Preface / V
Overview / VII
List of Abbreviations / XXVII
PART 1
General EU law and Taxation / 1
CHAPTER 1
Introduction / 3
Peter Wattel
CHAPTER 2
Constitutional Foundations: EU Tax Competences; Treaty Basis for Tax Integration; Sources and Enactment of EU Tax Law / 11
Update and elaboration by Rita Szudoczky and Dennis Weber
2.1 Division of (Tax) Competences Between the Union and the Member States / 11
2.2 Sources of EU Tax Law / 14
2.2.1 Primary and Secondary EU Law / 14
2.2.2 Primary law / 15
2.2.2.1 Treaty Provisions Relevant for Direct Taxation / 15
2.2.2.2 Treaty Provisions Relevant for Indirect Taxation / 16
2.2.2.3 Remaining Treaty Provisions Relevant for Taxation / 16
2.2.2.4 The Mysterious (Lisbon Vanishing of) Article 293 EC Treaty / 18
2.2.2.5 General Principles of EU law / 19
2.2.3 Secondary Law / 21
2.2.3.1 Characteristics of Regulations, Directives and Decisions / 21
2.2.3.2 Legislative, Delegated and Implementing acts / 22
2.2.4 International Agreements Concluded by the Union / 23
2.2.5 Soft Law / 24
2.2.5.1 Recommendations, Opinions and Communications / 24
2.2.5.2 Codes of Conduct / 26
2.2.6 Relationship Between Primary and Secondary Law / 26
2.3 Enactment of EU Measures as Regards Taxation / 29
2.3.1 Different Legislative Procedures / 29
2.3.2 Treaty Bases for Tax Integration / 30
2.3.3 Escapes From the Unanimity Requirement: Enhanced Cooperation, Market Distortion Provisions, Curbing Fraud, Comitology and Passerelle / 33
CHAPTER 3
General EU Law Concepts and Tax Law / 37
Peter J. Wattel
3.1 Introduction / 37
3.1.0 Prohibition of Discriminatory and Protective Product Taxation and of Import Restrictions; Small Phenomenology of International Car Taxation / 37
3.1.1 An Internal Market / 42
3.1.2 Interaction of Positive and Negative Integration; Direct and Indirect Taxation; Limits to Negative Integration in Tax Matters / 43
3.1.3 Access to the Four Freedoms / 46
3.1.3.1 Treaty Standing; Cross-Border Element; Internal Situations; EU Citizenship / 46
3.1.3.2 Treaty Access in Direct Tax Cases / 47
3.1.3.3 Abuse of Rights Does Not Bar Treaty Access, but May Justify a Restriction / 49
3.1.4 The Rule of Law; Human Rights; General Principles of EU Law; Effective Legal Remedy / 51
3.2 The Four Freedoms / 56
3.2.1 ‘Discriminations’ and ‘Obstacles’; Market access and Market Equality; the Rule of Reason / 56
3.2.1.1 Discrimination and Restriction Concepts / 56
3.2.1.2 Permissible Restrictions on Free Movement; the Rule of Reason / 61
3.2.2 Rule of Reason Justifications for (Fiscal) Market Restrictions / 63
3.2.3 (Rare) Examples of Direct Tax Measures Affecting Free Trade in Goods; French Newspapers and Krantz / 68
3.2.4 Direct Taxation and the Freedom to Provide (and Purchase) Services / 69
3.2.5 The Free Movement of Persons and the Right of Residence / 70
3.2.6 Freedom of Capital and Payments; Extending to Third States / 74
3.2.7 Discriminations, Restrictions, Disparities and Dislocations / 77
3.2.7.1 Measures With and Without Distinction; From an Obstacle-Approach to a Discrimination-Approach; Exercise in Parallel of Taxing Power / 77
3.2.7.2 Disparities / 84
3.2.7.3 Dislocations (Tax Base Compartmentalization); Source Taxation and EU-Wide Taxation; National Tax Treatment of Nonresidents? / 86
3.2.7.4 Derivative (Second-Tier) Discrimination / 96
3.3 Normal Conditions of Competition (a ‘Level Playing Field’) / 97
3.4 Sincere Cooperation and Effectiveness of EU Law / 98
3.5 Implications of the Principle of Effectiveness of EU Law in the National Legal Order / 101
3.5.1 Direct Effect and Primacy of EU Law; Consistent Interpretation; Effects of Directives / 102
3.5.2 Enforcement of EU Law: Procedural Equivalence and Effectiveness / 106
3.5.2.1 National Procedural Autonomy on Two Conditions; Procedural Rule of Reason / 106
3.5.2.2 Illustration: Restrictions on Restitution of Overpaid Tax / 111
3.5.2.3 Application of EU Law ex officio; Public Policy Provisions / 114
3.5.3 National Time-Limits, Final Decisions and Res Iudicata / 116
3.5.3.1 The Length of National Time-Limits; Again Equivalence and Effectiveness / 116
3.5.3.2 (No) Revision of Final Administrative Decisions and Final Judgments / 119
3.5.4 State Liability for ‘Serious’ Breaches of EU Law; Penalty Payments / 124
3.5.4.1 Introduction; Conditions for Liability / 124
3.5.4.2 A ‘Sufficiently Serious’ Breach of EU Law / 126
3.5.4.3 Interaction with Direct Effect; Incidental Damages / 128
3.5.4.4 State Liability for Wrongful Supreme Court Judgments / 129
3.5.4.5 Penalty Payments for Breaches of EU Law / 131
CHAPTER 4
The EU Charter of Fundamental Rights, General Principles of EU Law and Taxation / 133
Pasquale Pistone
4.1 Legal value, classification and relation with EU law principles / 133
4.2 General provisions / 136
4.2.1 Scope and requirements for protection: in which cases does the Charter apply? / 136
4.2.1.1 “Only when they are implementing Union law” / 136
4.2.1.2 The level of fundamental rights protection; interaction of the Charter, the European Convention and national constitutional law / 138
4.2.2 Limitations of Rights and the link with the Community and Union Treaties / 139
4.2.3 Interaction between the Charter and the European Convention / 141
4.3 Tax Aspects of EU fundamental rights / 143
4.3.1 Right to privacy and data protection / 143
4.3.2 Right to property / 146
4.3.3 Equality before the law and non-discrimination / 147
4.3.4 Freedom of movement and residence / 148
4.3.5 Right to an effective remedy and fair trial / 148
4.3.6 Presumption of innocence and right of defence / 151
4.3.7 Provisions geared solely at the EU institutions / 153
4.3.8 Principles of legality and proportionality of criminal offences and penalties / 154
4.3.9 Prohibition of double jeopardy / 154
CHAPTER 5
Third States and External Tax Relations / 157
Ana Paula Dourado and Peter Wattel; updated by Daniel Smit and Philip Baker
5.1 Overview / 157
5.2 Third State Capital Movement / 157
5.2.1 Introduction; Differences Between Intra-EU and Third State Capital Movement / 157
5.2.2 In Principle the Same Substance as Intra-EU, but: ‘a Different Legal Context’ / 159
5.2.3 The Grandfather Clause (Article 64(1) TFEU) / 163
5.2.4 Mutual Exclusion or Overlap? How to Distinguish Capital Movement From Establishment and Service Provision / 168
5.2.5 No Intra-EU Cherry-Picking From Tax Treaties With Third States, nor Vice Versa / 177
5.3 Member States’ Overseas, Associated and Dependent Territories: Member State, Third State, ‘Second’ State? / 177
5.4 The European Economic Area Agreement (EEAA) / 182
5.5 External Tax Relations / 184
5.5.1 External Tax Treaty-Making Powers / 184
5.5.2 LOB-Provisions in Tax Treaties with Third States; Derivative Benefits / 187
5.5.3 The EU Blacklist of Non-cooperative Third States / 191
5.6 Brexit / 193
PART 2
Integration of Direct Taxation / 195
CHAPTER 6
Conceptual Background of the CJEU Case Law in Direct Tax Matters / 197
Peter J. Wattel and Dennis Weber
6.1 The Basic Clash between (International) Tax Law and Internal Market Law / 197
6.1.1 Basics of International Tax Law; Residence and Source Taxation / 197
6.1.2 Opposing Points of Departure of International Tax Law and Internal Market Law / 199
6.2 The Court Accepts All Tax Connecting Factors and All Methods for Double Tax Relief / 200
6.3 Territoriality Taxation or EU-Wide Taxation / 202
6.4 Basic Notions in the Court’s Direct Tax Case Law / 206
6.4.1 ‘Discrimination’, not Mere ‘Restriction’; Nondiscriminatory ‘Obstacles’, ‘Parallel Exercise’ and Disparities are Outside Free Movement Scrutiny / 206
6.4.2 Comparability (Subject-to-Tax) and Justifiability (Tax Base Integrity); Assertion and Exercise of Taxing Power / 209
6.5 Departures from the Subject-to-Tax Approach or the One-Country Approach / 216
6.5.1 The ‘Always-Somewhere’ or ‘One-Market’ Approach / 217
6.5.2 The Mutual Recognition Approach / 219
6.5.3 The Follow-Secondary-EU-Law or the OECD Model Approach / 225
6.5.4 The Overall Approach: ‘Neutralisation’ in the Other Jurisdiction; De Groot, Denkavit
France, Amurta, Miljoen / 226
CHAPTER 7
Free Movement and Tax Base Integrity / 231
Update by Dennis Weber and Peter Wattel
7.1 Overview of the Development of the ECJ’s View on Tax Avoidance / 231
7.2 Abuse of rights in primary and secondary law: Correspondence? / 234
7.3 Ancillary Soft and Hard Law / 237
7.4 Abuse of Rights as a General Principle of EU Law; Objective and Subjective Element / 237
7.5 Exclusion of Categories of Cross-Border Cases; Fiscal Coherence; Balanced Allocation; Fiscal Supervision; Territoriality; Overlap of Justifications for Free Movement Restrictions
7.6 Procedural Issues; Division of the Onus of Proof / 253
7.7 Consequences of a Finding of Abuse: ‘Redefine so as to Re-Establish’ / 256
7.8 Allowing General Tax Base Protection / 257
7.8.1 Rise, Fall and Revival of Fiscal Cohesion / 257
7.8.2 The Fiscal Principle of Territoriality / 260
7.8.3 A Balanced Allocation of Taxing Power between Member States / 263
7.8.4 Territorial Financial Cohesion and Jurisdictional Balance in Some Non-Tax Areas / 265
7.9 Conclusion – A Single Concept – Tax Base Integrity as the Fiscal Manifestation of the Court’s General Abuse of Rights Doctrine / 266
CHAPTER 8
Division of Tax Jurisdiction; Double Tax Relief Mechanisms; Tax Treaty Issues / 269
Update by Otto Marres
8.1 International Double Taxation (and why its Elimination is a Union Goal but not an Obligation for the Member States) / 269
8.1.1 Why is there International Double Taxation in the first Place? / 269
8.1.2 National Autonomy; no Obligation to Eliminate Double Taxation / 270
8.2 Capital Import Neutrality (CIN; Exemption) and Capital Export Neutrality (CEN; Credit) / 272
8.2.1 Source Taxation and Residence Taxation; Assumption and Exercise of Taxing Jurisdiction / 272
8.2.2 Capital Export Neutrality (CEN); the Credit Method / 272
8.2.3 Capital Import Neutrality (CIN); the Exemption Method / 274
8.2.4 Differences and Similarities; Deferral; CFC Legislation / 275
8.2.5 Acceptance of Both Credit and Exemption in Secondary EU Law; the Court Accepts All Methods for Double Tax Relief; Remaining Inconsistencies / 278
8.3 Tax Treaty Issues / 282
8.3.1 National Autonomy; Conclusion of Bilateral Tax Treaties / 282
8.3.2 Treaties to be Regarded as National Law; the Overall Approach / 283
8.3.3 Tax Treaties and their Substantive Rules / 285
8.3.4 Personal Scope of Tax Treaties: Nationals versus Foreigners, Residents versus Non-Residents, Non-Residents versus Non-Residents, Limitation on Benefits / 287
8.3.5 The Court’s struggle with the meaning of bilateral tax treaties / 290
8.3.6 Treaty Overrides / 293
CHAPTER 9
Corporate Income Taxation / 295
Update by Hein Vermeulen
9.1 Introduction / 295
9.2 Host State: Equal Treatment of Branches and Subsidiaries / 296
9.3 Origin State: Are Parents of Foreign and Domestic Branches and Subsidiaries Comparable? / 297
9.4 Group Taxation Schemes / 300
9.4.1 Group Taxation Schemes of Domestic Entities / 301
9.4.2 Group Taxation Schemes of Domestic Entities and Non-Domestic Entities: current losses / 303
9.4.3 Group Taxation Schemes of Domestic Entities and Non-Domestic Entities: other advantages than current losses / 306
9.5 CFC Legislation / 307
9.6 Thin Capitalization, Profits Adjustments, and the Treaty Freedoms / 313
CHAPTER 10
Cross-Border Loss Relief / 325
Georg Kofler
10.1 Introduction and Overview / 325
10.1.1 Background and Issues / 325
10.1.2 Lack of Positive Integration: From the Commission’s 1990 Proposal to “BEFIT” / 327
10.1.3 Negative Integration: The Court’s Case Law on Loss Utilization / 329
10.1.4 Existence and Amount of a “Tax Loss” / 331
10.2 Losses of Foreign Subsidiaries / 333
10.2.1 Technical Background / 333
10.2.2 Cross-Border Loss Relief and Group Taxation Regimes (Marks & Spencer, X Holding, Commission v. UK, Yara, Holmen) / 334
10.2.3 Cross-Border Loss Relief in Mergers (A Oy, Memira) and Transfers of Residence (AURES) / 339
10.2.4 The “Finality” of Losses / 340
10.3 Losses of Foreign Permanent Establishments / 344
10.3.1 Technical Background / 344
10.3.2 Symmetrical Base Exemption (Lidl Belgium, Timac Agro, Bevola, W AG) / 347
10.3.3 Asymmetrical Deduction/Reincorporation (Krankenheim Ruhesitz am Wannsee, Timac Agro) / 353
10.3.4 Credit Method and “Recapture” (Nordea Bank Danmark) / 355
10.4 Impact of Residence State Losses on Taxation in the Source State (Ritter-Coulais, Renneberg, Lakebrink, X, Sofina)
10.5 Impact of Profits in the Source State on Losses in the Residence State (AMID, Mertens) / 361
10.6 Domestic Losses and “Sandwich Situations” (Société Papillon, Philips Electronics, Felixstowe Dock and Railway Company, SCA Group Holding, NN, B) / 362
10.7 Excursus: Currency Losses (Deutsche Shell, X AB, X BV and X NV) / 366
CHAPTER 11
Cross-Border Dividend Taxation / 371
Update by Hein Vermeulen
11.1 Taxation of Distributed Company Profits / 371
11.1.1 Classical Systems / 372
11.1.2 Schedular (Semi-Classical) Systems: Half-Rate, Partial-Base, or Final Withholding / 372
11.1.3 Either/Or Systems / 374
11.1.4 Imputation / 374
11.1.5 International Neutrality; Negative Integration; CJEU and EFTA Case Law; Exit Imputation / 375
11.1.6 Preliminary conclusion / 379
11.2 Possible Unequal Treatment of Cross-Border Dividends / 379
11.3 The CJEU’s basic Notions: Juridical and Economic Double Taxation, and Exertion of Taxing Power
11.4 Inbound Dividends (Residence Taxation); National Treatment; Exit Imputation Systems / 384
11.4.1 Economic Double Taxation of Inbound Dividends / 384
11.4.2 Juridical Double Taxation of Inbound Dividends / 388
11.4.3 Asymmetric Undoing of Economic Double Taxation of Inbound Dividends / 392
11.5 Outbound Dividends (Source Taxation): National Treatment of Nonresident Shareholders and the gross/net Dilemma
11.5.1 Economic Double Taxation / 393
11.5.2 Juridical Double taxation or Denial of Exemption / 394
CHAPTER 12
Exit Taxes / 401
Servaas van Thiel
12.1 Exit Taxation on Accrued Income / 401
12.1.1 Discriminatory exit taxes / 401
12.1.2 Exit taxes on accrued but unrealized gains / 404
12.2 Exit taxes on accrued gains locked into privately held assets / 405
12.2.1 Exit taxation on the accrued value of shares / 405
12.2.2 Exit taxes on accrued pension rights / 408
12.2.3 Conclusions on exit taxes on privately held assets / 410
12.3 Exit taxes on accrued gains locked into business assets / 411
12.3.1 Preliminary on corporate mobility rights / 411
12.3.2 Exit taxes on businesses or business assets / 414
12.3.3 Conclusions on exit taxes on business assets / 418
12.4 Exit taxes on privately held assets versus exit taxes on business assets / 420
CHAPTER 13
Individual Income Taxation / 421
Update by Hein Vermeulen
13.1 Introduction / 421
13.2 Tax Scales; Correction of Overpaid Withholding Tax by Assessment / 422
13.3 Income-Related Deductions / 424
13.4 Personal Ability to Pay; the Schumacker Case Law / 426
13.4.1 Home State Responsibility; No National Treatment in the Source State / 426
13.4.2 But: Residents and Nonresidents Are Not in a Different Position / 430
13.4.3 Exacerbating Disparities; the Mechanics of Double Tax Relief; Rate Progression; Two Inconsistencies of International Tax Law / 432
13.4.4 Trying to Get It Right / 435
13.4.5 The De Groot Case: A Chance Missed / 437
13.4.6 Renneberg: Schumacker Applies Also to Home State Losses / 439
13.4.7 Imfeld: Two Situations in which the Residence State is not Obliged to Take Account of Personal and Family Circ*mstances / 441
13.4.8 Schumacker Test for the Whole Tax Year / 442
13.4.9 Case C-283/15, X: Proportional Extension of Personal Deductions by Multiple Source States in the Absence of Home State Income / 442
13.4.10 The Zyla case: Schumacker doctrine not applied for social security contributions / 443
13.5 Option to Be Taxed as a Resident / 444
13.6 Pensions and Annuities / 447
13.7 Private Investment Incentives also for Cross-Border Investments / 449
CHAPTER 14
EU inheritance and gift taxation / 451
Vassilis Dafnomilis
14.1 Introduction / 451
14.2 Technical background on inheritance and gift taxes / 452
14.3 Principles drawn from Court case law on EU inheritance and gift taxation / 454
14.3.1 Applicable freedom / 454
14.3.2 Restriction – difference in treatment / 456
14.3.3 Objectively comparable situations / 456
14.3.4 Justifications / 459
14.4 Elements of inheritance and gift tax legislation that can be contrary to EU law / 460
14.4.1 Subjective tax exemptions / 460
14.4.2 Objective tax exemptions / 463
14.4.3 Deductions of liabilities/debts / 466
14.4.4 Valuation rules / 469
14.4.5 Taxation of non-profit organisations / 471
14.4.6 Tax treatment of family businesses / 472
14.4.7 Extended residence rules / 473
14.4.8 Double taxation of inheritances / 474
CHAPTER 15
State Aid and Direct Taxation / 481
Sjoerd Douma
15.1 Introduction / 481
15.2 The notion of State aid / 482
15.2.1 Introduction / 482
15.2.2 Undertaking / 482
15.2.3 State resources and imputability / 483
15.2.4 Advantage / 484
15.2.5 Selectivity / 487
15.2.6 Effect on trade and competition / 493
15.2.7 Selected topics / 494
15.3 Compatibility of State aid with the internal market / 502
15.3.1 Introduction / 502
15.3.2 Limitations on the Commission’s discretion / 503
15.3.3 The Commission’s State aid policy / 504
15.4 State aid procedure and enforcement / 506
15.4.1 Introduction / 506
15.4.2 Monitoring of existing aid / 506
15.4.3 Notification of new aid / 508
15.4.4 Recovery of unlawful aid / 510
15.4.5 Judicial appeal / 516
15.5 Concluding remarks / 519
PART 3
Positive Integration of Corporate Taxes / 521
CHAPTER 16
The Parent-Subsidiary Directive / 523
Update by Otto Marres
16.1 Introduction / 523
16.2 Main Features / 526
16.3 Qualifying Companies (Arts. 2 and 3) / 526
16.3.1 ‘Company of a Member State’ and ‘Permanent Establishment’ (Art. 2) / 526
16.3.2 Parent and Subsidiary Status (Art. 3) / 533
16.3.3 No Other Requirements / 537
16.4 Inbound Dividends: Exemption or Indirect Credit (Art. 4) / 538
16.4.1 The General Rule: Choice of Exemption or Indirect Credit; Even Asymmetrical / 538
16.4.2 Linking Rule: No Exemption for Deductible Payments / 543
16.4.3 (No) Credit for Possible Residual Withholding Tax / 545
16.4.4 Ordinary Credit; Excess Foreign Corporation Tax / 545
16.4.5 Multi-Tier Credit / 546
16.4.6 (Non-)Deductibility of Charges ‘Related’ to the Holding (Art. 4(3)); Bosal Holding, Keller Holding and Argenta Spaarbank II / 547
16.5 ‘Distributions of Profits’; Constructive Dividends; Hybrid (Transparent) Entities; Liquidation Proceeds / 549
16.5.1 Distributions of Profits (Art. 1) / 549
16.5.2 Hybrid Entities (Art. 4(2)); Fiscal Transparency / 553
16.6 Outbound Dividends: Abolition of Withholding Tax (Art. 5) / 553
16.6.1 The General Rule / 553
16.6.2 Transitional and Deleted Derogations / 554
16.6.3 ‘Withholding Tax’; Epson Europe, Athinaïki Zythopoiia, Océ van der Grinten, FII GLO, Burda, and Ferrero / 555
16.6.4 Article 6; (No) Précompte Mobilier / 559
16.6.5 Imputation Systems; Imputation Taxes; Outbound Payment of Imputation Credits (Art. 7) / 559
16.7 No Temporal Compartmentalization of Dividends; (No) Write-Down of the Holding Subsequent to Distribution / 560
16.8 Anti-Abuse Reservation (Art. 1(2)-1(4)) / 561
16.8.1 Introduction; Context / 561
16.8.2 In a Nutshell / 562
16.8.3 Main Purpose or one of the Main Purposes of Obtaining a Tax Advantage / 563
16.8.4 Defeating Object or Purpose / 564
16.8.5 Artificiality / 565
16.8.6 Refusing ‘the benefits of the Directive’ / 566
16.8.7 Article 1(4): Reservation of Competence (any Autonomy Left?) / 568
16.9 Implementation; Direct Effect; Private Enforcement / 573
16.10 Consequences / 575
CHAPTER 17
The Tax Merger Directive / 579
Update by Frederik Boulogne
17.1 Introduction; Objective; History / 579
17.2 Ad Hoc Tax Problems of Mergers and Divisions / 582
17.3 Operations Covered and Definitions (Art. 2) / 583
17.3.1 Operations Covered (Art. 2(a-e) and (k)) / 583
17.3.2 ‘Branch of Activity’ (Art. 2(j)); Independent Functioning / 585
17.3.3 Coverage after the SEVIC, Cartesio and VALE Cases, the Implementation of the Amendment, and the Company Law Directive on Cross-Border Mergers of Limited Liability Companies / 587
17.4 10% Additional Cash Pay-Out (Art. 2(a)-(c) and (e)) / 590
17.5 Gist and System of the Directive / 592
17.6 Qualifying Companies (Art. 3) / 595
17.7 Taxation of the Companies Involved / 596
17.7.1 Deferral of Capital Gains Tax and Carry-Over of Tax Values (Arts. 4, 9 and 11) / 596
17.7.2 Carry-Over of Losses Connected to the Remaining Branch (Arts. 6 and 13(2)) / 597
17.7.3 Carry-Over of Tax-free Provisions and Reserves (Arts. 5 and 13(1)) / 598
17.7.4 Branch Requirement (Arts. 4(2)(b), 10(1), and 12(1)(b)) / 599
17.7.5 Valuation of Shares Received / 600
17.7.6 Hybrid (Transparent) Entities / 602
17.8 Cancellation of Shares (Art. 7) / 603
17.9 Taxation of the Shareholders Involved (Arts. 8, 11 and l4) / 604
17.10 Transfer or Incorporation of a Foreign Branch (Art. 10) / 606
17.11 Operations and Migrations Not Covered / 607
17.12 The Anti-Abuse Reservation (Art. 15) / 609
17.12.1 Evasion and Avoidance; Objective and Subjective Elements; Scope and National Implementation of the Anti-Abuse Provision / 609
17.12.2 The Leur-Bloem Case; Facts / 611
17.12.3 Admissibility: Domestic Situation, but National Law Refers to EU Law / 611
17.12.4 The Substantive Questions; The Character of the Anti-Abuse Clause: a ‘Reservation of Competence’ / 612
17.12.5 Division of the Onus of Proof / 612
17.12.6 Purely Fiscal Advantages Are Not ‘Valid Commercial Reasons’ / 615
17.12.7 Is the Anti-Abuse Reservation Redundant? / 616
17.12.8 Employees’ Representation / 617
17.13 Implementation / 617
17.14 Consequences / 619
CHAPTER 18
The Interest and Royalties Directive / 621
Update by Axel Cordewener
18.1 Introduction / 621
18.1.1 Background / 621
18.1.2 History and Aim / 622
18.2 Objective (Substantive) Scope of Application / 624
18.2.1 ‘Interest’ Income (Article 2(a)) / 624
18.2.2 ‘Royalties’ Income (Article 2(b)) / 624
18.2.3 Role of the OECD Model Commentary / 624
18.2.4 Exclusion of Certain Payments (Article 4) / 626
18.2.4.1 Optional Exclusion of Dividend-Like Payments (Art. 4(1)) / 626
18.2.4.2 Compulsory Exclusion of Non-Arm’s Length Payments (Art. 4(2)) / 627
18.2.4.3 Potential Link to the Parent-Subsidiary Directive / 628
18.3 Subjective (Personal) Scope of Application / 629
18.3.1 ‘Company of a Member State’ (Article 3(a)) / 629
18.3.2 Association Requirement (Article 1(7)) / 631
18.3.2.1 ‘Associated’ Companies (Article 3(b)) / 631
18.3.2.2 Potential Limitation: Minimum Association Period (Article 1(10)) / 632
18.3.3 ‘Permanent Establishment’ (Article 3(c)) / 633
18.3.4 Recipient as ‘Beneficial Owner’ (Article 1(4), (5)) / 635
18.4 Territorial Scope of Application / 636
18.4.1 Cross-border Payments between EU Member States / 637
18.4.2 Accession of new Member States / 638
18.5 Temporal Scope of Application / 638
18.5.1 General Deadlines for Implementation / 638
18.5.2 Transitional Derogations for Some Source States; Ordinary Credit for Residual Source Tax in Home State (Article 6) / 638
18.6 Relief Rule: Tax Exemption in the Source State / 639
18.6.1 Exemption from ‘Any Taxes’ (Art. 1(1)) / 640
18.6.1.1 Taxation ‘by Deduction at Source’ or ‘by Assessment’ / 640
18.6.1.2 Relief (only) from Juridical Double Taxation / 640
18.6.2 Relief Procedure / 642
18.6.2.1 Immediate Exemption from Withholding Tax (Article 1(11) to (14)) / 642
18.6.2.2 Right to Refund if Immediate Exemption Failed (Article 1(15) and (16)) / 643
18.7 Special Issues / 643
18.7.1 Prevention of Fraud and Abuse (Article 5) / 643
18.7.2 Direct Effect of Beneficial Rules / 645
18.7.3 Relation to Relief Provisions under Domestic Law or Double Tax Treaties (Article 9) / 646
18.8 Some Comments on the Current Status of the Directive and Proposals for Further Amendments / 646
CHAPTER 19
The Anti-Tax-Avoidance Directive (ATAD) / 653
Daniël Smit
19.1 Introduction and Background: an Ambitious EU Agenda Beyond BEPS / 653
19.2 History, Objective, Scope and Main Features of the ATAD / 655
19.2.1 Adoption of the ATAD: Politically Controversial, but Eventually Feasible / 655
19.2.2 De Minimis-Standard and “Menu of Options”; Intra-EU Fragmentation Risk NotSolved / 656
19.2.3 Creation of Taxpayer Duties Instead of Taxpayer Rights; A Clash Between EU And Tax Treaty Norms; Conforming Interpretation / 657
19.2.4 Personal Scope; Corporate Tax Liability as the Gateway / 659
19.2.5 Substantive and Territorial Scope: Distinction Between Member States and Third Countries not Always Clear / 661
19.3 Assessment of the ATAD in the Light of the TFEU Freedoms: a Rather Complex Exercise / 662
19.4 The Four Specific Anti-Tax Avoidance Rules (SAARs) / 664
19.4.1 The Earnings Stripping Rule / 664
19.4.1.1 Introduction and Background / 664
19.4.1.2 Scope of the Rule: Exceeding Borrowing Costs minus 30% EBITDA = Non Deductible / 667
19.4.1.3 Exceptions to the Interest Limitation Rule / 669
19.4.1.4 Compatibility with the TFEU Freedoms / 671
19.4.2 The Exit Tax and Tax Base Step-Up Rule / 672
19.4.2.1 Introduction and Background / 672
19.4.2.2 Exit Tax and Tax Base Step-Up, but Mutual Recognition of Market Value Bridge too Far / 673
19.4.2.3 An Alarming Lack of Definitions and Over-and Under-Inclusiveness / 674
19.4.2.4 The Intra-EU/EEA Option for Stagged Recovery: a Curse in Disguise? / 677
19.4.2.5 Valuation Mismatches: the Real BEPS-Issue Left Unsolved / 679
19.4.3 The CFC-Rule(s) / 679
19.4.3.1 Introduction and Background / 679
19.4.3.2 Three Cumulative Proxies: CFC, Effectively Low-Taxed, Bad Income / 680
19.4.3.3 The Full-Fledged CFC-Rule and The Light (Quasi) CFC-Rule / 682
19.4.3.4 The “Substance”-Escape under the Full-Fledged CFC-Rule / 683
19.4.3.5 Income Attribution and Double Taxation Relief (Add-back & Credit) / 687
19.4.4 The Hybrid Mismatch Rule / 688
19.4.4.1 Introduction and Background / 688
19.4.4.2 Deduction without Inclusion (D/NI) Mismatches / 690
19.4.4.3 Double Deduction (DD) Mismatches / 694
19.4.4.4 A Final Backstop against “Import of Mismatches” / 695
19.4.4.5 Tax Liability “Always Somewhere”: Effective, but Questionable in the Light of Source Country Entitlement / 696
19.5 The Mandatory General Anti-Tax Avoidance Rule (GAAR) for Corporate Taxation / 696
19.5.1 Introduction and Background; a Single European Abuse of Law Concept / 696
19.5.2 Mandatory Harmonisation of National Corporate Taxation GAARs(?) / 697
19.5.3 The GAAR tests / 699
19.5.3.1 Artificiality / 700
19.5.3.2 Motive / 701
19.5.3.3 Defeat of Object or Purpose of the Applicable Tax Law / 703
19.5.3.4 The Burden of Proof / 704
19.5.4 Compatibility with the TFEU Freedoms / 704
19.6 Implementation and Temporal Scope / 704
19.7 A Final Chord? / 706
CHAPTER 20
Tax Aspects of the European Economic Interest Grouping, the European Company and the European Cooperative Society / 707
Update by Frederik Boulogne, Mariken van Hilten and Peter Wattel
20.1 Introduction; European Legal Forms for Business: EEIG, SE, SCE (and SPE)
20.2 General Legal Aspects of the EEIG / 709
20.3 Tax Aspects of the EEIG / 710
20.3.1 Direct Taxes / 710
20.3.2 Indirect and Payroll Taxes / 712
20.4 General Legal Aspects of the Societas Europaea (SE) / 713
20.5 Tax Aspects of the Societas Europaea / 715
20.5.1 Direct Taxes / 715
20.5.2 Indirect Taxes / 718
20.6 The European Cooperative Society / 721
CHAPTER 21
The Settlement of Cross-Border Tax Disputes in the European Union / 723
Pasquale Pistone
21.1 Cross-border tax disputes: from none to up to four types of legal instruments for their settlement / 723
21.2 Brief historical overview / 725
21.3 Legal basis / 729
21.4 The relations between the legal instruments / 731
21.5 Scope / 736
21.5.1 General issues / 736
21.5.2 Personal scope / 737
21.5.3 Substantive scope / 738
21.5.4 Objective scope / 739
21.5.5 Territorial scope / 740
21.5.6 Additional interpretative issues / 741
21.6 The procedures / 743
21.6.1 The mutual agreement procedure / 743
21.6.1.1 General issues / 743
21.6.1.2 Access to the mutual agreement procedure / 744
21.6.1.3 The unilateral phase / 745
21.6.1.4 The consultation phase / 748
21.6.1.5 The final phase / 751
21.6.2 Arbitration / 753
21.6.2.1 Introductory remarks / 753
21.6.2.2 The appointment and composition of the panel / 754
21.6.2.3 The rules of functioning / 757
21.6.2.4 The modes of arbitration / 758
21.6.2.5 The involvement of the affected person(s) in the procedure / 760
21.6.2.6 Confidentiality of the proceedings / 762
21.6.2.7 The decision / 763
21.6.2.8 The derogations / 765
21.6.2.9 Cost of the proceedings / 767
21.7 The relations with domestic judicial procedures / 768
CHAPTER 22
Company tax proposals and tax policy initiatives / 771
Maarten de Wilde
22.1 Introduction / 771
22.2 Commission Communication ‘Business Taxation for the 21st Century’ / 771
22.2.1 General remarks / 771
22.2.2 International developments as a driving force for advancing the EU agenda / 774
22.2.3 Megatrends desire comprehensive EU agenda / 775
22.2.4 Pillar One and Pillar Two measures sort for unitary taxation and minimum rate harmonisation / 776
22.2.5 Commission’s ambitions extend further / 776
22.3 Developments in follow-up to the Communication ‘Business Taxation for the 21st Century’ / 780
22.3.1 European Commission proposals for Directives Unshell and Pillar Two and Own Resources Package / 780
22.3.2 Pillar Two / 782
22.3.3 Unshell / 789
22.3.4 Own resources / 795
22.4 Final remarks / 799
CHAPTER 23
Harmful Tax Competition and the Code of Conduct for Business Taxation / 801
Servaas van Thiel
23.1 Introduction / 801
23.2 How the Code works in practice: criteria and review process / 802
23.2.1 The Code criteria / 802
23.2.2 The Code’s review process / 803
23.3 Outcome on stand-still and roll back / 805
23.3.1 Harmful tax measures of Member States and their territories / 805
23.3.2 From review of individual tax measures to multi-country policy-making / 807
23.4 The work of the Group on horizontal issues / 809
23.4.1 Broadening the scope of the work of the Code Group / 809
23.4.2 Cross border Tax Rulings and APA / 809
23.4.3 EU-inbound and outbound profit transfers / 811
23.4.4 Cross border mismatches / 813
23.5 Third Country Issues / 814
23.6 Conclusions / 817
PART 4
Exchange of Information and Recovery Assistance / 821
CHAPTER 24
Exchange of Information and Recovery Assistance: Background, History and Legal Basis / 823
Sigrid Hemels
24.1 Introduction / 823
24.2 The Need for Cross-Border Administrative Cooperation in Tax Matters / 823
24.3 OECD Initiatives before the Financial Crisis / 825
24.4 EU Mutual Assistance Initiatives before the Financial Crisis / 826
24.5 Poor Results, Failing the OECD Standard; Revised Directives on Recovery Assistance (2012) and Administrative Cooperation (2013) / 828
24.6 Influence of BEPS on the DAC / 829
24.7 Legal Basis: ‘Internal Market’ or ‘Fiscal’? / 831
CHAPTER 25
The Directive on Administrative Cooperation / 835
Sigrid Hemels
25.1 Introduction / 835
25.2 General Provisions; Minimum Standard; Language, Scope and Organisation / 837
25.2.1 Taxes Covered; Not Just Direct Taxes / 838
25.2.2 Personal Scope; Anyone or Anything Subject to Tax / 839
25.2.3 Objective Scope: ‘Foreseeably Relevant’ Information / 839
25.2.4 Channel of Exchange / 843
25.2.5 Temporal Scope / 843
25.3 Three Types of Exchange of Information / 844
25.3.1 Mandatory Exchange upon Request / 844
25.3.2 Mandatory Automatic Exchange / 846
25.3.2.1 Available Information on Specific Categories of Income and Capital (Art. 8(1)) / 846
25.3.2.2 The Common Reporting Standard (CRS): Information on Foreign Account Holders and Their Accounts to be reported by Financial Institutions
(DAC2) / 847
25.3.2.3 Mandatory Automatic Exchange of Information on Advance Cross-Border Rulings and Advance Pricing Arrangements (DAC3) / 851
25.3.2.4 Country-by-Country Reporting (DAC4) / 855
25.3.2.5 Reporting Obligations for Digital Platforms (DAC7) / 860
25.3.2.6 Proposed exchange of information on entities in scope of the Unshell Directive (ATAD3) / 864
25.3.2.7 Possible Proposal for Exchange of Information on Cryptoassets and E-Money (DAC8) / 865
25.3.3 Spontaneous Exchange / 867
25.4 Admission of Foreign Officials / 868
25.5 Simultaneous Controls / 869
25.6 Joint Audits / 869
25.7 Notification of Foreign Decisions and Instruments / 871
25.8 Access to Anti-Money-Laundering Information, Including Information on Ultimate Beneficial Owners (DAC5) / 872
25.9 Disclosure, Use and Forwarding of Information Obtained / 873
25.10 Grounds for Refusal of Cooperation / 875
25.10.1 Non-Exhaustion of Appropriate Domestic Means / 875
25.10.2 Lack of Domestic Legal Basis / 876
25.10.3 Lack of Reciprocity / 877
25.10.4 Protection of Commercial Secrets / 877
25.10.5 Protection of the Ordre Public / 877
25.11 Penalties / 878
25.12 Taxpayers’ Judicial Protection / 879
25.12.1 No Right to Be Involved / 880
25.12.2 Right to Legal Remedy / 882
25.13 Data Protection / 884
25.14 Confidentiality Obligation of the European Commission / 887
25.15 Information Overload? / 888
CHAPTER 26
Mandatory Disclosure: the Contribution of DAC6 to the Common EU System of Mutual
Assistance in Tax Matters / 891
Pasquale Pistone
26.1 Introduction / 891
26.2 The Objective Scope / 894
26.3 The Subjective Scope / 895
26.4 The Hallmarks / 898
26.5 The Legal Professional Privilege / 903
CHAPTER 27
The Recovery Assistance Directive (RAD) / 905
Pasquale Pistone
27.1 Introduction / 905
27.2 History / 906
27.3 Scope and Mechanisms / 907
27.4 Types of Recovery Assistance / 910
27.5 Other Rules / 911
CHAPTER 28
Concurrence Rules / 913
Sigrid Hemels
28.1 Introduction / 913
28.2 DAC and RAD / 913
28.3 MCMAATM Convention and EU Rules / 913
28.4 Domestic Law, Bilateral or Multilateral (Tax) Treaties and EU Rules / 915
Index / 917
Table of Cases / 933
