«Influence of EU Law on Taxation in the EU Member States' Overseas Territories and Crown Dependencies IN-DEPTH ANALYSIS Abstract This legal study ...»
In this chapter a case study will be done on the taxation of profits of companies established on the Dutch OCTs Bonaire, Sint Eustatius and Saba (together abbreviated with the acronym BES or BES-islands). Companies established on those islands are taxed under the Tax Law BES (Belastingwet BES82). The Tax Law BES does not contain any taxation of profits. This means that profits realised by companies established on one of the BES-islands is exempt from taxation. When that profit is distributed by that company to its shareholder a dividend withholding tax is due of 5% (Opbrengsbelasting; Article 5.1 Tax Law BES et seq.).
Even though the state aid rules are not applicable to the OCTs, it is for the purpose of the case study useful to establish whether the absence of a profit tax on the BES-islands would have constituted state aid in the event the state aid rules were applicable.
A measure is considered state aid when (i) it is granted by a Member State or through State resources in any form whatsoever;
(ii) which distorts or threatens to distort competition;
(iii) by favouring certain undertakings (whether the aid is specific);
(iv) in so far as it affects trade between Member States.
As for the first criterion, when a Member State foregoes tax income the aid is granted through State resources, even though no payment is made directly by the State to the undertaking.
As for the last criterion, the measure most probably affects trade between Member States, since companies established on the BES-Islands are presumably active worldwide. As for the second criterion, when a measure grants a specific advantage to an undertaking, this (almost) automatically distorts or threatens to distort competition. The most predominant criterion is the third criterion, whether the tax law grants undertakings a specific advantage.
Not levying a tax on profits of companies is undeniably and advantage. This is also confirmed by the preparatory documents of Act on the Tax Law BES. According to those documents, companies which are established on the BES have a tax burden which is significantly lower than for companies which are established in the Netherlands.83 As for the question whether the aid is specific, one can distinguish material selectivity and regional selectivity. As for material selectivity, a company must fulfil material criteria to qualify for the advantage. Only companies established on the BES-islands are not taxed on their profits. When they are not established on the BES-islands, they are presumed to be Staatsblad 2010, nr. 845.
82 MvT Belastingwet BES, TK 2009–2010, 32 189, nr. 3, p. 35.
established in the Netherlands and are subject to the regular Dutch Corporate Income Tax (Vennootschapsbelasting) (Article 2(8) of the Dutch Corporate Income Tax). Under various alternative criteria a company can qualify as established on the BES-islands. The most important for the purposes of this report is that a company is considered to be established on the BES-islands when it employs full time three inhabitants of the BES-islands which manage amongst other investments, subsidiaries and loans to persons outside the BESislands and have at their disposal real property at the value of at least USD 50,000 (Article 5.2(2)(c) Tax Law BES). Although many companies can qualify, not every company qualifies.
Therefore, the conclusion may already be that the advantage is materially specific. Secondly, the measure can also be regionally specific. When the area of reference is the BES-islands, the measure is not regionally specific since every company established on the BES-islands are able to benefit from the measure. When the area of reference is the Netherlands 84 as a whole, the measure is regionally specific, since only the companies established on the BESislands can benefit, whereas companies established in the European part of the Netherlands cannot benefit. According to the CJEU in its judgment on the fiscal state aid on the Azores,85 the area of reference is limited to the regional territory provided that (i) the regional authority sufficiently exercises autonomous powers, which means that the decision must have been taken by a regional authority;
o which has, from a constitutional point of view, a political and administrative o status separate from that of the central government;
(ii) the measure has been adopted without the central government being able to directly intervene as regards its content; and (iii) the regional authority assumes the political and financial consequences of such a measure, without the loss of (tax)revenue being offset by aid or subsidies from central government or other regions.
For some OCTs these criteria may make advantageous tax systems not (regionally) selective and therefore not qualify as state aid, in the event the state aid rules were to apply to the OCTs. The Tax Law BES was however enacted by the central legislator of the Netherlands, Dutch parliament. Furthermore, the revenues and foregone revenues of the BES Tax Law go to the central Dutch public funds.86 Therefore, the BES Tax Law does not comply with any of the three aforementioned criteria on regional selectivity. Consequently, the area of reference is the Netherlands as a whole, which makes the absence of profit tax regionally selective.
The absence of a profit tax on the BES-islands would have constituted state aid in the event the state aid rules were applicable.
The Kingdom of the Netherlands constitutionally consists of four lands: Aruba, Curacao, St. Maarten and the 84 Netherlands. The latter has a European part and a Caribbean part which consists of the BES-islands.
CJEU in Case C-88/03 Portugal/Commission 2006 [ECR] I-7115 ECLI:EU:C:2006:511, para. 67 and 68.
85 MvT Belastingwet BES, TK 2009–2010, 32 189, nr. 3, p. 7.
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OMR as enumerated in Article 355(1) TFEU.
87 Although Mayotte is still listed in Annex II to the TFEU as OCT and not mentioned as OMR in Article 355(1) TFEU, it 88 has become OMR but by means of a decision of the European Council on the basis of Article 355(6) TFEU;
2012/419/EU: European Council Decision of 11 July 2012 amending the status of Mayotte with regard to the European Union (OJ 2012, L204/131).
OCT as enumerated in Annex II to the TFEU.
89 The French pacific island of Clipperton is not mentioned as OMR or OCT. In the author's view the consequence of 90 the general rule of Article 52(1) TEU is therefore that EU law applies to that overseas island. Murray is of the same opinion; F. Murray, The EU and Member State Territories: A New Legal Framework Under the EU Treaties, The Hague: TMC Asser Press, 2012, p. 100. The European Commission is however of the opinion that EU law does not apply to it (answer on written question nr. 1007/84, OJ 1985, C62/34 and reconfirmed in OJ 2007, C293), although it - in the author's view erroneously - figures in the list of OCTs in the Study on Structures of Aggressive Tax Planning and Indicators of the European Commission (Taxation papers, working paper 61–2015, p. 164).
Although Saint-Barthélemy is still mentioned as OMR in Article 355(1) TFEU and not listed in Annex II to the TFEU 91 as OCT, it has become OCT but by means of a decision of the European Council on the basis of Article 355(6) TFEU;
2010/718/EU: European Council Decision of 29 October 2010 amending the status with regard to the European Union of the island of Saint-Barthélemy (OJ 2010, L325/4).
The searchable online data base of state aid cases of the Commission's DG Competition contains titles of the cases 92 in either the working languages French and English, or in the language of the Member State concerned and predominantly contains decisions in the languages of the Member State concerned. Although the author has researched the data base with due care, the list of examples enumerated in this annex might for the aforementioned reasons not be considered exhaustive.
Decision 2003/442/EC of 11 December 2002 on the part of the scheme adapting the national tax system to the 93 specific characteristics of the Autonomous Region of the Azores which concerns reductions in the rates of income and corporation tax (OJ 2003 L 150, p. 52), challenged, but upheld by the CJEU in Case C-88/03 Portugal/Commission 2006 [ECR] I-7115 ECLI:EU:C:2006:511.
Commission Decision 2005/261/EC of 30 March 2004 on the aid scheme which the United Kingdom is planning to 94 implement as regards the Government of Gibraltar Corporation Tax Reform (OJ 2005, L85/1), challenged, but upheld by the CJEU in joined cases C‑ 106 en 107/09, Commission and Spain /Government of Gibraltar and United Kingdom 2011 [ECR] I-11113 ECLI:EU:C:2011:732 after annulment by the Court of First Instance in Joined Cases T‑ 211/04 and T‑ 215/04 Government of Gibraltar and United Kingdom v Commission  ECR II‑ 3745.
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