a basis to influence the national tax laws of the OCTs. Furthermore, the OAD can of course be amended in order to alter this soft-law obligation into a hard legal obligation. After a proposal of such an amendment from the Commission, the Council can decide such an amendment unanimously according to Article 203 TFEU after consulting the European Parliament.
5.3. Commitment for the Åland Islands not to become a tax haven As a last example, it seems that during the accession negotiations Finland gave a commitment that it would not allow the Åland Islands to become a tax haven.80 The Commission is allowed under Article 2(b) of the Protocol No 2 to the Act of Accession to submit appropriate proposals to the Council when the fiscal exemptions with regard to custom duties and VAT "are no longer justified, particularly in terms of fair competition or own resources". This so-called safeguard clause seems to secure the commitment for the Åland Islands not to become a tax haven. In the event the commitment is not lived up to, the EU could withdraw the fiscal exemption through the safeguard clause.81 With respect to the Åland Islands, the commitment seems to be the result of the accession negotiations. Since those negotiations is a passed station for the EU Member States with OCTs and Crown Dependencies, they cannot involuntarily be 'forced' by the EU institutions to give a similar commitment with regard to the OCT and Crown Dependencies. Furthermore, any safe-guard measures to enforce the commitment are not available.
Nevertheless, Member States with OCTs have voluntarily done so with respect to the Savings Directive by letter to the Council. In the event those Member States are willing to give a commitment similar to Finland that 'their' OCTs and Crown Dependencies will not become 'tax havens', but do not live up to their commitment, the question arises whether an obligation under EU law is infringed. In the author's view, an infringement could be based on that voluntary commitment itself, whether or not in conjunction with the principle of loyal obligation of Article 4(3) TEU.
This author could however not find such commitment in the Act of Accession of Finland. Only declaration 32 to the 80 Act of Accession concerned the Åland Islands in respect of municipal elections (OJ 1994, C241/393). The commitment given during the accession negotiations was mentioned in A. Kuosmanen, Finland’s Journey to the European Union, Maastricht: EIPA 2001, pp. 262 and 264 and referred to by Advocate General Jääskinen in his opinion in joined cases C-106 and 107/09 Commission and Kingdom of Spain / Government of Gibraltar and United Kingdom of Great Britain and Northern Ireland 2011 [ECR] I-11113 ECLI:EU:C:2011:215, footnote 58.
As stated by the President of the Åland Islands Roger Jansson; R. Jansson, 'The Åland Islands', EIPASCOPE 1997/2, 81 p. 30. See also: J. Loughlin, F. Daftary, Insular Regions and European Integration: Corsica and the Åland Islands Compared, ECMI Report # 5, Flensburg: European Centre For Minority Issues (ECMI), 1999, p. 67.