Posts Tagged Tax
One cannot have one’s cake and eat it. Meaning once the cake has been eaten, it is gone and you no longer have it. (Apologies but this saying is so often misunderstood I thought I should clarify).
Anyways, the Flemish tax administration had something along these lines in mind when it recently ruled in a case involving a Liechtenstein Stiftung. Many thanks to De Broeck & Van Laere for bringing the ruling to my attention. The Inland Revenue generally employ quite a lot of deference towards trusts and Stiftungs of all kind. In the case at hand however it requalified the transfer of means from the Stiftung to the heirs of the deceased, as being of a contractual nature. That is because the deceased, upon creation of the Stiftung, had issued such precise instructions in the Stiftung’s by-laws, that the hands of the trustees (or equivalent thereof) had been tied. This essentially takes away a crucial part of the Stiftung’s nature, and no longer shields the assets from the (Flemish) taxman. The cake has been eaten.
In Orgacom v Vlaamse Landmaatschappij, Case C-254/13, the ECJ sent out its regular reminder of the core foundation of EU law: namely it being a customs union.
Upon receiving instruction to challenge a national tax, it is useful intuition first of all to assess whether what client is complaining about, is not actually a customs duty (or charge having equivalent effect) per Article 30 TFEU (previously 25 EC), rather than an internal tax. If it is, a win is signed, sealed, delivered. That is because contrary to the possibility for Member States to argue an exception to a trade-restrictive national tax (Article 110 TFEU, previously Article 90 EC), per the ECJ’s case-law (Vinal v Orbat, Case 46/80, was the pivotal kick-off case), there is no room for manoeuvre whatsoever which could ever justify a customs duty.
Qualifying a charge as a customs duty or an equivalent charge, renders this charge contrary to the Treaty by its very nature. Charges which fall under Article 110, on the other hand, are only incompatible with the Treaty where they are discriminatory or protective.
What distinguishes both? Any pecuniary charge, whatever its designation or mode of application, which is imposed unilaterally on goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having an effect equivalent to a customs duty. The only exception is where the charge in question represents payment for a service rendered to the importer, of a sum in proportion to the service, or if it forms part of a general system of internal taxation, applied systematically in accordance with the same criteria to both national products and imported or exported products: such charges on importation fall under Article 110 TFEU where they form part of a general system applicable systematically to categories of products in accordance with objective criteria, irrespective of the origin of the products.
Orgacom is a classic tutorial in the application of Article 30 TFEU. In the case at issue, the levy in question affects the importers of surplus livestock manure on import. The trigger for the levy is simply the amount of importation in the preceding year. That there is a similar levy imposed on fertilisers produced in the Flanders Region, is not sufficient to have it qualify as a tax under Article 110: it is the frontier crossing which is the trigger; the duty is not imposed at the same marketing stage (the disputed levy is imposed on importers; while the same levy in the Flemish Region affects producers); and the two levies are calculated using different methods.
The Court therefore also dismisses first hand the argument that the levy was needed to control the stocks of manure in Flanders and to protect domestic production against external measures that distort competition and impose an additional environmental burden on Flanders: because, as noted, once the measure is qualified as a charge having equivalent effect as a customs duty, wriggle room is out of the question.
(Of note is that the Belgian Constitutional Court had previously held the levy incompatible with Belgium’s internal Economic and Monetary Union).
Never ever underestimate the power of Article 30 TFEU.
Postscript 2 October 2014: the AG opined along similar lines in Q, with respect to a question also referred by the hoge Raad, as follows: ‘Does the importance of the conservation of national natural heritage and cultural heritage, as addressed in the Natuurschoonwet 1928 (Law on nature protection 1928), constitute an overriding reason in the public interest which justifies a scheme whereby the application of an exemption from gift tax (recovery facility) is limited to estates situated in the Netherlands?’
In X, Case C-87/13, the Hoge Raad of the Netherlands asked in essence whether EU law, in particular the rules on freedom of establishment and on free movement of capital, preclude[s] a resident of Belgium who, at his request, is taxed in the Netherlands as a resident and who has incurred costs in respect of a castle, used by him as his own home, which is located in Belgium and is designated there as a legally protected monument and village conservation area, from deducting those costs in the Netherlands for income tax purposes on the grounds that the castle is not registered as a protected monument in the Netherlands?
Kokott AG opined on 4 September last (the Opinion at the time of writing was not yet available in English) and suggested The Netherlands should be allowed to go ahead with such distinction. She focussed her opinion on the free movement of establishment, suggesting the same analysis applies mutatis mutandis for free movement of capital.
A summary of the Court of Justice’s case-law on the main exceptions to the free movement of capital (and, also per Kokott AG, similarly applicable to free movement of establishment), may be found in par. 42 of Jaeger, Case C-256/06:
According to the case-law, in order for national tax legislation such as that at issue in the main proceedings, which, for the purposes of calculating inheritance tax, distinguishes between assets situated in another Member State and those situated in Germany, to be considered compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by overriding reasons in the general interest.
The Advocate General suggested the Court find the two situations objectively comparable, given that listed property in both countries is likely to be subject to various restrictions. Simply quoting budgetary reasons for limiting the possibility of tax offset to assets in the State of taxation is not enough under EU law. However she did find merit in the argument that the limitation to listed property in The Netherlands, is in the general interest: in contrast with other cases (e.g. Petersen C-544/11), the general interest identified by the Member State concerned, cannot be met by market participants in other Member States (at 41): allowing set-off for maintenance of listed property in another Member State, does not serve the goal of preserving Dutch national heritage, a relevant interest illustrated eg. by the references to national heritage in Articles 36 and 167 TFEU.
If adopted by the Court, the AG’s Opinion in my view would be very welcome. The EC have been using an extensive interpretation of the free movement of capital essentially to skate around its limited progress in tax harmonisation (which is subject to national veto).