European Direct Tax Law

European Direct Tax Law in today’s practice, has far-reaching implications on the court rulings under national taxation law of each of the European Union’ (EU) member states. The primary issue with regard to EU direct taxation, is that the EU member states are permitted to execute their sovereign authority and therefore have the power to independently claim their own fiscal jurisdiction (that can consequently overlap with another jurisdiction) and construct their own taxation framework with regard to direct taxation. Direct taxation entails (corporate) income tax, dividends, royalties and interest. Direct taxation is viewed by the member states as a last resort to exercise their political power as practicing currency politics is no longer a viable option, yet they find themselves in a tense situation as European law stipulates that there may be no distinction in fiscal treatment between local subsidiaries and permanent establishments of foreign residing corporations. Similarly, under European law there may be no difference in fiscal treatment between residents and non-residents. As a consequence of this impasse, there is no negotiation between the member states on affairs of direct taxation and therefore the Court of Justice of the European Union dictates, through the use of negative integration, which taxation measures are prohibited.

Since the Court of Justice of the European Union only has the authority to veto against these discriminatory or obstructing taxation measures on the grounds of the established freedoms in the EU’s founding treaty, yet it does not have the power to explain what affirmative action does need to be taken as this is a matter of national (fiscal) politics, the outcome is usually fragmented law that is not readily accessible for tax payers. In practice, this means that corporations and individuals, who engage in economic cross-border activities, are subjected to discriminatory double taxation. Consequently, their mobility within the European zone (E.g. cross-border investment and transfer of the registered office) is obstructed, which is a clear violation of the EU freedoms.

“I came, I saw, I conquered.”

Julias Ceaser (100 BC – 44 BC), Roman leader

Van Clamsfield International Ltd. offers practical guidelines and advice regarding the following European direct taxation procedures:

1. Fiscal determination of eligibility and access to the EU treaty freedoms and subsequent appropriate filing of tax returns, aligned with prevention of double taxation;
2. Identification of discriminatory or obstructing fiscal measures;
3. Justification grounds;
4. Person-bound tax deductions, source-bound tax-deductions;
5. Methods of double taxation prevention;
6. Most-favored-nation treatment versus fiscal treatment of local subsidiaries and permanent establishments of foreign residing corporations;
7. Exit taxation and transfer of the registered office;
8. Cross-border loss relief (difference in treatment of foreign permanent establishment and foreign subsidiary);
9. State aid and its implications for privatized corporations;
10. The EU Fiscal Merger Directive and its consequences;
11. The Parent-Subsidiary Directive and its specific requirements against dividend stripping;
12. Exchange of information in the light of the mutual assistance in the assessment and recovery of tax claims;
13. Countervailing charge and successful appeal on the EU freedoms.

Van Clamsfield International Ltd. aids corporations and individuals in the assessment of discriminatory or obstructing fiscal measures that hamper their investment opportunities and subsequent mobility in the European Union. In addition, Van Clamsfield International Ltd. specifies the cross-border fiscal measures that are already in place, to ensure elimination of double taxation.