4 |
that this was contrary to EC law because the interest payment would be taxed twice through being recharacterised as dividend. The ECJ held that the difference in treatment arose because of the Dutch residence of the parent company and that this could not be justified on any of the usual grounds—the risk of tax avoidance (since the Dutch rule was not aimed at artificial arrangements) now as there any basis in the interest in fiscal supervisions. The court observed that the principle of proportionality required MS to reach agreements to avoid double taxation. |
Finally a momentous case which is still pending in Bosal Case C168/01 a Dutch finance subsidiary company sought to deduct interest on a loan incurred by a parent to finance a subsidiary in another Member State. The Dutch government refused this on the ground that Dutch law only gave an interest deduction where the company in question was subject to Dutch corporation tax. If the Court agrees with the Advocate General and treats this as a breach of Article 43 the Dutch Parliament must either abolish the relief for purely internal transactions or extend it Europe wide. The Advocate General has delivered an opinion in favour of the taxpayer. The decision of the court is still awaited; as the full court is sitting it is likely that there has been much disagreement. If the court agrees with the Advocate General, the issue in Marks and Spencer may become a live one. |
p 37 Freedom of Movement of Capital |
The Verkooijen case is now reported at [2002] STC 654. |
In EC Commission v Belgium (Case C-478/98) [2000] STC 830, the Belgian government had issued a public loan on the Eurobond market. Under the terms of the issue, withholding tax on interest payable on loan was waived but residents of Belgium were prohibited from subscribing for the loan. This restriction was held to breach the free movement of capital Article. |
There is an excellent discussion of freedom of movement of capital in the chapter by Peers in ‘The Law of the Single Market; Unpacking The Premises’ (ed, Barnard and Scott) Hart Publishing 2002. The chapter by Peers (pp 333–350) includes references to the tax cases and criticises Verkooijen at p 348. |
p 40 §2.3.3 |
(7) Legislation proportionate. In R (on application of Professional Contractors Group Ltd) v IRC [2001] STC 629 the UK legislation countering the use of personal service companies (text at p 205) was held not to break EC law. Both Burton J and the Court of Appeal concluded that the legislation was not only non-discriminatory but also to be proportionate to the legitimate objective of countering tax avoidance. On the evolving law of these ‘mandatory’ requirements see the chapter by Scott in ‘The Law of the Single Market Unpacking The Premises’ (ed, Barnard and Scott) Hart Publishing 2002 at 269–93. |
p 41 §2.3.4 Mutual Assistance |
The directive on mutual assistance in the recovery of direct taxes is enacted as UK law by FA 2002, section 134 and schedule 39. The schedule repays close study. Paragraph 3 gives the Treasury a regulation making power of which paragraph 3(4) on the application to the foreign tax claim of UK rules on corresponding payments look interesting. One should note also the rules on contested claims (paragraph 4) and claims determined in the taxpayer’s favour (paragraph 5). |
§2.4 Human Rights |
R (on application of Professional Contractors Group Ltd) v IRC [2001] STC 629: after looking at the totality of the burden imposed on taxpayers caught or affected, Burton J concluded that there was also no breach of Article 1 of the First Protocol of the Convention on Human Rights dealing with protection of property (paragraph 51). The human rights argument was not pursued in the CA 2002 STC 165. |
The exploration by the UK courts of how the Human Rights legislation may impact upon tax law and practice began with the decision of Buxton LJ in R (on application of Morgan Grenfell v Special Commissioner of Income Tax [2000] STC 965, where he held that documents could be demanded under TMA 1970 section 20(1) even though the subject of legal privilege. He agreed with the Revenue that one should assume that legal professional privilege was excluded unless it was expressly protected rather than the other way round (paragraphs 17–27). On the Human Rights Convention Article 8, he concluded that while Article 8 might be |