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June 2016 - edition 156EU Tax Alert
The EU Tax Alert is an e-mail newsletter to inform you of recent developments in the EU that are of interest for tax professionals. It includes recent case law of the European Court of Justice, (proposed) direct tax and VAT legislation, customs, state aid, developments in the Netherlands, Belgium and Luxembourg and more.
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Highlights in this edition
Political agreement EU to implement anti tax avoidance measures (Anti Tax Avoidance Directive)Monday 20 June 2016 at midnight the EU Council reached political agreement on the Anti Tax Avoidance Directive
(ATAD). The main goal of the ATAD is to ensure a coordinated and coherent implementation at EU level of some
of the OECD’s recommendations regarding base erosion and profit shifting (BEPS) and to add certain anti tax
avoidance measures which are not part of the OECD BEPS project.
The Member States have to implement all measures as of 1 January 2019, except for the exit taxation provision
and the interest deduction limitation provision. The exit taxation provision must be implemented per 1 January 2020.
The implementation of the interest deduction limitation provision can be postponed until 1 January 2024, subject to
certain conditions.
EU CbC Directive adopted; EU-blacklist of non-EU tax havens announcedOn 25 May 2016, the EU Council adopted two texts regarding: (i) a directive on EU country-by-country reporting by
multinationals, and (ii) conclusions on external taxation strategy (EU-blacklist of non-EU tax havens) and measures
against tax treaty abuse.
Extensive Notice on the Notion of State Aid published On 19 May 2016, the European Commission published its Notice on the Notion of State aid. This Notice reflects the
Commission’s position on how it will apply State aid rules to, for instance, tax benefits. It intends to clarify previous
decision-making practices and supersede it where necessary.
3
Commission publishes the non-confidential version of the final decision on the APA of Fiat in LuxembourgOn 9 June 2016, the Commission published its final decision, dated 21 October 2015, concerning the State aid investigations
into the tax ruling granted by Luxembourg to Fiat related to an Advanced Pricing Agreement (‘APA’).
The Commission concluded that the tax ruling granted by Luxembourg to Fiat constituted a selective advantage that is
imputable to Luxembourg and financed through State resources and which distorts or threatens to distort competition and
is liable to affect intra-EU trade. Therefore, the Commission considered that the contested tax ruling constitutes State aid
within the meaning of Article 107 (1) TFEU, and ordered the recovery of the estimated tax advantage granted.
Commission publishes the non-confidential version of the decision to open an in-depth investigation into transfer pricing arrangements on corporate taxation of McDonalds in Luxembourg On 6 June 2016, the Commission published its decision of 3 December 2015 to open a formal investigation into the tax
position of McDonald’s in Luxembourg.
In contrast to other recent tax related State aid cases such as Fiat and Starbucks, this investigation does not relate
to transfer pricing matters. However, as in the other recent fiscal State aid cases, the focus is on whether a selective
advantage has been granted to the beneficiary of a tax ruling.
State aid - Belgian excess profit rulings decision is published On 4 May 2016, the Commission published on its website the State aid decision of 11 January 2016, in which the
Commission concludes that the Belgian excess profit rulings constitute illegal State aid. Belgium filed its appeal against the
decision on 22 March 2016. The published decision provides valuable insight into the legal reasoning of the Commission
in respect of State aid and transfer pricing.
4 5
capitalization applicable in the relevant Member
State is not in breach of the freedom of establishment
(Masco)
• AG Wathelet opines that Portuguese legislation
imposing an exit tax in the case of exchange of
shares followed by a transfer of place of residence
abroad or transfers of assets and liabilities relating to
an activity carried out on an individual basis in return
of shares in a non-resident company contravene the
fundamental freedoms (Commission v Portugal)
VAT• CJ rules that transport of pupils by Municipality for a
very limited contribution in principle does not qualify
as an economic activity for VAT purposes (Gemeente
Borsele)
• Ingots consisting of various scrapped, gold-bearing
metal objects and organic materials qualify as gold in
CJ’s view (Envirotec)
• CJ rules that debit and credit card handling services in
respect of cinema ticket are not VAT exempt (Bookit)
• CJ rules that processing of a payment by debit or
credit card for the purchase of an event ticket does
not qualify as VAT exempt service (National Exhibition
Centre)
• Council of the European Union and VAT Expert Group
welcome the VAT Action Plan
• Council adopts Directive maintaining VAT minimum
standard rate
Customs Duties, Excises and other Indirect Taxes• CJ rules on the CN classification of alcoholic
beverages (Toorank)
• CJ rules on the definition of the normal place of
residence (X case)
• CJ rules on the tariff classification of mobility scooters
(Invamed)
• CJ rules on the tariff classification of turret system
for armoured fighting vehicles (GD European Land
Systems – Steyr GmbH)
• CJ rules on the tariff classification of LPG (Latvijas
propāna gāze)
• EU Commission publishes guidelines on the Union
Customs Code
ContentsHighlights in this edition• Political agreement EU to implement anti tax
avoidance measures (Anti Tax Avoidance Directive)
• EU CbC Directive adopted; EU-blacklist of non-EU
tax havens announced
• Extensive Notice on the Notion of State Aid published
• Commission publishes the non-confidential version
of the final decision on the APA of Fiat in Luxembourg
• Commission publishes the non-confidential version
of the decision to open an in-depth investigation into
transfer pricing arrangements on corporate taxation
of McDonalds in Luxembourg
• State aid - Belgian excess profit rulings decision is
published
State Aid / WTO• Commission releases working paper on State aid and
tax rulings
Direct taxation• CJ rules that German legislation concerning the
calculation of the transfer duties payable in respect of
the gift of a plot of land in Germany contravenes the
free movement of capital (Hünnebeck)
• CJ rules that Swedish legislation on the taxation of
non-resident pension funds is not in breach with the
free movement of capital (Pensioenfonds Metaal en
Techniek)
• CJ rules that Belgian legislation which subjects non-
resident UCIs to an annual tax is not in breach of
the fundamental freedoms while a specific sanction
only for foreign UCIs which fail to pay amounts in
respect of annual tax is in breach of the fundamental
freedoms (NN (L) International)
• CJ rules that Greek legislation which provides for an
exemption from inheritance tax relating to primary
residence applicable solely to Greek residents is in
breach of the free movement of capital (Commission
v Greece)
• AG Kokott opines that Danish legislation which does
not grant a resident company a tax exemption on
interest income received from an affiliated company
established in another Member State which is
not entitled to a tax deduction as a result of thin
5
a) Interest deduction limitation rule
This rule limits the deduction of net borrowing costs to the
higher of (i) 30% of the earnings before interest, taxes,
depreciation and amortisation (EBITDA) and (ii) an
amount of EUR 3 million. The net borrowing costs are
defined as the balance of a taxpayer’s interest expenses
and economically equivalent costs and expenses
incurred in connection with the raising of finance, on the
one hand, and a taxpayer’s taxable interest income and
equivalent taxable income, on the other. The rule does not
distinguish between third party and related party interest.
The EBITDA is calculated on the basis of tax numbers
and excludes tax exempt income. Member States can
choose to apply the fixed rule of 30% and the EUR 3
million threshold escape at the level of a local group as
defined according to national tax law. Further, Member
States can choose to exclude standalone entities from
the application of the interest deduction limitation.
If the taxpayer is member of a consolidated group for
financial accounting purposes, the ATAD provides for two
alternative worldwide group ratio escape rules, namely
(1) an equity escape rule or (2) an earnings-based
worldwide group ratio rule. The Member States may
choose to implement one of these two escape rules, but
they are not obliged to do so. Under the equity escape
rule a taxpayer is allowed to fully deduct its exceeding
borrowing costs if it can demonstrate that the ratio of its
equity over its total assets is not more than 2 percentage
points lower than the equivalent ratio of the worldwide
group. Under the earnings-based worldwide group
ratio rule a taxpayer is allowed to deduct its exceeding
borrowing costs up to the level of the net interest/EBITDA
ratio of the worldwide group to which it belongs.
A Member State may give the taxpayer one of the
following rights to ensure a balanced application of the
interest deduction limitation rule over a number of years,
devoid of effects of incidental fluctuations in EBITDA and
net interest expense level:
1, To carry forward, without time limitation, non-
deductible borrowing costs to future years; or
2. To carry forward, without time limitation, and back,
for a maximum of 3 years, non-deductible borrowing
costs; or
Highlights in this editionPolitical agreement EU to implement anti tax avoidance measures (Anti Tax Avoidance Directive)Monday 20 June 2016 at midnight the EU Council
reached political agreement on the Anti Tax Avoidance
Directive (ATAD). The main goal of the ATAD is to ensure
a coordinated and coherent implementation at EU level
of some of the OECD’s recommendations regarding base
erosion and profit shifting (BEPS) and to add certain anti
tax avoidance measures which are not part of the OECD
BEPS project.
The Member States have to implement all measures as
of 1 January 2019, except for the exit taxation provision
and the interest deduction limitation provision. The exit
taxation provision must be implemented per 1 January
2020. The implementation of the interest deduction
limitation provision can be postponed until 1 January
2024, subject to certain conditions.
The ATAD lays down rules against tax avoidance in five
specific fields:
1. deductibility of interest;
2. exit taxation;
3. general anti-abuse rule (GAAR);
4. controlled foreign company (CFC) rules; and
5. hybrid mismatches.
Compared to the first proposal of the
European Commission (see our Tax Flash of
28 January 2016) substantial changes were made to
most of these rules. The switch-over clause, limiting tax
exemptions for income from low-taxed foreign subsidiaries
and permanent establishments, was eliminated.
The implementation of the ATAD will require changes to
currently existing corporate income tax rules, like interest
deduction limitations, but will also require the introduction
of completely new sets of rules like for CFCs and hybrid
mismatches in many Member States. The rules of the
ATAD merely set the minimum required standards:
Member States may apply additional or more stringent
provisions aimed at BEPS practices.
6 7
connected with a PE in the Member State of origin);
or
4. transfer of the business carried out in a PE out of a
Member State.
Members States to which assets are transferred must
accept the market value of the assets transferred
established by the transferor Member State as the
starting value for tax purposes (i.e., a step-up).
Member States must give taxpayers the right to defer
the exit tax payment by paying it in instalments spread
out over five years when the transfers occur between
Member States or states that are party to the European
Economic Area Agreement (EEA States; Liechtenstein,
Norway and Iceland). Contrarily to the initial proposal,
the ATAD provides that the deferral on payment in case
of EEA States can only occur in case the EEA State has
concluded an agreement with the EU Member State of
origin or with the European Union on mutual assistance
for the recovery of claims, equivalent to the mutual
assistance provided for in Directive 2010/24/EU.
Interest may be charged on deferred exit tax and the
deferral of payment of exit tax may be subject to security
arrangements to ensure proper collection. The deferral
of exit tax must be terminated if the transferred assets
are disposed of, are transferred to a third country or if the
taxpayer transfers its residence for tax purposes to a third
country or goes bankrupt. The deferral is also terminated
in case the taxpayer fails to fulfill its obligations in relation
to the installments and does not correct its situation over
a reasonable period of time (which shall not exceed 12
months).
c) GAAR
Under the GAAR, non-genuine arrangements or series
thereof that are put in place for the main purpose or one
of the main purposes of obtaining a tax advantage that
defeats the object or purpose of the applicable law should
be ignored for the purposes of determining the corporate
tax liability. The wording of the GAAR corresponds to
the wording of the general anti-abuse rule of the 2015
amendment to the EU Parent Subsidiary Directive, except
that the GAAR in the ATAD should be applied to the entire
domestic corporate tax laws of the Member States.
3. To carry forward, without time limitation, non-
deductible borrowing costs and, for a maximum of 5
years, unused interest capacity.
Member States are not obliged to apply the interest
deduction limitation rule to financial undertakings,
which are defined in the ATAD and generally comprise
regulated financial institutions such as banks, insurance
companies, pension funds and certain investment funds.
Member States may also exclude the application of this
rule with respect to loans used to fund certain long-term
infrastructure projects.
The agreed text includes a grandfathering clause which
excludes the application of the interest deduction limitation
rule in case of loans concluded before 17 June 2016,
but this exclusion shall not extend to any subsequent
modification of such loans.
On the basis of a special implementation rule, Member
States can postpone the implementation of the interest
deduction limitation rule, provided they already have
national rules preventing base erosion and profit shifting
in place, which are equally effective to the interest
deduction limitation rule as included in the ATAD. If so,
they can postpone the implementation of the interest
deduction limitation rule until the end of the year following
the date of the publication of the agreement between the
OECD members on a minimum standard with regard to
BEPS Action 4, but no later than 1 January 2024.
b) Exit taxation
The ATAD provides for an exit tax to be assessed in
the Member State of origin on the difference between
the market value of the transferred assets and their tax
value. Exit tax shall be triggered in the case of:
1. transfer of assets from the head office to a permanent
establishment (PE) located in another Member State
or in a third country in so far as the Member State
of the head office no longer has the right to tax the
transferred assets;
2. transfer of assets from a PE in a Member State to its
head office or another PE located in another Member
State or third country;
3. transfer of tax residence to another Member State
or third country (except when the assets remain
7
for situations where the CFC carries on a substantive
economic activity supported by staff, equipment,
assets and premises, as evidenced by relevant facts
and circumstances. If the CFC is not a resident of or
situated in a Member State or an EEA State, Member
States may decide to refrain from applying this
‘substantive economic activity’-exception. Exceptions
may be applied if the income of the CFC consists
for one third or less out of the specific types of listed
income and for financial undertakings when certain
conditions are met.
• Inclusion of non-distributed income arising from
non-genuine arrangements which have been put
in place for the essential purpose of obtaining a
tax advantage. An arrangement shall be regarded
as non-genuine to the extent that the CFC would
not own assets or would not have undertaken risks
if it were not controlled by a company where the
significant people functions, which are relevant
to those assets and risks, are carried out and are
instrumental in generating the controlled company’s
income. The attribution of income is then limited to the
income attributable to the significant people functions
carried out by the controlling company. In this case,
an exception may be provided by an Member State
for CFC entities or PEs with accounting profits of no
more than EUR 750.000 and non-trading income of
no more than EUR 75.000 or of which accounting
profits account to no more than 10 percent of its
operating costs for the tax period.
The provisions on CFC legislation in the ATAD provide
rules with respect to the computation of the income to be
included under the CFC rules (calculated in accordance
with the rules of the Member State where the taxpayer
resides) and the amount of income to be included under
the CFC rules (proportion of entitlement to profits of the
entity). The provisions also provides for relief of double
taxation through a credit for the underlying corporate tax
paid by the CFC.
e) Hybrid mismatches
Hybrid mismatches are situations in which an entity
is qualified differently in two Member States and this
difference in qualification results in:
Arrangements or series thereof shall be regarded as non-
genuine to the extent that they are not put into place for
valid commercial reasons, which reflect economic reality.
If the GAAR applies, the tax liability should be determined
in accordance with the respective national law. In
addition, according to the preamble, Member States may
apply penalties whenever the GAAR is applied.
d) CFC legislation
The ATAD prescribes Member States to implement CFC
legislation in their national laws. Under the ATAD, a
CFC refers to an entity or a PE that meets the following
conditions:
• a taxpayer holds (alone or together with associated
enterprises) a (direct or indirect) participation of more
than 50% of the voting rights, more than 50% in the
capital or the entitlement to more than 50% of the
profits of that entity; and
• the actual tax paid by the entity or PE in the CFC
jurisdiction is lower than the difference between
the corporate tax that would have been charged on
the entity or PE under the applicable corporate tax
system in the Member State of the taxpayer and
the actual tax paid on profits in the CFC jurisdiction.
The final wording reflects the concerns raised by
some Member States as to the use of the concept
of “effective tax rate” in previous draft versions of the
ATAD. Still, the approved version leads in fact to the
same result: a CFC will be any entity or PE that is
subject to an effective tax rate of less than 50% of the
effective tax rate in the country of the Member State
of the taxpayer.
The non-distributed income of such a CFC needs to be
included in the taxable income of a taxpayer in case
additional requirements are met. Member States may opt
for two alternative approaches:
• Inclusion of non-distributed specific types of income
as defined in the ATAD (i.e., interest, dividends,
income from the disposal of shares, royalties,
income from financial leasing, income from banking,
insurance and other financial activities, income from
invoicing associated enterprises as regards goods
and services where there is no or little economic
value added). In this case, an exception is provided
8 9
In the first draft of the ATAD, these mismatches were
solved by prescribing a full requalification of the hybrid
entity in one of the Member States involved. This Member
State had to follow the qualification of the other Member
State and in that way the mismatch was taken away. This
mechanism had lots of other tax consequences than
only solving the hybrid mismatch and was replaced by a
simpler set of rules.
Under the new rules, the general qualification of the
hybrid entity is left unchanged. The rules are limited to
a denial of the deduction of the payment that leads to a
double deduction or deduction/no inclusion in one of the
Member States.
• In case of a double deduction, only the Member
State where the payment has its source shall give
a deduction (in the first example above: country B).
This means that the other Member State involved (in
the first example above: country A) has to deny the
deduction of the payment.
• In case of a deduction/no inclusion, the Member
State of the payer shall deny the deduction (in the
second example above: country B).
The rules also apply to hybrid mismatches caused
by a structured arrangement with a different legal
characterization of a financial instrument.
The scope of the rules is limited to hybrid mismatches
between Member States. In the Annex to the ATAD the
EU Council requests the European Commission to put
forward a proposal for hybrid mismatches with non-EU
countries by October 2016.
EU CbC Directive adopted; EU-blacklist of non-EU tax havens announcedOn 25 May 2016, the EU Council adopted two texts:
(i) a directive on EU country-by-country reporting by
multinationals, and (ii) conclusions on external taxation
strategy (EU-blacklist of non-EU tax havens) and
measures against tax treaty abuse.
1. EU Country-by-Country reporting by multinationals
adopted
The EU Council officially adopted the EU directive
that will implement OECD anti-BEPS action 13, on
• a double deduction of certain costs or losses (“double
deduction” or “DD”); or
• a deduction of certain costs without taxation of the
corresponding income (“deduction/no inclusion” or
“D/NI”).
The most common types of these structures can be
depicted as follows:
Double deduction:
• B Co. is transparent in Country A
• B Co. is non transparent in Country B
• Interest expenses of B co. can therefore be deducted
in Country A and Country B
Deduction/no inclusion:
• B Co. is transparent in Country A
• B Co. is non transparent in Country B
• Interest expenses of B co. paid to A co. can therefore
be deducted in Country B, but is not visible or taxable
in Country A.
A Co.Country A
Country B
B Co.
B Sub 1
Bank
Interest
Loan- +
A Co. Country A
Country B
B Co.
B Sub 1
Interest Loan
-
+
9
Extensive Notice on the Notion of State Aid published On 19 May 2016, the Commission published its Notice
on the Notion of State aid. This Notice reflects the
Commission’s position on how it will apply State aid rules
to, for instance, tax benefits. It intends to clarify previous
decision-making practices and supersede it where
necessary. In respect of taxes, the Commission addresses
a number of specific issues in somewhat more detail:
i) special tax regimes for cooperatives (co-ops), (ii) special
tax regimes for collective investment vehicles (CIVs), (iii)
tax amnesties, (iv) tax rulings, including advance pricing
agreements, (v) tax settlements, (vi) special depreciation
and amortization rules, (vii) fixed basis regimes, such as
tonnage tax regimes, (viii) selective exemptions to anti-
abuse rules, and (ix) lowered excise duties.
The Notice reflects, amongst others, some core elements
of the approach the Commission took in the recent tax
ruling decisions although there are some noticeable
changes and omissions. While the Notice does bind the
Commission, it does not bind any aid recipient or the EU’s
Courts, especially in regard to viewpoints not previously
tested by the CJ.
Commission publishes the non-confidential version of the final decision on the APA of Fiat in Luxembourg On 9 June 2016, the Commission published its final
decision, dated 21 October 2015, concerning the State aid
investigations into the tax ruling granted by Luxembourg
to Fiat related to an Advanced Pricing Agreement (‘APA’).
The Commission concluded that the tax ruling granted
by Luxembourg to Fiat constituted a selective advantage
that is imputable to Luxembourg and financed through
State resources and which distorts or threatens to
distort competition and is liable to affect intra-EU trade.
In concrete terms, the Commission concluded that the
tax ruling did indeed grant a selective advantage to
FTT since it led to a lowering of that entity’s taxable
profit in Luxembourg as compared to non-integrated
companies whose taxable profits are determined by
transactions concluded on market terms. According
to the Commission, due to a number of economically
unjustifiable assumptions and downward adjustments,
the capital base approximated by the tax ruling is much
country-by-country reporting by multinationals and
the exchange thereof between tax administrations
(not to be confused with the European Commission’s
proposal of 12 April 2016 on public country-by-
country reporting for multinationals, which is still
pending). The political agreement on this proposal
was reached in March 2016. This directive needs
to be implemented into domestic law before
31 December 2016. The Netherlands had already
implemented country-by-country reporting for
multinationals as per 1 January 2016. 2. Conclusions on external taxation strategy (list of non-
cooperative jurisdictions) and measures against tax
treaty abuse
The EU Council has adopted conclusions on the third
country (non-EU States) aspects of the European
Commission anti-tax avoidance measures. The most
important element is that an EU-list of third country, non-
cooperative jurisdictions will be established and that
defensive measures against those third States, to be
implemented both in the tax area and in the non-tax area,
will be explored. The Code of Conduct Group will work on
this list and those defensive measures as of September
2016, with a view to endorsement by the EU Council in
2017.
Furthermore, the EU Council has invited the European
Commission to consider legislative initiatives on
mandatory disclosure rules for aggressive or abusive
transactions (based on Action 12 of the OECD BEPS
project) with a view to introducing more effective
disincentives for intermediaries who assist in tax evasion
or tax avoidance schemes.
Finally, the EU Council has welcomed the European
Commission’s recommendation to implement OECD
BEPS Actions 6 (tax treaty abuse) and 7 (artificial
avoidance of permanent establishment) by including
a principal purpose test and permanent establishment
provisions as proposed by the OECD in tax treaties.
10 11
a US perspective, confers a selective advantage to
McDonald’s for the purposes of Article 107(1) TFEU. On
that basis, the Commission has decided to open (the now
pending) formal investigation.
State aid - Belgian excess profit rulings decision is published On 4 May 2016, the Commission published on its website
the State aid decision of 11 January 2016, in which the
Commission concludes that the Belgian excess profit
rulings constitute illegal State aid. Belgium filed its
appeal against the decision on 22 March 2016. The
published decision provides valuable insight into the
legal reasoning of the Commission in respect of State aid
and transfer pricing. You can find the decision published
on the website of the Commission.
Under the excess profit rulings, the actual recorded profit
of a Belgian company forming part of a multinational
group is compared with the hypothetical average profit
a stand-alone company in a comparable situation would
have made. The difference is deemed to be excess profit
that is not taxed in Belgium. These rulings are based
on the premise that multinational companies operating
in Belgium realise excess profit as a result of being
part of a multinational group, e.g. due to synergies and
economies of scale. In its decision of 11 January 2016,
the Commission concludes that the excess profit rulings
regime constitutes illegal State aid since it derogates
both from the normal practice under Belgian company tax
rules and the arm’s length principle that can be derived
from EU State aid principles. The Commission requires
Belgium to recover all asserted aid granted under the
excess profit ruling regime.
Belgium, other Member States, the beneficiaries of the
excess profit rulings or other parties who are directly and
individually concerned by the decision may challenge
it before the EU General Court under Article 263 of the
TFEU. Belgium already filed its appeal against the decision
on 22 March 2016. For others, there is a two-month term
(increased with 24 days) within which to file such appeal,
which starts running once the decision is published
in the Official Journal of the European Union. The
decision provides detailed insight into the Commission’s
reasoning in respect of State aid and transfer pricing.
lower than the company’s actual capital. In addition, the
estimated remuneration applied to this capital already
lowered for tax purposes is also lower compared to
market rates.
Therefore, the Commission considered that the contested
tax ruling constitutes State aid within the meaning of
Article 107 (1) TFEU and ordered the recovery of the
estimated tax advantage granted accrued with interest.
Commission publishes the non-confidential version of the decision to open an in-depth investigation into transfer pricing arrangements on corporate taxation of McDonalds in Luxembourg On 6 June 2016, the Commission published its decision
of 3 December 2015 to open a formal investigation into
the tax position of McDonald’s in Luxembourg.
In contrast to other recent tax related State aid cases
such as Fiat and Starbucks, this investigation does not
relate to transfer pricing matters. However, as in the other
recent fiscal State aid cases, the focus is on whether a
selective advantage has been granted to the beneficiary
of a tax ruling.
The Commission takes the view that a ruling confirming
the attribution of income to a permanent establishment
(PE) abroad, where no such PE is recognized in the
source State, is not in line with the object and purpose
of tax treaties and, thus, an exemption for the income of
such PE is not justified. While the Commission seems
willing to accept that an exemption may be given even
in the absence of effective taxation abroad, it will test
whether the treaty conditions for such an exemption have
been met. In this respect, the Commission argues that if
the source State is clearly unable to tax the income as
no PE exists under its domestic legislation, no exemption
should have been offered by the residence State of the
taxpayer.
Overall, the Commission considers that the Luxembourg
tax administration, by confirming in the revised tax
ruling an erroneous interpretation of the Luxembourg–
US tax treaty and the Luxembourg domestic law that
transposes it, in full knowledge of the fact that the US
Franchise Branch does not constitute a taxable PE from
11
companies that are part of group companies or rulings
which endorse tax deductions for payments or changes
between group companies, even where such payments
are not actually made.
Furthermore, this working paper sets out that the inquiry
suggests that the use of certain transfer pricing methods
provides a more reliable means to approximate a market
based outcome than others.
Direct TaxationCJ rules that German legislation concerning the calculation of the transfer duties payable in respect of the gift of a plot of land in Germany contravenes the free movement of capital (Hünnebeck) On 8 June 2016, the CJ delivered its judgment in the
case Sabine Hünnebeck v Finanzamt Krefeld (C-479/14).
The case concerns the German legislation regarding the
calculation of the transfer duties payable in respect of the
gift of a plot of land in Germany, when neither the donor
nor the recipient of the gift resides in that Member State.
Specifically, the case deals with the compatibility with
EU law of the amendments to the German legislation in
accordance with which the higher tax allowance reserved
for German residents is applicable to a gift between non-
residents of an asset situated in Germany if the donee
requests that the gift be subject to the tax scheme for
residents (unlimited tax liability).
Ms Hünnebeck and her two daughters are German
nationals residing in the UK. Ms Hünnebeck was a
co-owner of a plot of land located in German that
was donated to the two daughters. It was stipulated
in the transfer agreement that Ms Hünnebeck would
be liable for any gift tax which might become payable.
In calculating the amount of the transfer duties to be
paid, the German tax authorities applied the EUR 2,000
share of personal allowance that was granted to non-
resident German persons. Ms Hünnebeck appealed from
this decision requesting for the application of the EUR
400,000 personal allowance that was applied to German
residents as otherwise, non-residents would be subject
to a less favourable tax treatment.
Similar reasoning seems to have been applied in the
Fiat and Starbucks cases, the final decisions of which
are yet to be published. The Commission uses the arm’s
length principle to test whether the taxable income of a
group company is determined in a way that approximates
market conditions. In the view of the Commission,
even though non-binding, the OECD Transfer Pricing
Guidelines can be helpful and a source of inspiration
in determining whether an outcome is at arm’s length.
Nonetheless, in the view of the Commission, both the
choice for a transfer pricing method and the application
of such transfer pricing method should be thoroughly
tested by tax authorities as to whether the result is in line
with a market result. In other words, even an outcome
fully in line with the OECD Transfer Pricing Guidelines
should still be tested on market conformity based on
the Commission’s own interpretation of the arm’s length
principle.
State Aid/WTOCommission releases working paper on State aid and tax rulings On 3 June 2016, the Commission released a working
paper identifying possible issues related to profit
allocations and arm’s length standards across Member
States’ transfer pricing rulings. The working paper
inquires whether certain tax rulings are prohibited under
EU State aid rules.
The working paper analysis is based on the interpretation
of the State aid Notion as referred to in Article 107(1)
TFEU. A measure by which public authorities grant
certain undertakings a favourable tax treatment which
places them in a more favourable financial position
than other taxpayers amounts to State aid. The working
paper is based on an inquiry conducted by the DG for
Competition into over more than 1,000 tax rulings.
According to the Commission, a considerable number of
rulings relating to transfer pricing arrangements appear
to reflect an approximation of a market based outcome
in line with the arm’s length principle. However, it also
considers that other arrangements do not reflect such
approximation. This concerns, for example, a number
of tax rulings regarding remuneration of financing
12 13
respect of which at least one of the parties is a resident,
constitutes a restriction on the free movement of capital,
which is prohibited, in principle, by Article 63(1) TFEU.
The CJ then went then to analyse whether the restriction
on the free movement of capital could be justified by
overriding reason in the general interest.
First of all, as regards the need to safeguard the
coherence of the tax system, the Court stated that
Germany had failed to demonstrate how the aggregation
of the gifts over a period of 20 years, where the beneficiary
seeks to avail of the higher tax-free allowance, might
be considered to be an appropriate means by which to
achieve the objective of safeguarding the coherence of
the German tax system. In that regard, the tax advantage
derived from taking into account, for the application of the
higher allowance, a period of 10 years preceding the gift
in respect of which at least one resident in Germany is a
party is not offset by any particular tax relating to gift tax.
Second, and concerning the justification based on the
principle of territoriality and the alleged need to ensure
a balanced allocation of the powers to impose taxes,
the CJ observed that in the present case, the unequal
treatment as regards the period to be taken into account
for the application of the higher tax-free allowance results
from the application of the German legislation in question
alone. Furthermore, the Court considered that the
German Government had failed to demonstrate that such
difference in treatment is necessary in order to safeguard
the power of Germany to impose taxes.
CJ rules that Swedish legislation on the taxation of non-resident pension funds is not in breach with the free movement of capital (Pensioenfonds Metaal en Techniek) On 2 June 2016, the CJ delivered its judgment in the
case Pensioenfonds Metaal en Techniek v Skatteverket
(C-252/14). The case deals with the Swedish legislation
that provides for a different tax treatment of resident
and non-resident pension funds. In essence, resident
pension funds are subject to lump sum taxation on the
basis of notional yield while non-resident pension funds
are subject to withholding tax on dividends.
The German tax authorities rejected the appeal,
considering that the German legislation already gave the
possibility to benefit from this higher personal allowance
by granting the possibility to opt to be treated as a
German resident. In this case, all transfers made in the
previous or subsequent 10 years following the transfer of
the assets would be treated as subject to unlimited tax
liability.
In this regard, the CJ started by stating that the
mechanism of taxation that allows the beneficiary of a
gift between non-residents to benefit from the higher tax-
free allowance provided for in the case of gifts involving
at least one resident, is of optional application and the
exercise of such option by the non-resident beneficiary
involves the aggregation, for the purposes of calculating
the tax payable in respect of the gift in question, of all the
gifts received by that beneficiary from the same person
over the course of the 10 years preceding and of the 10
years following that gift, whereas, for gifts involving at
least one resident, only the gifts made within a period of
10 years are aggregated.
Furthermore, the CJ added that, as regards the optional
nature of that mechanism of taxation, even if such
mechanism would be compatible with EU law, a national
scheme that restricts the freedom of movement may
still be incompatible with EU law even being of optional
application. In fact, the existence of an option which
would possibly render a situation compatible with EU law
does not, in itself, correct the unlawful nature of a system,
such as the system provided for by the contested rules,
which still includes a mechanism of taxation that is not
compatible with that law. It should be added that this is
even more so in the situation where, as in the present
case, the mechanism incompatible with EU law is the
one which is automatically applied in the case where
the taxpayer fails to make a choice. In the concrete
case, the CJ considered that subject to the checks to be
carried out by the referring court as to the length of the
period to be taken into account for the purpose of the
application, at the request of non-resident beneficiaries,
of the higher tax-free allowance, it must be held that, as
regards the length of the period for the aggregation of
the gifts to be taken into account for the application of
the higher allowance, the tax treatment of gifts between
non-residents that is less favourable than that of gifts in
13
non-resident pension funds from making investments
in that Member State and, consequently, amounts to
a restriction of the free movement of capital. However,
the Court observed that provisions can be considered
compatible with the TFEU if they refer to situations which
are not objectively comparable. The comparability to
be assessed having regard to the aim pursued by the
national provisions at stake as well as its purpose and
content.
In this respect, the CJ considered that that the taxation
affecting resident pension funds has a different purpose
from that applied to non-resident pension funds. Thus,
whereas the former are taxed on the basis of their total
income, calculated on the basis of their assets reduced
by their liabilities, to which a standard yield rate is applied,
irrespective of the actual receipt of dividends in the
course of the tax year at issue, the latter are taxed on the
dividends received in Sweden in that tax year. Therefore,
it concluded that a non-resident pension fund is not in a
situation comparable to that of a resident pension fund.
Nevertheless, the CJ stated that in relation to professional
expenses directly linked to an activity that has generated
taxable income in a Member State, residents and non-
residents of that State are in a comparable situation.
CJ rules that Belgian legislation which subjects non-resident UCIs to an annual tax is not in breach of the fundamental freedoms while a specific sanction only for foreign UCIs which fail to pay amounts in respect of annual tax is in breach of the freedoms (NN (L) International) On 26 May 2016, the CJ delivered its judgment in the
case Etat belge SPF Finances v NN (l) International,
formerly ING International SA, successor to the rights
and obligations of ING Dymanic SA (C-48/15). The case
concerns the Belgian annual tax on undertakings for
collective investment (UCIs) which is levied on the basis
of the net value of the assets of those undertakings, both
domestic and foreign. In addition, it considers the specific
sanction for foreign UCIs which fail to pay amounts falling
due in respect of the annual tax. The proceedings concern
the refusal by the Belgian tax authorities to reimburse the
amount of the annual tax paid by NN (L) International
Pensioenfonds Metaal en Techniek (‘PMT’) is a pension
fund established in the Netherlands that received
dividends from Swedish limited companies that were
subject to a 15 withholding tax. PMT asked for a refund
of that tax considering that such taxation was in breach
of the free movement of capital. PMT was of the view that
the scheme of the national legislation on the taxation of
pension funds was discriminatory. PMT considered that
the capital yield tax replaces not only the withholding tax,
but also capital gains tax on transfers and on interest,
and the taxation of the dividends paid to Swedish pension
funds was considerably lower than the formal levy on
capital yield tax. Foreign pension funds, being subject
to gross taxation in the form of a withholding tax levied
at the point of distribution of those dividends, could also
not benefit from capping over time, sought by the lump
sum method. Furthermore, the calculation of capital yield
tax applicable to resident pension funds allows for the
deduction of financial liabilities, whereas the withholding
of tax applicable to non-resident shareholding pension
funds did not allow it. Finally, whereas tax was withheld
when the dividends were distributed, capital yield tax, for
its part, is calculated and levied in the year following the
distribution of dividends, creating a liquidity disadvantage
for non-resident pension funds.
The CJ started by recalling that the less favourable
treatment by a Member State of dividends paid to non-
resident pension funds, compared to the treatment of
dividends paid to resident pension funds, is liable to deter
companies established in a Member State other than
that first Member State from pursuing investments in that
same first Member State and, consequently, amounts
to a restriction of the free movement of capital. In that
regard, the CJ stated that it was necessary to determine
whether the existing difference in tax treatment led to a
less favourable taxation of non-resident pension funds.
In this regard. the CJ observed that the difference in
treatment established by the Swedish tax laws, regarding
the taxation of dividends paid to resident pension funds
and the taxation of similar dividends paid to non-resident
pension funds, is capable of resulting in the dividends
paid to those latter funds bearing a heavier tax burden
in comparison to that borne by resident pension funds.
Such a difference in treatment is liable to deter such
14 15
by Belgian UCIs. However, NN (L) contented that there
was discriminatory treatment because the tax was applied
similarly to the situations of resident and non-resident
UCIs, which nevertheless, were not in comparable
situations. The CJ recalled that disadvantages which
arise from the parallel exercise of tax competences by
different Member States do not constitute restrictions
on the freedom of movement to the extent that such
an exercise is not discriminatory. Accordingly, Member
States are not obliged to adapt their tax systems to those
of other Member States in order to eliminate double
taxation. Therefore, it concluded that there was no
breach of the free movement of capital
Finally, the Court analysed the specific sanction only
applicable to foreign UCIs. This sanction essentially
determines the prohibition of foreign UCIs to carry out
activities in Belgium in the case they fail to submit their
tax declarations within the prescribed period or to pay
the annual tax. The CJ noted, following the AG’s Opinion,
that since this legislation may prohibit UCIs established
in other Member States from carrying out their activities
in Belgium, even if they may lawfully continue with the
same activities in their Member State of origin, it should
be examined in the light of the freedom to provide
services. The Court concluded that this sanction, although
potentially justified by the need to ensure collection of
annual tax on UCIs, did indeed constitute a breach of the
free movement of services, notably by considering that
being potentially unlimited in time, it does not satisfy the
requirements of proportionality.
CJ rules that Greek legislation which provides for an exemption from inheritance tax relating to primary residence applicable solely to Greek residents is in breach of the free movement of capital (Commission v Greece) On 26 May 2016, the CJ delivered its judgment in
the case European Commission v Hellenic Republic
(C-244/15). The case concerns the Greek legislation that
provides for an exemption from inheritance tax relating
to the primary residence on condition that the heir is
permanently resident in Greece.
for the year 2006. The referring court asked whether EU
law precludes the application of the annual tax to foreign
UCIs and the imposition of a specific sanction on foreign
UCIs who fail to observe this tax obligation. The questions
referred concern, in particular, the interpretation of
Directive 69/335/EEC (on harmonization of indirect taxes
on raising of capital in Member States), and Directive
85/611/EEC (on harmonization of UCITS), the freedom
to provide services and the free movement of capital.
The CJ started by analysing the first question on whether
the Articles 2, 4, 10 and 11 of Directive 69/335, precludes
a Member State from imposing an annual tax on UCIs
which levies that tax on UCIs governed by foreign law
marketing units in that Member State.
The Court recalled that the purpose of this Directive is
to abolish indirect taxes, other than capital duty, which
have the same characteristics as that duty, namely those
applied to the transactions covered by that directive.
In that regard, and taking into account that the base of
annual tax consists of net amounts invested in Belgium in
the preceding year, it concluded that such a tax does not
relate to any of the types of transactions subject to capital
duty under this Directive.
In regard to Directive 85/611, the question raised was
whether this Directive should be interpreted as precluding
the imposition of the annual tax, because it prejudices the
principal aim of that directive of facilitating the marketing
of UCITS in the EU. The CJ considered that Directive
85/611 does not contain any provision on taxation and
thus does not have any bearing on the present case.
Subsequently, the CJ dealt with the issue of compatibility
of the annual tax charged on foreign UCIs. As a preliminary
issue, the Court determined what fundamental freedom
was applicable in this case, concluding that the annual
tax was primarily concerned with the free movement of
capital being the free movement of services secondary in
relation to the free movement of capital.
The CJ observed that it was apparent that the national
legislation was applicable without distinction to resident
and non-resident UCIs. In addition, the application of
the annual tax does not result in foreign UCIs ultimately
bearing a heavier tax burden in Belgium than that borne
15
provision is not subject to the obligation that the heir
establish the inherited property as his primary residence
or that he occupy that property at all. Furthermore, the
Court also gave no relevance to the Greek argument
according to which the legislation would aim at making
the granting of that exemption dependent upon the heir
maintaining a connection with Greek society and on his
level of integration. For the Court, an heir who is not
permanently resident in Greece at the time when the
process for settling the inheritance commences and
who does not have property may, just as much as an
heir who is resident in that Member State, have a close
link with Greek society and wish to acquire, in that State,
the inherited property in order to establish his primary
residence there.
Finally, the Court also rejected other arguments raised
by Greece that the legislation at stake would be relevant
to prevent a reduction in tax revenues, it would be
necessary for the allocation of taxation powers between
the Member States or necessary to prevent abuses.
AG Kokott opines that Danish legislation which does not grant a resident company a tax exemption on interest income received from an affiliated company established in another Member State which is not entitled to a tax deduction as a result of thin capitalization applicable in the relevant Member State is not in breach of the freedom of establishment (Masco) On 12 May 2016, AG Kokott delivered her Opinion
in case Masco Denmark ApS and Damixa ApS v
Skatteministeriet (C-593/14). The case deals with the
Danish legislation which provides for a tax exemption
on interest income received by a resident company in
the case such interest is not deductible at the level of a
paying company also located in Denmark due to interest
deduction limitation as a result of thin capitalization.
However, such tax exemption is not allowed in the case
of interest income received from an affiliated group
company located in another Member State in which a
similar interest deduction limitation rules apply in the said
Member State.
According to the Greek legislation, an exemption from
inheritance tax applies in respect of immovable property
received through inheritance by the spouse or child of a
deceased person if they are Greek nationals or nationals
of another EU Member State and are permanently
resident in Greece. In this regard, the CJ started by
observing that the legislation of a Member State under
which the application of an exemption from inheritance
tax depends on the place of residence of the deceased
person or of the beneficiary at the time of the death, in
the case where it leads to inheritances involving non-
residents being subject to a higher tax liability than those
involving residents alone, constitutes a restriction on
the free movement of capital. In this context, the Greek
provision has the effect of reducing the value of the estate
for the heir who fulfils all of those requirements, apart from
the requirement of being permanently resident in Greece,
by depriving the person concerned of the exemption from
inheritance tax and thereby, resulting in that person being
subjected to a heavier tax burden than that borne by an
heir who is permanently resident in Greece. According
to the CJ, such constitutes a restriction on the free
movement of capital that is prohibited, in principle, by
Article 63 TFEU.
As regards, the comparability of the situations at issue,
the CJ noted that where, for the purposes of taxing
immovable property acquired by inheritance and located
in the Member State concerned, national legislation
places non-resident and resident heirs on the same
footing, it cannot, without infringing the requirements of
EU law, treat those heirs differently in connection with
that tax in respect of that immovable property. By treating
inheritances of those two classes of persons in the same
way, except in relation to the exemption which an heir
may receive, the national legislature acknowledges that
there is no objective difference between them as regards
the detailed rules and conditions for charging inheritance
tax such as to justify a difference in treatment.
In regard to possible justifications, the CJ considered
that the legislation at stake was not appropriate for
guaranteeing attainment, in a systematic and consistent
manner, of the general social-interest objective of
addressing housing needs in Greece advanced by the
Hellenic Republic, since the exemption laid down by that
16 17
(C-593/14). The case deals with the Portuguese
legislation which triggers taxation in the case of
(i) exchange of shares followed by a transfer of place of
residence abroad, and (ii) transfer of assets and liabilities
relating to an activity carried out on an individual basis in
return of shares in a non-resident company.
According to the Portuguese Personal Income Tax
Code (CIRS), if the shareholder is no longer resident in
Portugal, capital gains resulting from a share exchange
will form part of the taxable income of the calendar year
in which the change of place of residence occurred.
Under that same article, the value of the capital gains
corresponds to the difference between the actual value of
the shares received and the value of the older shares at
the time of their purchase. By contrast, if the shareholder
is resident in Portugal, the value of the shares received is
the same as that of those transferred, without prejudice
to the taxation of any monetary sums paid for the shares
which were transferred. That is to say, where a taxable
person remains resident in Portugal, a share exchange
gives rise to the immediate taxation of the capital gains
generated only and insofar as an additional monetary
payment is made. If there is no such payment, the capital
gains tax will be levied only if and when the shares
received have been definitively divested. The same tax
regime is applicable to the allocation of shares in the
case of mergers or the division of companies.
On the other hand, the transfer to an undertaking of assets
and liabilities related to the exercise of an economic or
professional activity by a natural person in exchange for
shares is tax exempt at the time of transfer if, among
other conditions, the legal person to which the assets
and liabilities are transferred has its seat or registered
office in Portugal. In that case, taxation occurs only when
and if the legal person which received such assets and
liabilities has divested itself of them. However, such a
tax deferment does not apply if the legal person to which
the assets and liabilities were transferred has its seat or
registered office outside of Portugal. In that case, capital
gains tax is immediately applicable.
The Commission brought the case before the CJ by
considering that the differences in taxation penalise
those who decide to leave Portuguese territory, in that
it treats such persons differently from those who remain
Damixa ApS is a Danish resident company which is part
of a tax group together with Masco Denmark ApS. Damixa
granted a loan to its wholly owned German subsidiary
Damixa Armaturen GmbH. The German subsidiary was
not allowed to deduct the interest paid by virtue of the
application of the German thin capitalization rules (at the
time based on the 1.5:1 ratio).
Damixa ApS claimed that the interest income should
benefit from the tax exemption applicable in the case of
interest not deductible at the level of the payer. However,
the Danish tax authorities rejected such claim considering
that such exemption was only applicable in the case of
companies subject to Danish income tax, that is to say,
Danish resident companies.
AG Kokott considered that the Danish legislation,
although appearing to constitute a restriction to the
freedom of establishment, in fact could not be considered
to be the cause of such restriction. According to the AG,
the unfavourable treatment suffered by Damixa ApS was
not exclusively attributable to Denmark. For the AG, this
conclusion can rely on the principle of autonomy that
states that a Member does not infringe the fundamental
freedoms when the unfavourable treatment arises from a
disparity, meaning the interaction of the tax legislation of
two Member States.
In any event, the AG observed that, even if the CJ
considers that the Danish legislation would restrict the
freedom of establishment, such restriction would be
justified by the need to preserve a balanced allocation of
the powers to tax between Member States as well as the
coherence of the Danish tax system.
AG Wathelet opines that Portuguese legislation imposing an exit tax in the case of exchange of shares followed by a transfer of place of residence abroad or transfers of assets and liabilities relating to an activity carried out on an individual basis in return of shares in a non-resident company contravene the fundamental freedoms (Commission v Portugal)On 12 May 2016, AG Wathelet delivered his Opinion
in case European Commission v Portuguese Republic.
17
a breach of the fundamental freedoms. As regards
possible justifications, the AG started by dealing with the
need to preserve the coherence of the tax system. In this
regard, he observed that Portugal did not demonstrate
the existence of a direct link between the tax advantage
and the possible compensation with a tax disadvantage.
Differently, the AG accepted the justification based on
the need to preserve a balanced allocation of the powers
to tax between Member States linked to the principle of
territoriality. In this respect, the AG refuted the argument
of the Commission that this justification was not
applicable to individuals but merely to companies. The
AG recalled that the reasoning based on this justification
was used in National Grid Indus (C-371/10) as applicable
to companies but not in Lasteyrie du Saillant (C-9/02)
as applicable to individuals because this last judgment
was delivered even before Marks & Spencer (C-446/03),
which was the first case in which such justification was
accepted.
Therefore, while accepting this justification, the AG
considered it not proportional because the Portuguese
legislation does not offer any alternative to the immediate
payment of the tax.
However, as concerns the EEA States, the AG concluded
that neither Iceland nor Liechtenstein provide for an
agreement for administrative cooperation as required by
the CJ case law.
As regards the second plea on the tax treatment
applicable to the transfer of assets and liabilities
relating to an activity carried out on an individual basis
in return of shares in a non-resident company, the AG
considered that the difference in treatment provided
by the Portuguese law amounts to a restriction to the
fundamental freedoms. While considering this restriction
justified by the principle of territoriality, the AG concluded
that this justification was not proportionalin light of the
existence of less restrictive measures, notably, Directive
2011/16/EU on administrative cooperation in the field of
taxation and Directive 2010/24/EU concerning mutual
assistance for the recovery of claims relating to taxes,
duties and other measures.
in the country. The Commission is of the view that the
deferment of taxation, in the case of profits made in
exchanging shares, should not be reserved to cases in
which the taxpayer continues to reside in Portuguese
territory whilst denied in cases in which the tax payer
transfers his place of residence to another EU or EEA
Member State. Consequently, for the Commission,
the difference in treatment put in place by the CIRS is
incompatible with Articles 21 TFEU, 45 TFEU and 49
TFEU, and Articles 28 and 31 of the EEA Agreement.
Moreover, the protection of the tax credits resulting from
pending revenue should be assured in conformity with
the principle of proportionality laid down in the case
law of the Court of Justice. In the present case, the
Commission considers that the Portuguese legislation
goes beyond what is necessary to attain the objectives of
ensuring an efficient tax regime, and that the Portuguese
legislation should apply the same rule irrespective of
whether a natural person keeps his place of residence in
Portuguese territory or not.
As regards the transfer of assets, the benefit in the
CIRS is reserved to cases in which the company which
receives the assets has its seat or registered office in
Portugal. The Commission takes the view that Portugal
should apply the same rule irrespective of whether the
legal person to which the assets and liabilities have been
transferred has its seat or registered office in Portuguese
territory or elsewhere. The Commission considers that
the CIRS goes beyond what is necessary to attain the
objective of ensuring an efficient tax regime. It is of the
opinion that taxable persons who exercise their right to
freedom of establishment by transferring assets and
liabilities abroad in exchange for shares in a non-resident
undertaking cannot be subject to taxation at an earlier
point in time than is the case for those who carry out such
operations with an undertaking based in Portugal.
As regards the first plea on the tax treatment applicable
to the exchange of shares, AG Wathelet considered that
the difference in treatment depending on the transfer
of residence to another Member State amounted to
18 19
Municipality and the payment to be made by parents is
sufficiently direct for that payment to be regarded as an
economic activity. As a result, the CJ ruled that a regional
or local authority which provides transport services such
as the one at hand, does not qualify as a VAT taxable
person.
Ingots consisting of various scrapped, gold-bearing metal objects and organic materials qualify as gold in CJ’s view (Envirotec) On 26 May 2016, the CJ delivered its judgment in the
case Envirotec Denmark ApS (C-550/14). In the fourth
quarter of 2011, Envirotec Denmark ApS (‘Envirotec’)
purchased 24 ingots from another Danish company.
These ingots, with an average gold content of between
500 and 600/1000, consisted of a random, rough fusion
of various scrapped, gold-bearing metal objects and also
miscellaneous organic materials. In order to use the ingots
for the manufacturing of new gold-bearing products, the
other materials had first to be removed. Envirotec paid
the amount including VAT to the supplier of the ingots, but
the supplier did not pay VAT to the Danish tax authorities
and was subsequently put into liquidation on grounds of
insolvency.
Envirotec requested the Danish tax authorities for a
refund of the VAT paid to the supplier, but the Danish
tax authorities took the view that the VAT on the supply
was due by Envirotec itself under the reverse charge
mechanism. Therefore, according to the Danish tax
authorities, the VAT paid by Envirotec to the supplier
cannot be deducted. Envirotec opposed this view and
stated that the reverse charge mechanism of Article
198(2) of the EU VAT Directive is not applicable in this
specific situation. The matter ended up with the High
Court of Eastern Denmark, which doubted whether
ingots, such as in the case at hand, are covered by the
terms ‘gold material or semi-manufactured products’
within the meaning of Article 198(2) of the EU VAT
Directive. For this reason, the High Court referred to the
CJ for a preliminary ruling.
Since the wording and the context cannot determine
the scope of Article 198(2) of the EU VAT Directive it is,
according to the CJ, appropriate to consider its objective.
VAT CJ rules that transport of pupils by Municipality for a very limited contribution in principle does not qualify as an economic activity for VAT purposes (Gemeente Borsele) On 12 May 2016, the CJ delivered its judgment in
the case Gemeente Borsele (C-520/14). During the
school year 2008/2009, the municipality of Borsele
(‘the Municipality’) arranged the transport of eligible
pupils. For this purpose, the Municipality used the
services of transport undertakings who charged VAT to
the Municipality. In accordance with the Decree of the
Municipality, contributions of approximately one-third
of the parents were collected, equivalent to 3% of the
amount paid by the Municipality to fund school transport
services.
The Municipality claimed that it was a VAT taxable person
in respect of the provision of school transport services
in return for the contributions and that it was entitled
to deduct the VAT that had been charged to it by the
transport undertakings. The Netherlands tax authorities,
however, rejected this claim on the ground that the
Municipality did not provide services for consideration
and accordingly, did not carry out any economic activity.
The matter ended up with the Supreme Court, which
decided to stay the proceedings and to refer to the CJ for
a preliminary ruling.
First of all, the CJ stated that a transaction effected for
consideration, which is necessary in order to be able
to take a VAT taxable supply into account, requires a
direct link between the provision of services and the
consideration actually received. Secondly, according
to the CJ, the existence of a supply of services for
consideration however, is not sufficient to establish the
existence of an economic activity. With regard to all
circumstances, the CJ noted that the Municipality through
the contributions only recovers a small part of the costs
incurred, which suggests that the parental contribution
must be regarded more as a levy than as a consideration
(see, by analogy, Commission/Finland, C-246/08).
Therefore, in the view of the CJ, it does not appear that
the link between the transport service provided by the
19
merchant acquirer in conjunction with the card issuers.
The services provided by Bookit are therefore subject
to the standard VAT rate. Bookit opposed this view and
finally, this matter ended up with the Tax Chamber which
decided to stay proceedings and to refer to the CJ for a
preliminary ruling in respect of the applicability of Article
135(1)(d) of the EU VAT Directive.
In the view of the CJ, the provider of a card handling
services, such as that at issue, plays no specific and
essential part in achieving the changes in the legal and
financial situation that are the result of a transfer of
ownership on the funds concerned, but does no more
than provide technical and administrative assistance.
The fact that such a service is provided by electronic
means cannot alter the nature of the service provided.
As a result, according to the CJ, the exemption of Article
135(1)(d) of the EU VAT Directive is not applicable to a
‘card handling’ service such as that issue, supplied by
a VAT taxable person (the service provider), where an
individual purchases, via the service provider, a cinema
ticket which the service provider sells for and on behalf of
another entity and which the individual pays for by debit
or credit card.
CJ rules that processing of a payment by debit or credit card for the purchase of an event ticket does not qualify as VAT exempt service (National Exhibition Centre)On 26 May 2016, the CJ rendered its judgment in
the case National Exhibition Centre Limited (‘NEC’)
(C-130/15). The NEC, which company is established in
the United Kingdom, hires the National Exhibition Centre
and other venues to third party promoters and sells, as
an agent for the promotors, tickets for the events staged.
It does not at any time take ownership of the tickets. The
tickets can be bought from the NEC’s call centre, via its
website, by post or over the counter. In certain situations,
NEC invoices customers in addition to the price of the
tickets for a ‘booking fee’ of at least 10%. Within the
purchase process, NEC passes the customer’s details
and payment information to its merchant acquirer bank
which forwards the information to the cardholder’s bank.
Once NEC, via the merchant acquirer bank, has received
an authorization code from the bank, NEC informs the
In that regard, the CJ stated that the aim of this provision
is the prevention of tax evasion. The risk of tax evasion
concerning such goods is all the greater given that the
gold content of that object is high. In the view of the
CJ, it therefore follows that the degree of purity of the
gold in the object concerned is crucial for the purposes
of determining whether or not a supply of gold material
or semi-manufactured products, not being a finished
product, falls within the scope of Article 198(2) EU VAT
Directive. As a result, the CJ ruled that Article 198(2)
EU VAT Directive applies to the supply of ingots, such
as those at issue in the main proceedings, consisting of
various objects and materials, and which, depending on
the ingot, have a gold content of approximately 500 or
600/1000.
CJ rules that debit and credit card handling services in respect of cinema ticket are not VAT exempt (Bookit) On 26 May 2016, the CJ delivered its judgment in the
case Bookit Ltd (C-607/14). Bookit is a company wholly
owned by Odeon Cinemas Holding Limited (‘Odeon’),
which owns and operates a chain of cinemas in the
United Kingdom. Telephone and Internet sales are made
by Bookit, acting as agent for Odeon. Within this process,
customers of the Odeon group of companies provide
Bookit with the relevant data concerning the debit or
credit card that they want to use, which Bookit sends,
via another service provider, to the merchant acquirer.
The latter transmits the data to the card issuer who, if the
data is accepted, ring fences the money and transmits
an authorization code to the merchant acquirer, which
transmits the code to Bookit. The cinema tickets are
then allocated (if still available) to the customer and the
transaction is completed by Bookit. Once the merchant
acquirer has credited Booking’s bank account, the ticket
sale revenue is transferred by Bookit to Odeon. Bookit
retains the card handling fees.
The British tax authorities took the view that the supplies
made by Bookit, in consideration of payments described
as ‘card handling fees’, are not supplies of services
that are exempt ex Article 135(1)(d) EU VAT Directive.
According to the tax authorities, Bookit is not engaged
at any time in transferring funds on behalf of Odeon’s
customers, since that transfer is carried out by the
20 21
The Council of Europe welcomes the VAT Action Plan and
the call by the Commission to reduce VAT compliance
burdens for business, particularly for SMEs, both within
Member States and across borders. Furthermore, it
welcomes the in-depth technical work conducted by the
Commission so far, as well as the broadly based dialogue
it initiated with Member States to examine in detail the
different possible ways how to best implement the
destination principle.
Also, the VAT Expert Group (VEG) welcomes the initiative
of the EU Commission to further explore possible options
for implementing the destination principle in B2B cross-
border trade in order to ensure a level playing field
between EU cross-border and domestic transactions
and at the same time tackling the problem of VAT fraud.
In this respect, the VEG urges the Commission and EU
Member States to abstain from supporting EU Member
State specific approaches and to work together with all
stakeholders in devising a definitive VAT system.
Council adopts Directive maintaining VAT minimum standard rate Pending discussions on definitive VAT rules, on 25 May
2016, the Council adopted a Directive maintaining the
minimum standard VAT rate at 15% until the end of
2017. The minimum standard rate is aimed at preventing
excessive divergence between the VAT rates applied
by EU Member States and the structural imbalances or
distortions of competition that, as a result, could arise.
In view of on-going discussions on definitive rules for
a single European VAT area, the directive extends the
minimum standard rate for a period long enough to
ensure legal certainty.
Customs Duties, Excises and other Indirect TaxesCJ rules on the CN classification of alcoholic beverages (Toorank)On 12 May 2016, the CJ delivered its judgment in the
Toorank cases (C-532/14 and C-533/14). The cases
concern the classification in the Combined Nomenclature
(CN) of certain alcoholic beverages obtained through
fermentation followed by purification, to which additives
customer that the operation has been authorized and
allocates the ticket to him. After receipt of the payment,
NEC refunds the event promotor the part of the amount
paid by the customer for the ticket price and keeps the
amount corresponding to the booking fee.
NEC claimed a VAT repayment on the basis that it
considered that it had overpaid in respect of the booking
fees charged to customers during the period August
1999 – April 2002. The tax authorities refused that claim
on the basis that those fees charged by NEC were a
consideration for supplies that were subject to VAT at
the standard rate. The matter ended up with the Upper
Tribunal, which questioned whether it is possible to apply
the exemption under Article 13B(d)(3) of the EU Sixth
Directive for transactions concerning payment transfers
to a card processing services of the kind at issue before
it. Therefore, the Upper Tribunal decided to stay the
proceedings and to refer to the CJ for a preliminary ruling.
According to the CJ, the provider such as that at issue,
does not participate specifically and essentially in the
legal and financial changes, but merely applies technical
and administrative means. In that regard, the automated
nature of such a service, cannot alter the nature of the
service supplied. Consequently, the CJ ruled that the VAT
exemption of Article 13B(d)(3) of the EU Sixth Directive,
in respect of transactions concerning payments and
transfers, does not apply to a service described as
‘processing of payment by debit or credit card’ such as
that at issue, carried out by a VAT taxable person, the
provider of that service, where an individual buys, via
that provider, a ticket for a show or other event which the
provider sells in the name and on behalf of another entity,
which that individual pays for by debit or credit card.
Council of the European Union and VAT Expert Group welcome the VAT Action Plan On 7 April 2016, the European Commission adopted its
new Action Plan on VAT, which aims to make the EU VAT
system fit for the 21st century. The Action Plan calls for
urgent action to tackle the VAT Gap in the short term and
to create a robust, fair and efficient Single European VAT
Area by devising a destination based definitive system.
21
That court notes, first, that heading 2206 of the CN
also includes mixtures of fermented beverages and
non-alcoholic beverages and that, by virtue of the HS
explanatory note relating to heading 22.06 of the HS,
such beverages remain classified under that heading
even when fortified with added alcohol or when
their alcohol content has been increased by further
fermentation, provided that they retain the character of
products classified under that heading. Second, heading
2208 of the CN covers liqueurs, which generally have an
alcoholic strength by volume of more than 13.4%. The
addition of distilled alcohol to a beverage falling under
heading 2206 of the CN does not automatically mean
that that beverage will be excluded from that heading.
Nevertheless, if the quantities of fermented alcohol and
distilled alcohol in a product such as Petrikov Creamy
Green are not decisive for the classification of that
product and if the beverage to which the distilled alcohol
has been added has the properties and characteristics
of products falling under heading 2208 of the CN, that
product should, according to that court, be classified
under that second heading.
The referring court is unsure how the judgment of 7 May
2009 in Siebrand (C-150/08) should be interpreted. In
particular, it questions whether that judgment, particularly
paragraph 35 thereof, should be interpreted as meaning
that the quantity of distilled alcohol added, assessed in
terms of both volume and alcohol content, is the element
which determines the classification under heading
2208 of the CN, whatever the other characteristics and
properties of the product under consideration might be,
or whether it is necessary, in all cases, to verify whether
the organoleptic characteristics and the intended use of
that product correspond to those of beverages which are
classified under heading 2208 of the CN.
In those circumstances, the Hoge Raad der Nederlanden
(Supreme Court of the Netherlands) decided to stay the
proceedings and to refer the following questions to the
Court of Justice for a preliminary ruling:
‘(1) Should heading 2206 of the CN be interpreted as
meaning that a beverage with an alcoholic strength
by volume of 13.4% which is manufactured by mixing
a purified, alcoholic beverage (base) known as ‘Ferm
are added. The CN classification is of importance for the
rate of alcohol excise to be applied.
Case C-532/14
Toorank Productions submitted an application to the
tax authorities for binding tariff information in respect
of a beverage known as ‘Petrikov Creamy Green’,
asking them to classify that beverage under subheading
2206 00 59 of the CN. By decision confirmed following
an administrative appeal, those authorities classified that
beverage under subheading 2208 70 10 of the CN.
The beverage in question is manufactured by mixing a
fermented beverage, known as ‘Ferm Fruit’, with distilled
alcohol, sugar syrup, skimmed milk, vegetable fat and
aromatic substances. It has an alcoholic strength by
volume of 13.4%, and at least 51% of the alcohol which
it contains is the result of fermentation. Ferm Fruit, which
has an alcoholic strength by volume of 16%, is prepared
using an alcohol resulting from the fermentation of
fruit which is then purified through filtration. Its smell,
colour and taste are neutral. Used for the manufacture
of end products, Ferm Fruit is also suitable for human
consumption as it is.
After an action was brought before it by Toorank
Productions against the tax authorities’ decision, the
Rechtbank Amsterdam (District Court, Amsterdam,
the Netherlands) annulled that decision, considering
that Petrikov Creamy Green fell to be classified under
subheading 2206 00 59 of the CN.
After an appeal was lodged by the State Secretary
for Finance, the Gerechtshof te Amsterdam (Court of
Appeals, Amsterdam) held that it was appropriate to
classify Petrikov Creamy Green as a liqueur falling under
subheading 2208 70 10 of the CN by reason of its high
sugar content, the addition of distilled alcohol, aromatic
substances and a cream base, and its green colour.
Toorank Productions lodged an appeal in cassation
before the Hoge Raad der Nederlanden (Supreme Court
of the Netherlands) against that decision.
22 23
manufactured by adding sugar, aromatic substances,
colouring and flavouring agents, thickening agents and/or
preservatives and, for one of those beverages, cream, to
Ferm Fruit. The alcohol in those beverages is exclusively
obtained through fermentation without the addition of
distilled alcohol. Ferm Fruit represents between 80% and
90% of the content of those beverages.
In the decision at issue in the main proceedings, the tax
authorities considered that Ferm Fruit and the Ferm Fruit
based beverages fell under heading 2208 of the CN.
Toorank Productions brought an action against that
decision before the Rechtbank te Breda (District Court,
Breda, the Netherlands), which annulled the decision and
reduced the amount of the adjustment.
After an appeal was lodged by Toorank Productions
and the State Secretary for Finance, the Gerechtshof te
’s-Hertogenbosch (Court of Appeals, ’s-Hertogenbosch,
the Netherlands) confirmed the decision of the Rechtbank
te Breda, but held that Ferm Fruit fell under heading 2206
of the CN and that the Ferm Fruit based beverages fell
under heading 2208 of the CN.
Toorank Productions lodged an appeal in cassation and
the State Secretary for Finance lodged a cross-appeal
in cassation before the Hoge Raad der Nederlanden
(Supreme Court of the Netherlands).
The referring court considers that Ferm Fruit could be
classified under both heading 2206 of the CN, insofar
as the alcohol which it contains is obtained through
fermentation, and under heading 2208 of the CN,
insofar as, being colourless, odourless and tasteless,
it resembles, in terms of its organoleptic properties, an
alcoholic product resulting from distillation. However,
it would appear that the HS explanatory notes exclude
beverages obtained through fermentation from that
second heading.
On the other hand, that court notes that it is apparent
from the judgment of 14 July 2011 in Paderborner
Brauerei Haus Cramer (C-196/10) that products resulting
from a process of fermentation followed by a process
Fruit’ — obtained through fermentation of an apple
concentrate — with sugar, aromatic substances,
colouring and flavouring agents, thickening agents,
preservatives and distilled alcohol, where that
distilled alcohol does not exceed, either in volume
or in percentage, 49% of the alcohol present in that
beverage, while 51% thereof is alcohol resulting from
fermentation, must be classified under that heading?
(2) If not, should subheading 2208 70 of the CN be
interpreted as meaning that such a beverage must
be classified as a liqueur under that subheading?’
Case C-533/14
Toorank Productions received an adjustment notice
regarding the excise duties claimed following the
clearing from its bonded warehouse of various alcoholic
beverages during the period running from 1 to 31 October
2008. That notice was confirmed by a decision of the tax
authorities adopted following an administrative appeal.
The products in respect of which the excise duty was
claimed are Ferm Fruit, on the one hand, and the
beverages manufactured using a Ferm Fruit base to
which various ingredients are added (‘the Ferm Fruit
based beverages’), on the other.
Ferm Fruit is a beverage with an alcoholic strength by
volume of 16%. One litre of that product is manufactured
using 275 ml of sugar syrup, 711 ml of demineralised
water, 10 ml of apple concentrate and 4 ml of vitamins and
minerals. Those ingredients are mixed, then the mixture
is pasteurised and wine yeast is added, which triggers
the fermentation process. The liquid obtained from that
process is purified using various filtration techniques such
as ultrafiltration, kieselguhr filtration, microfiltration and
carbon filtering. It does not contain distilled alcohol and
has not undergone any process designed to increase the
level of alcohol which it contains. It is neutral in terms of
smell, colour and taste. Suitable for human consumption,
it is not exclusively designed for the manufacture of other
products.
The Ferm Fruit based beverages are beverages with
an alcoholic strength by volume of 14% which are
23
2208 of the CN be interpreted as meaning that such
a beverage must be classified under that heading?’
The CJ ruled that:
1. a beverage, such as Ferm Fruit, which is obtained
through fermentation of an apple concentrate and
is designed to be consumed either undiluted or as
a base in other beverages, being neutral in terms
of colour, smell and taste as a result of purification
(including ultrafiltration) and having an alcoholic
strength by volume, without the addition of distilled
alcohol, of 16% falls under heading 2208 of the
Combined Nomenclature.
2. beverages with an alcoholic strength by volume
of 14% which are manufactured by adding sugar,
aromatic substances, colouring and flavouring
agents, thickening agents and preservatives and,
for one of those beverages, cream, to Ferm Fruit,
and which do not contain distilled alcohol, fall under
heading 2208 of the Combined Nomenclature.
3. a beverage with an alcoholic strength by volume
of 13.4% which is manufactured by adding sugar,
aromatic substances, colouring and flavouring agents,
thickening agents, preservatives and distilled alcohol
to Ferm Fruit, where that distilled alcohol does not
exceed, either in volume or percentage, 49% of the
alcohol present in that beverage, with the remaining
51% resulting from a process of fermentation, falls
under heading 2208 of the Combined Nomenclature.
As a result of the judgments of the CJ, the products
involved will be subject of the high alcohol excise rates
in the Netherlands that is related to distilled alcohol
products.
CJ rules on the definition of the normal place of residence (X case) On 27 April 2016, the CJ delivered its judgment in the
X case (C-528/14). The case concerns the determination
of the place of residence of a person who has
occupational and personal ties in Qatar and personal ties
in the Netherlands.
of ultrafiltration may fall under heading 2208 of the CN
where they have acquired the properties of products
falling under that heading.
Regarding the Ferm Fruit based beverages, the
referring court considers that, were it to be necessary
to classify Ferm Fruit under heading 2206 of the CN,
those beverages could not fall under heading 2208 of
the CN. That court infers from the wording of heading
2208 of the CN and the explanatory notes relating thereto
that that heading includes only beverages — including
liqueurs — which contain distilled alcohol. It also notes
that the Ferm Fruit based beverages have a relatively
low alcoholic strength by volume (14%) compared to the
generally high alcoholic strength by volume of liqueurs
and other spirituous beverages. However, as the Ferm
Fruit based beverages have lost the properties of products
falling under heading 2206 of the CN, the referring court
acknowledges that the classification of those beverages
under that heading is open to discussion.
In those circumstances, the Hoge Raad der Nederlanden
decided to stay the proceedings and to refer the following
questions to the Court of Justice for a preliminary ruling:
‘(1) Should heading 2206 of the CN be interpreted as
meaning that the beverage known as ‘Ferm Fruit’
which is obtained through fermentation of an apple
concentrate, is also used as a beverage base for
the manufacture of certain other beverages, has an
alcoholic strength by volume of 16%, and, as a result
of purification (including ultrafiltration), is neutral in
terms of colour, smell and taste, and to which no
distilled alcohol has been added, must be classified
under that heading? If not, should heading 2208 of the
CN be interpreted as meaning that such a beverage
must be classified under that heading?
(2) Should heading 2206 of the CN be interpreted as
meaning that a beverage with an alcoholic strength
by volume of 14% which is manufactured by mixing
the beverage base described in question 1 above with
sugar, aromatic substances, colouring and flavouring
agents, thickening agents and preservatives, and
which does not contain any distilled alcohol, must be
classified under that heading? If not, should heading
24 25
court observed that the approach adopted by the
Gerechtshof Amsterdam raised the issue of whether,
during the period concerned, the applicant had a normal
place of residence in both the Netherlands and Qatar. It
stated that the objectives of that regulation do not appear
to preclude, in circumstances such as those under
consideration here, either the existence of a normal place
of residence in both the Netherlands and Qatar or the
application of the relief from import duties provided for in
Article 3 of the regulation, as the applicant gave up his
place of residence in Qatar and transferred his personal
property to the Netherlands.
In the event that Regulation No 1186/2009 is to be
interpreted as precluding the possibility of a dual place of
normal residence, the referring court seeks to ascertain
the criteria to be taken into account, in circumstances
such as those in the main proceedings, in determining
which of the two places of residence is to be regarded
as the normal place of residence for the purposes of the
application of that regulation. In that regard, the referring
court asks whether the criteria established by the Court
in the judgments in Louloudakis (C-262/99) and Alevizos
(C-392/05) are relevant for the purpose of determining
the ‘normal place of residence’ within the meaning
of Article 7(1) of Directive 83/182 and Article 6(1) of
Directive 83/183, in particular the primacy to be given to
personal ties in that determination.
In those circumstances, the Hoge Raad der Nederlanden
decided to stay the proceedings and to refer the following
questions to the Court for a preliminary ruling:
‘(1) Does Regulation No 1186/2009 include the possibility
that a natural person has at the same time his normal
place of residence in both a Member State and a
third country and, if so, does the relief from import
duties provided for in Article 3 of the regulation apply
to personal property, which, when a person ceases
to have his normal place of residence in the third
country, is transferred to the European Union?
(2) If Regulation No 1186/2009 precludes two normal
places of residence and an assessment of all the
circumstances does not suffice to determine the
normal place of residence, on the basis of which
rule or which criteria is it necessary to determine, for
Until 1 March 2008, the applicant in the main proceedings
(‘the applicant’) resided and worked in the Netherlands.
From 1 March 2008 until 1 August 2011, he worked in
Qatar, where accommodation was made available to him
by his employer. The applicant had both occupational and
personal ties with that third country. His wife continued
to live and work in the Netherlands. She visited him
six times, the total duration of her visits being 83 days.
During the period in question, the applicant spent 281
days outside Qatar, during which he visited his wife, his
adult children and his family in the Netherlands and went
on holiday in other States.
With a view to his return to the Netherlands, the applicant
requested authorisation to import his personal property
into the European Union from Qatar free of import duties,
pursuant to Article 3 of Regulation No 1186/2009. That
request was refused by decision of the Inspector of Taxes
on the ground that there was no transfer of the normal
place of residence to the Netherlands within the meaning
of that article. He was deemed to have maintained
his normal place of residence in that Member State
throughout his stay in Qatar, so that that third country
had never been his normal place of residence.
The applicant brought an action challenging that decision
before the Rechtbank te Haarlem (District Court, Harlem),
which upheld the action. The Inspector of Taxes appealed
against that court’s decision before the Gerechtshof
Amsterdam (Appeals Court, Amsterdam). The latter court
observed that, according to the case law of the Court of
Justice, the normal place of residence is the place where
the person concerned has the permanent centre of his
interests. It went on to state that, having regard to the
applicant’s personal and occupational ties, it was not
possible to determine where the permanent centre of his
interests was. In those circumstances, according to that
court, primacy should be given to personal ties, with the
result that, during the period concerned, the applicant’s
normal place of residence was the Netherlands, not
Qatar.
The applicant lodged an appeal in cassation before the
referring court. After noting that Regulation No 1186/2009
did not provide a definition of ‘normal residence’, that
25
Following a tax audit, the tax authority classified the
scooters under heading 8703 as ‘motor cars and other
motor vehicles, principally designed for the transport of
persons (other than those of heading 8702), including
station wagons and racing cars’.
Between 24 April 2007 and 3 July 2008, the tax
authority issued to those companies tax adjustments
corresponding to the customs duties and turnover tax
relating to the goods concerned for a total amount of GBP
6,479,007 (approximately EUR 9,114,450).
The applicants brought an appeal against the tax
adjustments before the First Tier Tribunal (Tax Chamber)
(United Kingdom). They argue that the scooters at issue
must be classified under heading 8713 of the CN on the
ground, in particular, that the words ‘for disabled persons’
under that heading do not mean ‘exclusively for disabled
persons’.
According to the referring court, the scooters are driven by
electric motors powered by a battery. Each model has the
following features: a seat for one person (which is wider
and more luxuriously padded in the larger scooters), a
tiller with a wig wag, a platform connecting the front and
back wheels on which to mount onto the scooter and on
which the feet could be kept during a journey, and either
four wheels (two driven wheels at the back and two at
the front) or three wheels (two at the back and one at the
front). Most seats had moveable adjustable armrests and
many seats could be raised and lowered and swivelled
through 360 degrees.
The referring court starts from the premise that key
elements support the classification of the electric
mobility scooters at issue under subheading 8713 of
the CN. However, it expresses doubts about such a
classification.
In those circumstances, the First-Tier Tribunal (Tax
Chamber) decided to stay proceedings and to refer the
following questions to the Court for a preliminary ruling:
‘(1) Do the words ‘for disabled persons’ mean ‘only’ for
disabled persons?
the purposes of the application of that regulation, in
which country the person concerned has his normal
place of residence in a case such as the present
case in which that person has both personal and
occupational ties in the third country and personal
ties in the Member State?’
The CJ ruled as follows:
1. Article 3 of Council Regulation (EC) No 1186/2009 of
16 November 2009 setting up a Community system
of reliefs from customs duty is to be interpreted as
meaning that, for the purposes of the application
of that provision, a natural person may not have at
the same time a normal place of residence in both a
Member State and in a third country.
2. In circumstances such as those in the main
proceedings, where the person concerned has both
personal and occupational ties in a third country and
personal ties in a Member State, it is necessary, for
the purpose of determining whether the normal place
of residence of that person within the meaning of
Article 3 of Regulation No 1186/2009 is in the third
country, to attach particular importance to the length
of that person’s stay in the third country when carrying
out an overall assessment of the relevant facts.
CJ rules on the tariff classification of mobility scooters (Invamed) On 26 May 2016, the CJ delivered its judgment in the
Invamed case (C-198/15). The case concerns the
classification in the Combined Nomenclature (CN) of
certain mobility scooters.
Between 2004 and 2007, the applicants made
declarations for the release for free circulation of certain
mobility scooters imported into the United Kingdom.
Those scooters were declared under heading 8713 of
the CN as ‘carriages for disabled persons, whether or
not motorised or otherwise mechanically propelled’. In
accordance with the classification under that heading,
those scooters were released for free circulation without
customs duties being levied and with import turnover tax
being charged at a reduced rate.
26 27
CJ rules on the tariff classification of turret system for armoured fighting vehicles (GD European Land Systems – Steyr GmbH) On 26 May 2016, the CJ delivered its judgment in the GD
European Land Systems – Steyr GmbH case (C-262/15).
The case concerns the classification in the Combined
Nomenclature (CN) of a turret system for armoured
fighting vehicles.
GD is a limited liability company which is part of an arms-
industry group with a worldwide presence and the objects
of which include the manufacture of combat tanks. On
25 February 2014, that company declared, at the customs
office, goods described as a turret system for armoured
fighting vehicles, so that they could be released into free
circulation within the European Union.
The customs office accepted those goods for free
circulation and informed GD of the rate of import duty owed
for them, namely 1.7%, resulting from the classification
of those goods under heading 8710 of the CN. The
customs office concluded that the goods concerned were
‘an armoured turret which, as an identifiable part, will be
fitted solely or principally in armoured fighting vehicles’.
According to the referring court, that communication is to
be regarded as a decision on customs duties.
On 11 March 2014, GD challenged that decision of the
customs office and requested that the goods in question
in the main proceedings be classified under subheading
9305 91 00 of the CN, corresponding to military weapons,
thereby involving a customs duty rate of 0%. Following
the rejection of its request by the customs office, GD
brought an action before the Bundesfinanzgericht
(Federal Finance Court, Austria).
Before that court, GD produced a binding tariff information
issued on 11 April 2014 by the Hauptzollamt Hannover
(Principal Customs Office, Hanover), which, according
to GD, classified goods identical to those at issue in the
main proceedings under subheading 9305 91 00 of the
CN.
The description of the goods at issue in the main
proceedings is included in that tariff information, which the
(2) What is the meaning of the words ‘disabled persons’;
in particular:
(a) is their meaning confined to persons who have
a disability in addition to a limitation on their
ability to walk or to walk easily; or does it include
persons whose only limitation is on their ability to
walk or to walk easily?
(b) does ‘disabled’ connote more than a marginal
limitation on some ability?
(c) is a temporary limitation such as results from a
broken leg capable of being a disability?
(3) Do the Explanatory Notes to the CN of 4 January
2005, in excluding scooters fitted with separate
steering columns, alter the meaning of heading
8713?
(4) Does the possibility of use of a vehicle by a person
without a disability affect the tariff classification if
it can be said that the vehicle has special features
which alleviate the effects of a disability?
(5) If suitability for use by non-disabled persons is
a relevant consideration, to what extent should
the disadvantages of such use also be a relevant
consideration in determining such suitability?’
The CJ ruled that:
1. Heading 8713 of the Combined Nomenclature set out
in Annex I to Council Regulation (EEC) No 2658/87 of
23 July 1987 on the tariff and statistical nomenclature
and on the Common Customs Tariff, as amended
by Commission Regulation (EC) No 1810/2004 of
7 September 2004, must be interpreted as meaning:
- the words ‘for disabled persons’ mean that the
product is designed solely for disabled persons;
- the fact that a vehicle may be used by non-disabled
persons is irrelevant to the classification under
heading 8713 of the Combined Nomenclature
- the Explanatory Notes to the Combined
Nomenclature are not capable of amending the
scope of the tariff headings of the Combined
Nomenclature.
2. the words ‘disabled persons’ under CN heading 8713,
must be interpreted as meaning that they designate
persons affected by a non-marginal limit on their
ability to walk, the duration of that limitation and the
existence of other limitations relating to the capacities
of those persons being irrelevant.
27
there appears, in its view, to be a contradiction between
the Explanatory Note concerning heading 8710 of the
HS, according to which ‘bodies of armoured vehicles
and parts thereof (turrets, armoured doors and bonnets,
etc.)’ come under that heading, and the Explanatory Note
concerning heading 9305 of the HS, which states that
parts for military weapons, such as turrets, machine-guns
and sub-machine-guns, come under that latter heading.
In addition, that court was not sure what interpretation
should be given to note 3 of Section XVII of the CN, which
provides that only the parts which are suitable for use
solely or principally with goods coming under Chapters
86 to 88 of the CN, in particular, heading 8710 of the CN,
constitute ‘parts’ within the meaning of those chapters.
In those circumstances the Verwaltungsgerichtshof
decided to stay the proceedings and to refer to the Court
the following questions for a preliminary ruling:
‘(1) Does the exception specified in point (c) of note 1 to
Chapter 93 of the CN, in the version applicable to the
facts in the present case, which is worded ‘armoured
fighting vehicles (heading 8710)’, apply also to ‘parts
thereof’?
(2) Must note 3 to Section XVII of the CN be interpreted
as meaning that a ‘weapons station (armoured turret)’
which may be used on armoured fighting vehicles or
on ‘mobile maritime transport systems’ or in stationary
installations must be classified under heading 8710
of the CN as a part of an armoured fighting vehicle
because that weapons station was imported by the
manufacturer of armoured fighting vehicles for the
production or assembly of armoured fighting vehicles
and is used in fact for that purpose?’
The CJ ruled that the Combined Nomenclature must be
interpreted as meaning that a turret system, such as that
at issue in the main proceedings, which was imported
for the production of armoured fighting vehicles and
was indeed used subsequently for that purpose, comes
under heading 8710 of the Common Nomenclature if it
is ‘principally’ intended for use on an armoured fighting
vehicle, this being a matter for the referring court to
determine on the basis of the objective characteristics
and properties of the turret system, without the end use
to which it is put in the case at hand being determinant for
referring court reproduced in the request for a preliminary
ruling. That description reads as follows:
‘… it is a combination of individual technical elements
integrated in a turret-like construction made principally
of base metal. The turret system is the basis for a
weapons station and is fitted principally with the following
subsystems and components: electrical motors, gyro
stabilisation, optical and electronic sight instruments
including displays and operating units for the crew
(gunner and commander), a firing guidance system,
several sensors, storage units for munitions and devices
for feeding munitions to the weapons. The system is ready
to be fitted with an automatic cannon and a machine gun
(neither of these military weapons is part of the present
BTI). The combined effect of the subsystems mentioned
permits the crew to operate the on-board cannon and
machine guns and, thus, to fire targeted shots. The turret
system is intended to be mounted in a rotatable position
on the roof of mobile maritime transport systems and
mobile land transport systems or used also in stationary
installations.’
On 29 October 2014, the Bundesfinanzgericht
(Federal Finance Court) dismissed GD’s action. That
court classified the turret system at issue in the main
proceedings, as being part of an armoured fighting
vehicle, under heading 8710 of the CN, and indicated
that the tariff information issued by the Principal Customs
Office, Hanover, could not have retroactive effect.
GD brought an appeal before the Verwaltungsgerichtshof
(Administrative Court) against the decision of the
Bundesfinanzgericht dismissing its action. The
Verwaltungsgerichtshof stated that, according to the
Bundesfinanzgericht, the goods covered by the binding
tariff information issued by the Principal Customs Office,
Hanover, and submitted by GD are the same as the
goods at issue in the main proceedings. It nevertheless
takes the view that that BTI cannot apply to the present
case as the declaration of 25 February 2014 predates the
adoption, on 11 April 2014, of that tariff information.
The referring court stated that the goods at issue in the
main proceedings were mounted on a vehicle that must
be classified under heading 8710 of the CN as a tank or
other self-propelled armoured fighting vehicle. However,
28 29
propylene provided the excess pressure for the LPG,
but its calorific capacity is determined jointly by all its
components.
The Tax Authority took the view that the LPG at issue
in the main proceedings had to be classified, by the
application of rules 2(b), 3(b) and 6 of the General rules
for the interpretation of the CN, according to the material
which gave it its essential character.
The Tax Authority considered that, in the present
circumstances, the substance which gives the goods
their essential character is that present in the largest
proportion in their content by weight. Accordingly, after
finding that, according to the certificate of quality, the
LPG at issue in the main proceedings corresponded to
a liquefied gas type CΠБT (SPBT) and that, according to
the Russian national standard ΓOCT 20448-90 (GOST
20448-90), liquefied gases the principal components
of which are propane and butane may be considered
CΠБT(SPBT)-type liquefied gas, the Tax Authority
concluded that both those substances gave that LPG
its essential character, and that the other components,
namely, methane, ethane, ethylene, propylene and
butylene, cannot alter that essential character.
Latvijas propāna gāze brought an action against the
Tax Authority’s decision before the Administratīvā
apgabaltiesa (Regional Administrative Court, Latvia).
In its judgment of 10 April 2014, that court referred, first,
to the case law of the Court of Justice, according to
which in carrying out the tariff classification of goods it is
necessary to identify, from among the materials of which
they are composed, that which gives them their essential
character. This may be done by determining whether the
goods would retain their characteristic properties if one
or other of their constituents were removed from them.
The factor which determines the essential character
of the goods may, depending on the type of goods, be
determined, for example, by the nature of the constituent
material or components, its bulk, quantity, weight or
value, or the role of a constituent material in relation to the
use of those goods (judgment in Kloosterboer Services,
C-173/08, paragraphs 31 and 32).
the purpose of its classification. If that is not the case, that
turret system must be classified, as a part or accessory of
a ‘military weapon’, under subheading 9305 91 00 of the
Combined Nomenclature.
CJ rules on the tariff classification of LPG (Latvijas propāna gāze) On 26 May 2016, the CJ delivered its judgment in the
Latvijas propāna gaze case (C-286/15). The case
concerns the classification in the Combined Nomenclature
(CN) of Liquid Petrol Gas (LPG).
It is apparent from the documents submitted to the Court
that Latvijas propāna gāze classified the LPG which it
imported into Latvia from Russia, during the period from
20 March 2009 to 15 January 2010, under the sub-
heading 2711 19 00 and, accordingly, applied a rate of
import duty of 0% of its customs value. However, based
on the information in that company’s documents, the Tax
Authority took the view that propane and butane were
the substances which predominated in that LPG, with a
preponderance of propane, and classified the LPG under
the sub-heading 2711 12 97.
As the referring court sets out, the LPG at issue in the
main proceedings contains methane, ethane, ethylene,
propane, propylene, butane and butylene. However,
the certificate of quality for that LPG (‘the certificate
of quality’), issued by the producer, AAS ‘Gazprom’,
established in Orenburg (Russia), does not indicate
separately the percentage, in content by weight, of
each of those substances and simply mentions the sum
of methane, ethane and ethylene (0.32% of the LPG’s
content by weight), the sum of propane and propylene
(58.32%) and the sum of butane and butylene (no more
than 39.99%).
The referring court stated that, in the context of the main
proceedings, the Technical University of Riga (Latvia)
issued an opinion according to which it was not possible
to determine, from the certificate of quality, that one of
the substances comprising the LPG at issue in the main
proceedings alone gave the LPG its essential character
as a source of energy, namely, its calorific capacity and
excess pressure. According to that opinion, propane and
29
proceedings, is under an obligation to indicate precisely
the percentage amount of the dominant substance in that
LPG.
The referring court notes, lastly, that it was no longer
possible to take samples of the LPG at issue in the
main proceedings or, therefore, carry out an analysis
of the LPG at the Customs laboratory of the Latvian
Tax Authority in order to determine its composition.
Consequently, in order to determine correctly the tariff
heading applicable, the factual circumstances which
have already been clarified in the main proceedings must
be taken into consideration.
In the light of the foregoing considerations, the Augstākā
tiesa, Administratīvo lietu departaments (Supreme Court,
Administrative law division, Latvia), decided to stay the
proceedings and to refer the following questions to the
Court of Justice for a preliminary ruling:
‘1. Must the general rules for the interpretation of the CN
2(b) and 3(b) be interpreted as meaning that if the
essential character of the goods LPG is determined
by all the components of the gas mixture together
and no component of that mixture may be identified
separately as the factor giving that gas its essential
character, it must be presumed that the factor which
gives the goods their essential character within the
meaning of the general … rule 3(b) is that substance
which is present in the greatest proportion in the
mixture?
2. Does it follow from Article 218(1)(d) of Regulation
No 2454/93 that the declarant of the goods LPG
is under an obligation to indicate precisely the
percentage amount of the substances present in the
greatest quantity in the mixture?
3. If the declarant of the goods has failed to indicate
precisely the percentage amount of the substances
present in the greatest quantity in the mixture, is it
the EU Combined Nomenclature code 2711 19 00,
applied by the declarant of the goods in the present
case, or code 2711 12 97, applied by the Valsts
ieņēmumu dienests Latvian State Tax Authority, that
must be applied to a gas of which 0.32% is the sum
of methane, ethane and ethylene, 58.32% the sum of
propane and propylene and no more than 39.99% the
sum of butane and butylene?’
Next, in applying those considerations to the main
proceedings, the Administratīvā apgabaltiesa (Regional
Administrative Court) found that the Tax Authority had
neither proved which was the essential character of the
LPG at issue in the main proceedings nor shown that the
propane or butane had to be regarded as the substance
which give the LPG its essential character. In that regard,
after stating that the percentage of propane or butane in
the LPG was not indicated separately on the certificate
of quality, the Administratīvā apgabaltiesa referred to the
opinion of the Technical University of Riga according to
which it was not possible to determine that one of the
substances in that LPG may alone give it its essential
character. Lastly, that court observed, on examining the
certificates of quality submitted by Latvijas propāna gaze
in relation to the LPG which had on another occasion
been purchased in Lithuania, that the amount of
propylene could, in certain cases, exceed that of propane
in the LPG.
As noted by the referring court, before which the Tax
Authority brought an appeal on a point of law, it may be
seen from the circumstances of the main proceedings
that, even if propane predominates in content by weight
in the LPG at issue in the main proceedings, the different
substances comprising that LPG together give it its
calorific capacity as a source of energy. The referring
court was, therefore, uncertain as to the merits of the
Latvian Tax Authority’s arguments that the substance
which is present in the greatest proportion gives the LPG
concerned its essential character, and added that, if such
arguments are rejected, LPGs in which propane or butane
predominate should always be classified under the tariff
sub-heading 2711 19 00, to which a rate of import duty of
0% of the Customs value is applied.
In addition, according to the referring court, it is apparent
from Article 218(1)(d) of Regulation No 2454/93 that a
person wishing to import LPG and classify it under a tariff
heading which corresponds to a rate of import duty which
is favourable to him must, on importing the LPG, adduce
evidence to the Customs authorities concerned which
removes any doubt as to validity of that classification.
In the present case, the referring court stated that it is
necessary to clarify whether it follows from that provision
that the importer of LPG, such as that at issue in the main
30
EU Commission publishes guidelines on the Union Customs Code The EU Commission has published its guidelines on the
implementation of the new Union Customs Code (UCC).
This has become an extensive set of documents (+
500p) some of which are still considered ‘draft’ versions.
Although the guidance is of a mere explanatory and
illustrative nature, it seems to address at least some of
the remaining uncertainties in the UCC.
The guidelines can be found at the following link:
http://ec.europa.eu/taxation_customs/customs/customs_
code/union_customs_code/ucc/guidance_en.htm?_clde
e=anVhbml0YS50cm90dEBsb3llbnNsb2VmZi5jb20%3d
&urlid=0
The CJ ruled as follows:
1. Rules 2(b) and 3(b) of the general rules for the
interpretation of the Combined Nomenclature set out
in Annex I to Council Regulation (EEC) No 2658/87 of
23 July 1987 on the tariff and statistical nomenclature
and on the Common Customs Tariff, in the versions
resulting from Commission Regulation (EC)
No 1031/2008 of 19 September 2008 and Commission
Regulation (EC) No 948/2009 of 30 September 2009,
respectively, must be interpreted as meaning that,
where the essential character of a gas mixture, such
as the liquefied petroleum gas at issue in the main
proceedings, is determined by all the components of
that mixture together, so that no component may be
identified as the factor giving it its essential character
and, in any event, the exact quantity of each of the
components of the liquefied petroleum gas at issue
may not be determined, a presumption that the factor
which gives the goods their essential character, within
the meaning of rule 3(b) of those general rules, is the
substance which is present in the greatest proportion
in the mixture must not be used.
2. That combined nomenclature must be interpreted as
meaning that a liquefied petroleum gas, such as that
at issue in the main proceedings, containing 0.32%
methane, ethane and ethylene, 58.32% propane
and propylene and no more than 39.99% butane
and butylene, and in respect of which it may not
be determined which of its constituent substances
gives it its essential character, comes under the sub-
heading 2711 19 00, as ‘Petroleum gases and other
gaseous hydrocarbons, Liquefied, Other’.
3. Article 218(1)(d) of Commission Regulation (EEC)
No 2454/93 of 2 July 1993 laying down provisions
for the implementation of Council Regulation (EEC)
No 2913/92 establishing the Community Customs
Code must be interpreted as meaning that it does
not follow from that provision that a declarant of
liquefied petroleum gas, such as that at issue in the
main proceedings, is under an obligation to indicate
precisely the percentage amount of the substance
present in the greatest quantity in that liquefied
petroleum gas.
31
Correspondents● Gerard Blokland (Loyens & Loeff Amsterdam)
● Kees Bouwmeester (Loyens & Loeff Amsterdam)
● Almut Breuer (Loyens & Loeff Amsterdam)
● Robert van Esch (Loyens & Loeff Rotterdam)
● Raymond Luja (Loyens & Loeff Amsterdam;
Maastricht University)
● Arjan Oosterheert (Loyens & Loeff Zurich)
● Lodewijk Reijs (Loyens & Loeff Rotterdam)
● Bruno da Silva (Loyens & Loeff Amsterdam;
University of Amsterdam)
● Patrick Vettenburg (Loyens & Loeff Rotterdam)
● Ruben van der Wilt (Loyens & Loeff Amsterdam)
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Editorial boardFor contact, mail: [email protected]
● René van der Paardt (Loyens & Loeff Rotterdam)
● Thies Sanders (Loyens & Loeff Amsterdam)
● Dennis Weber (Loyens & Loeff Amsterdam;
University of Amsterdam)
Editors● Patricia van Zwet
● Bruno da Silva
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