eu freedoms & case law

EU Freedoms and Case Law

www.istructuring.com

EU Freedoms and Case Law Contents EU Law Introduction

– The 4 Freedoms– Limitations & Results of Conflict– Summary

Tension between EU & UK Policy Objectives

Relevant Case Law – Overview – Conclusion

Case study State Aid

– What is State aid?– Tax rulings– Fiat – Starbucks


EU Law The 4 Freedoms

Freedom of establishment (Article 49 TFEU)

Free movement of capital (Article 63 TFEU)Freedom to provide

and receive services (Article 56 TFEU)

Free movement of workers (Article 45 TFEU)

• Freedom of establishment and free movement of capital are the most important when looking at applicability to UK tax legislation.

• Have DIRECT EFFECT - Can be relied upon and are directly enforceable in the UK courts


EU Law Limits of Freedoms A breach of Freedoms can be justified where there is

an acceptable rationale:

Fiscal cohesion (Bachmann [1992] C-204/90), Tax avoidance, Allocation of taxing rights or Fiscal supervision

Where Justified, breach must be proportionate:

Appropriate to the aim and must not go beyond what is necessary to attain the aim

Where breach is not justified or where breach is justified but not proportionate, Court must either;

Reinterpret or disapply legislation


EU Law Summary FREEDOM IN

POINT

JUSTIFIED? UK LAW STANDS

PROPORTIONATE? REINTERPRET OR DISAPPLY

BREACH NO BREACH

NO YES

NO

YES


EU POLICY

Creation of internal market - seek to reduce barriers by enforcing equal tax treatment of persons in different member states.

Actions are taken against policies (which cannot be justified) of member states which discourage cross border business.

Onus on member states to prove restrictions are needed and are proportionate to aims.

UK POLICY

Increasing focus on maximising tax revenues. One of its three strategic “primary objectives” since 2010

Little regard given to how freedoms impacted by new legislation

No focus on economic reality

Tension Between EU & UK policy Differing Objectives


Case Study Overview Discretionary trust (DT) settled in EU member

state (e.g. Cyprus)

DT established EU Company (e.g. Malta)

Existing International business

Malta Co to perform genuine functions & facilitate expansion

Section 720 ITA 2007 and EU Law

Transfer Pricing?

CM&C


Case study The structure

FAMILY SETTLEMENT

FUTURE BUSINESS ACQUISITIONS

MALTA CO.

100% OF ORDINARY SHARE CAPITAL

100% OF ORDINARY SHARE CAPITAL

EXISTING UK

BUSINESS

EXISTING NON UK

BUSINESS

FUNCTIONS


Case Study Tax Analysis

Income of Malta Co taxed at 5%

Dividends to Cyprus Co not subject to tax

Future dividends received by Malta co (on future acquisitions) taxed at 5%

S.720 ITA – apply income to UK settlor? – Fisher Case – genuine business.

Transfer Pricing – ensure arms length even though, technically, not in point.


State AidWhat is State Aid? Article 107 Treaty on the functioning of the

EU

Any Aid grated by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition

includes:

Grants Loans Tax Breaks Cheap use of State Assets

But can be approved by EU Commission

Or via Approved EU Mechanisms e.g. Madeira Tax Advantage


State AidTax Rulings

Fiat

Starbucks

Belgian Excess Profit Ruling System

Tax Rulings Practices in all Member States


State AidFiat

ΩΩ


State AidStarbucks


eu freedoms & case law

Business