2 |
p 35/36 §2.3.3 Tax Rates |
In Zurstrassen v Administration de Contributions Directes Case C-87/99 [2001] STC 1102 Luxembourg was held to be in breach of Article 39, ex 48 when it allowed joint taxation only when both spouses resident in their national territory; it was easier for those of Luxembourg nationality to satisfy this condition than for nationals of other member states. |
p 36/37 Article 43 |
In Hoechst AG v IRC and Metallgesellschaft Ltd v IRC [2001] STC 452 the ECJ held that where a parent company received a dividend from a UK resident subsidiary, UK tax law at that time breached the EC principle of non-discrimination by insisting that ACT (Advance Corporation Tax) be paid at that time, when it did not so insist when the parent was a UK resident. This was because the UK resident companies could make a group income election within TA 1988, section 247(1)—now repealed; see also text at §44.3 p 762. |
For comment see Richardson [2001] BTR 273. |
With one exception—and that a decision of our own Special Commissioners—the other case law in this area continues to dismantle the established norms of international tax law by refusing to allow states to distinguish between taxpayers on the basis of residence. The ECJ pays lip-service to this distinction but then refuses to give it any effect. One result is an decline in government revenue as member states are forced to make repayments over a number of years and the ECJ refuses to make its rulings prospective only. Another result is that the member states are going to have to rethink their domestic tax policies. As is clear from the non-discrimination area there are two ways of solving the discrimination problem; one is to extend the relevant relief to non-residents as the court demands; the other is to withdraw it for residents, as happened with the widows bereavement allowance. If we end up with the withdrawal of reliefs such as group loss relief or the extension of transfer pricing rules to domestic situations we shall be worse off. |
New cases. First Proceedings brought by Danner Case C-136/00 I [2002] STC 1283, discussed by Lyons under the heading ‘The next to impossible task of justifying discrimination [2003] BTR 98–101. Much of the interest lies in the analysis of the existing case law by the Advocate General and his challenge to the court to allow grounds of justification for direct discrimination outside those specified in the treaty. Conventional jurisprudence has it that direct discrimination can be justified only on grounds set out in the Treaty Article 56 (now Article 46 EC), while indirect discrimination can be justified by reference to matters of overriding general interest. At paragraphs 32–41 of his opinion, the Advocate General invited the court to revisit this distinction and allow direct discrimination to be justified by reference to matters of overriding general interest. The paragraphs contain deadly analyses of how the court has dealt, or avoided dealing, with these issues. Unhappily, the court ignored the challenge. |
Under Finnish tax law, payments to voluntary pension schemes were deductible but only if paid to an insurer established in Finland. Mr Danner was a doctor with dual nationality, Finnish and German, working in Germany where he paid contributions. He then moved back to Finland but continued to pay to the German institutions. The Finnish tax authorities declined to allow him to deduct. The court held that this was a breach the rules on freedom to provide services in Article 49 (ex 59)? Finland’s attempts to justify the discrimination failed. First the court rejected an argument based on Bachmann; the court held that Finland could rely on the argument only if, following Bachmann, they did not tax the pension arising in Germany (paragraph 36); the court also placed weight on the existence of a double tax convention between Finland and Germany (paragraph 40). The second argument referred to the administrative problem Finland would have in finding out both whether the foreign schemes were sufficiently similar to the Finnish system and whether the foreign company was paying a pension. The court held that a simple bar on deduction was far too crude a way of achieving proper supervision of the Finnish tax system’s rules, especially since the countries could use the mutual assistance directive (EC) 77/799 (paragraphs 49–52). |
Finally the court considered an argument put forward by the Danish government in its submissions, the need for the EC to respect the ‘integrity’ of the Finnish tax system under which it was not right that people residing in high tax countries should be able to obtain insurance in low tax rate countries, as this would have adverse effects for member states. On this the court said that a country could not rely on a need to fill a fiscal vacuum arising from the non-taxation of savings in the form of capital life assurance policies as a justification (following the Safir case—Case C-118/96 [1998] STC 1043. |