EU TAX LAW COURSE by Dr. Ivan Sammut from Faculty of Laws University of Malta

EU TAX LAW COURSE

by Dr. Ivan Sammut from Faculty of Laws University of Malta

Schedule Tuesday 19th & 26th October 2010 Introduction – Is there EU Tax Law? Introduction to the EU Legal order EU Institutions Direct Effect Preliminary reference Enforcement Actions Locus Standi Four Freedoms Free Movement of Goods Other Freedoms (very brief) Other Articles relevant to Taxation History of EU Tax Law

THEORIES OF ECONOMIC INTGRATION Free-trade area (FTA)- where the member

partners remove all trade impediments among themselves, but each country can apply its own customs tariff with respect to third countries.

Customs Union (CU)- same as in FTAs, all obstacles to free movement of goods among partner countries are removed. Moreover, they must pursue common external commercial relations – for instance, they must adopt common external tariffs (CETs) on imports from non-participants.

Positive v Negative Integration

THEORIES OF ECONOMIC INTGRATION Common Market (CM)- which are customs

unions that allow free movement of production factors such as labour and capital across national member frontiers. It leaves various options as to the relation with third countries.

Economic Union (EcU)- implies a common market with a high degree of coordination or even unification of the most important areas of economic policy, market regulation, as well as macro-economic and monetary policies. A common trade policy is pursued towards third countries.

THEORIES OF ECONOMIC INTGRATION Monetary Union (MU)- cooperation on

top of a common market which creates either irrevocably fixed exchange rates and full convertibility of the currencies of the member states, or one common currency in all member states.

Economic and Monetary Union (EMU)- which combines the characteristics of the monetary union and the economic union.

Theories of Economic Integration Full Economic Union (FEU)

- implies the complete unification of the economies involved, and a common policy for many important matters. The situation is similar as that within one nation, and political integration is often implied.

Common Market v Single Market v Internal Market

FOUR FREEDOMS

GOODS PERSONS SERVICES CAPITAL Right for free Enterprise

Article 28 TFEU ex 23 EC

Article 28 TFEU 1. The Union shall be based upon a customs

union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries.

2. The provisions of Article 30 shall apply to products originating in Member States and to products coming from third countries which are in free

Amsterdam/Lisbon Treaty

Renumbering of Treaty Articles Pre Amsterdam pre 1999 Between Amsterdam and Lisbon 1999-

2009 Post Lisbon 2009-

Article 29 TFEU ex Article24 EC

Products coming from a third country shall be considered to be in free circulation in a Member State if the import formalities have been complied with and any customs duties or charges having equivalent effect which are payable have been levied in that Member State, and if they have not benefited from a total or partial drawback of such duties or charges.

Article 30 TFEU ex 25 EC

Article 30 Customs duties on imports and exports and

charges having equivalent effect shall be prohibited between Member States. This prohibition shall also apply to customs duties of a fiscal nature.

Article 31 TFEU Common Customs Tariff duties shall be fixed by

the Council acting by a qualified majority on a proposal from the Commission

DUTIES AND CHARGES THE EFFECT AND NOT THE PURPOSE

Case 7/68 Commission v Italy

Diamantarbeiders v SA Ch Brachfeld & Sons Cases 2/3 of 69

CHARGES HAVING EQUIVALENT EFFECT

Case 24/68 Commission v Italy

CHARGES HAVING EQUIVALENT EFFECT: INSPECTIONS AND THE ‘EXCHANGE

EXCEPTION’

Bresiani v Amministrazione Italiane delle Finance - Case 87/75

Cadeskry v ICE – Case 63/74

Commission v Belgium - Case 132/82

CHARGES HAVING AN EQUIVALENT EFFECT

INSPECTIONS AND FULFILLMENT OF MANDATORY LEGAL REQUIREMENTS

Bauhuis vs NL – Case 46/77 Following conditions not exceeding the actual cost of the inspections in

connection with which they are charged; the inspections in question are obligatory and uniform for

all the products concerned in the community they are prescribed by community law in the general

interest of the community they promote the free movement of goods, in particular by

neutralizing obstacles which could arise from unilateral measures of inspection adopted in accordance with Article 36 of the Treaty

Internal Taxation

Article 110 TFEU ex 90 EC No Member State shall impose, directly or

indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.

Internal Taxation

Direct discrimination i) Direct Discrimination Lutteck Case 57/65 Drexl Case 299/86 Commission v Italy Case 21/79 Hansen Case 148/77

Internal Taxation

Commission v France C 265/99 Humblot v Directeur des Services Fiscaux

Case 112/84 Feldian Case 433/85 Chemical Farmaceutici v DAF SpA Case

140/79 Commission v France Case 196/85 Outokompu Oy Case C- 213/96 Commission v Greece Case C-132/88

Internal Taxation

Relationship between Article 110(1) & 110(2)

Commission v France Case 168/78 Firma Fink-Frucht Case 27/77 Johnny Walker v Ministeriet for

Skatter Case 243/84 Commission v Italy Case 184/85

Internal Taxation

The determination of Protective Effect

Vinal - Case 46/80 v Regenerated oil / spirits cases

Danish Fruit Wines v John Walker Humblot Feldain / Italian Diesel Marsala /Wine UK british beer

Internal Taxation

Boundary Between Articles 23-25 / 90-93

Lutticke case 105/76 Cooperattive co-Frutta SRL v

Amministrazione delle Finanze dello Stato Case 193/85

Scharbatke Case C-72/92

Quantitative Restrictions

Article 34 TFEU ex Article 28 EC Quantitative restrictions on imports and all

measures having equivalent effect shall be prohibited between Member States.

Article 35 TFEU ex 29 EC Quantitative restrictions on exports, and

all measures having equivalent effect, shall be prohibited between Member States


Directive 70/50EECProcureur du Roi v Dassonville -- Case

8/74 ALL TRADING RULES ENACTED BY MS

WHICH ARE CAPABLE OF HINDERING, DIRECTLY OR INDIRECTLY, ACTUALLY OR POTENTIALLY, INTRA-COMMUNITY TRADE ARE TO BE CONSIDERED AS MEASURES HAVING AN EFFECT EQUILAVELENT TO QUANTITATIVE RESTRICTIONS


Discriminatory Barriers to Trade

Import & Export Restrictions Commission v Italy Case 154/85

Promotion of Favouring of Domestic Products Commission v Ireland Case 249/81 Commission v UK Case 207/83 DU Pont Case C-21/88 Commission v Ireland Case 45/87 Commission v France 21/84


Price-fixing Roussel Case 181/82 Openbaar Ministerie v Van Tiggele Case 82/77

Measures which Make Imports more Difficult or Costly

Schloh case v Auto Control Technique

National Measures versus Private Action Apple & Pear Development Council Case 222/82 R v The Pharmaceutical Society Commission v France C-265/95


Indistinctly Applicable rules: Cassis de Dijon

Casis de Dijon Rewe-Zentrale AG v Bundesmonopolverwaltung fur Branntwein Case 120/78


Cassis de Dijon

IN EFFECT THE PRINCIPLE EFFECT OF REQUIRMENTS OF THIS NATURE IS TO PROMOTE ALCOHOLIC BEVERAGES HAVING A HIGH ALCOHOLIC CONTENT FO THE PURPOSE OF THE SALE OF ALCOHOL BEVERAGES CONSTITUTES AN OBSTACLE TO TRADE WHICH IS INCOMPATIBLE WITH THE PROVISIONS OF ARTICLE 30

SO THERE IS NO VALID REASON WHY THEY HAVE BEEN LAWFULLY PRODUCED AND MARKETED ON ONE OF THE MEMBER STATES – ALCOHOLIC BEVERAGES SHOULD NOT BE INTRODUCED IN ANY OTHER MEMBER STATE - SALE OF SUCH PRODUCTS MAY NOT BE THE SUBJECT TO A LEGAL PROHIBITION ON THE MARKETING OF BEVERAGES WITH AN ALCOHOL CONTENT LOWER THE LIMITS SET BY NATIONAL RULES


INDISTINCTLY APPLICABLE RULES – POST CASSIS JURISPRUDENCE:

Deserbais - Case 286/86 Gili and Andes Case 788/79 Commission v Germany Case C-317/92 Piageme Case C -369/89 Groenveld Case 15/79


Indistinctly Applicable rules: The Limits of Article 28

Cinetheque Cases 60 and 61/84 Torfaen v BQ Case145/88 Stoke v City Council 1990 3 CMLR 31 BQ v Shresbery 1990 3 CMLR 535 Union Department des Sydicates v SIDEF

Conforma Case C-322/89 Minister public v Marchandise Case C-306/88 Semeraro Casa Uno Srl v Sindaco del Comune

di Erbusco 1996


The Judgement in Keck Kech & Mithourd Case C-267 268/91 Selling arrangement is not as such as

to HINDER DIRECTLY OR INDIRECTLY, ACTUALLY OR POTENTIALLY, TRADE BETWEEN MS within the meaning of the Dassonville formula provided that they apply to all and provide they affect in the same manner in law and in fact


Static and Dynamic Selling Arrangements

TWO JUDICAL QUALIFICATIONS 1. IS OPEN TO THE ECJ TO CHARACTERISE

CERTAIN RULES WHICH AFECT SELLING IN SOME MANNER AS PART OF THE NATURE OF THE PRODUCT ITSELF, AND HENCE WITHIN THE AMBIT OF ARTICLE 28?

FAMILIAPRESS C 368/95


2. EVEN IF A RULE IS CATHEGORIZED AS BEING ABOUT A SELLING ARRANGEMENT, IT WILL STILL BE WITHIN ART 28 IF THE RULE HAS A DIFFERENTIAL IMPACT IN LAW OR FACT FOR DOMESTIC TRADERS AND IMPORTERS


Article 36 TFEU ex Article30 EC The provisions of Articles 34 and 35 shall not

preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

Free Movement of Persons Article 45 TFEU ex 39 EC 1. Freedom of movement for workers shall be secured within the Union.

2. Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment.

3. It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health:

(a) to accept offers of employment actually made; (b) to move freely within the territory of Member States for this

purpose; (c) to stay in a Member State for the purpose of employment in

accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action;

(d) to remain in the territory of a Member State after having been employed in that State, subject to conditions which shall be embodied in implementing regulations to be drawn up by the Commission.

Free Movement of Persons

Bosman ruling case C- 415/93 European Parliament and Council Directive

2004/38/EC of 29 April 2004 on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States amending Regulation (EEC) No 1612/68 and repealing Directives 64/221/EEC , 68/360/EEC , 72/194/EEC , 73/148/EEC , 75/34/EEC , 75/35/EEC , 90/364/EEC , 90/365/EEC and 93/96/EEC .

Free Movement of Services

Article 49 EC Within the framework of the provisions set out below, restrictions

on freedom to provide services within the Community shall be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended.

The Council may, acting by a qualified majority on a proposal from the Commission, extend the provisions of the Chapter to nationals of a third country who provide services and who are established within the Community.

Right to establishment

Article 49 TFEU ex 43 EC Within the framework of the provisions set out below,

restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 39, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

Free movement of capital

Article 59 TFEU ex 52 EC 1. In order to achieve the liberalisation of a

specific service, the Council shall, on a proposal from the Commission and after consulting the Economic and Social Committee and the European Parliament, issue directives acting by a qualified majority.

2. As regards the directives referred to in paragraph 1, priority shall as a general rule be given to those services which directly affect production costs or the liberalisation of which helps to promote trade in goods.

History of EU tax Law

Article 113 TFEU ex 93 EC The Council shall, acting unanimously on a

proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market

Indirect Taxation

1960 Commission 3 working groups (experts from Commission & MS)

A – removal of tax frontiers & border inspection

B- single stage – general sales tax C- common single stages tax at

production & at retail levels

1960 Fiscal & financial Committee to study tax system of the MS which conflicted with the Internal Market

Neumark Report abolish a cascade tax and opt for VAT because of market distortion

EC agreed with report First draft directive of VAT

VAT

First Vat Directive 67/227/EECof 11 April 1967

Preamble The main objective of the Treaty , within

the framework of an economic union, a common market within which there is a healthy competition & whose characteristics are similar to those of a domestic market

First Directive to be transposed by 1 January 1970

Definitions Territory of the country Place of supply Taxable persons Provision of services

First Directive to replace their present turnover taxes by a VAT system 1/1/70

Second Directive 67/228/EEC of 11/4/67 VAT to be applied to: The supply of goods and the provisions of

services within the territory of a country by a taxable person against payment;

The importation of goods

No major problems in the implementation except some fears of budgetary repercussions

3rd VAT Directive extended the deadline until 1972

4th & 5th VAT Directive extended further time for Italy 1973

By 1973 the 3 new MS were already in place (DK 1967) (Eire 1972) UK 1973

Sixth VAT Directive

77/388/EEC of 17 May 1977 Most comprehensive Directive In force today with amendments

1985 white Paper Removal of physical borders Removal of technical borders Removal of tax barriers

Approximation of VAT

Common base Number of rates Level of the rates (particularly of the

standard rate) 1989 proposals COM(89) 260 VAT & excise duty rates should be

approximated Tax frontiers are incompatible with

genuine market

Common system of VAT

COM 328(96) final A definitive system of VAT Easing of the administrative obligations

incumbent on enterprises and administrations and a significant simplification of taxation;

No reduction in MS’s revenue No increase in the risk of tax evasion Maintenance of tax neutrality in terms of

competitiveness

The Concepts behind a Future Definitive Regime of VAT

a) The Destination Principle b) The Origin Principle c) The Place of Establishment d) A Federal Tax

The new VAT system will have to satisfy the following criteria:

It must abandon the segmentation of the internal market into individual tax areas;

It must be simple and modern so as to rise to the challenges of this new century;

It must guarantee equal treatment of all transactions carried out in the Community; and

It must ensure effective taxation and guarantee proper monitoring, thereby maintaining the level of VAT revenues.

Destination Principle v Original Principle

Future Options for EC VAT

The first is to revert back to the destination principle. The current system is mostly based on the destination principle, and therefore one could argue that if the feeling is that none of the theories proposed are considered to be superior, then one could revert back to such a system.

The second option is to finally move towards the origin principle with or without a clearing-house mechanism

The third option could be to introduce a totally new system. What form could this new system take place is still debatable.

Community Customs Code Article 28 TFEU ex 23EC 1. The Community shall be based upon a

customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries.

Direct Taxes Legal basis – not very broad

APPROXIMATION OF LAWS Article 115 TFEU

EU Direct Tax Harmonisation aims at: Curbing the alarming tendency in national tax policies of

shifting the tax burden from the more mobile capital factor to the less mobile labour factor;

Alignment of corporate taxes; Co-ordination of tax treatment of distributed company

profits; Elimination of obstacles such as withholding taxes to cross-

border flow of dividends, interests and royalties; Facilitating the cross-border grouping of companies; Elimination of international double taxation; Non-discriminatory tax treatment of non-residents

taxpayer, especially frontier workers; Creating a favourable tax environment for SME’s; Harmonisation of tax savings while avoiding a possible

flight from the Union to third countries;

Parent Subsidiary Directive 90/435/EEC of 23 July 1990

Merger Directive 90/434/EEC of 23 July 1990

Arbitration Convention 90/463/EEC of 23 July 1990 under Article 293EC(then 220EEC)

Tax aspects of European Economic Interest Grouping (EEIG) and the European Company (SE)

Interest & Royalty Directive 2003/49/EC of 26 June 2003

Savings Interest Directive (initially withdrawn a 1988 draft) 2003/48/EC of 26 June 2003 came into force 1/7/2005(initially planed for 1/1/2005)

THE END

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EU TAX LAW COURSE by Dr. Ivan Sammut from Faculty of Laws University of Malta