EU tax law - Free movement of capital - Exam Schemes
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Module
International and European Tax Law (TAX4002)
Institution
Maastricht University (UM)
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Due to the volatile nature of capital (can be transferred easily), the freedom of capital was extended to
non-EU states. This means that if they fall under the freedom’s scope, they cannot be treated less
favourably than EU/domestic nationals.
o Important: the freedom of capital is the ONLY freedom applicable to non-EU (third countries)
The relevance of movement of capital in the field of direct taxation is often related to
the taxation of dividend payments and real property
The free movement of capital and payments is covered under Arts. 63-66 TFEU:
(i) Art. 63 TFEU – freedom provision
- According to Art. 63: ‘all restrictions on the movement of capital between Member States
and between Member States and third countries shall be prohibited’
(ii) Art. 64 TFEU – grandfather clause
- According to Art. 64: Pre-1993 restrictions allowed only on direct investments, financial
services and access of securities to capital markets
(iii) Article 65(1) TFEU – tax clause
- Interpreted very strictly by CJEU1
- Article 65(4) TFEU Council approval of tax restrictions
(iv) Article 66 TFEU – crisis clause
- Maximum 6 months interim measure2
1
Article 65: ‘The provisions of Article 63 shall be without prejudice to the right of Member States:
(a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation
with regard to their place of residence or with regard to the place where their capital is invested;
(b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of
taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital
movements for purposes of administrative or statistical information, or to take measures which are justified on grounds
of public policy or public security.
2
Article 66: ‘Where, in exceptional circumstances, movements of capital to or from third countries cause, or threaten to cause,
serious difficulties for the operation of economic and monetary union, the Council, on a proposal from the Commission and after
consulting the European Central Bank, may take safeguard measures with regard to third countries for a period not exceeding six
months if such measures are strictly necessary’.
, Step 1: defining the notion of ‘capital movement’
Art. 63 TFEU only applies to persons from third states if there is a capital movement
o ‘Capital’ was defined in the Nomenclature of Directive 88/361/EEC3 so as to cover:
- Direct investments
- Investments in real estate
- Operations in capital market securities
- Operations in CIV units
- Operations in money market securities
- Commercial credits
- Financial loans and credits
- Inheritances, gifts and legacies
- Personal transfer of assets
- Etcetera…
Step 2: solving the (potential) overlap between concurrent freedoms
It is very much possible that in practice there will be cases falling under the scope of more than one
freedom-> most common conflict: Art. 49 TFEU (freedom of establishment) v Art. 63 TFEU (freedom of
capital movement)4
o At this stage, it will already be established that there is a capital movement (as regulated under
step 1 above).
(due to the potential overlap) Here, it is crucial to assess the domestic law/rule
(potentially restricting FoC) in order to assess whether it deals with the FoE or FoC.
ONLY if it deals with the FoC will it have to be non-discriminatory towards third
states (according to Art. 63 TFEU)
5
Steps of the analysis :
1) Assess: does the nature of the rule explicitly refer/deal with either the FoE or FoC?
- If so apply the specific treaty freedom6 (Art. 49 TFEU)
- If not go to step 27
2) Does the legal provision require decisive influence? 8
- If so the rule deals with the freedom of establishment (hence, the third state will not
have access to EU law)
3
Despite not being in force anymore, its nomenclature is still taken as the basis to assess whether the movement is a
capital movement.
4
Example: the setting up of establishments requires investments. This leads to overlap in material scope between: (i)
the right to set up an establishment is protected by Article 49 TFEU (FoE), and (ii) Article 63 TFEU (FoC) protects cross-
border investments
5
The idea of this analysis is to examine the nature of the domestic rule in order to determine whether it deals with the
FoE or FoC.
6
Establishment -> shareholding which allows a definite influence on management decisions or determination of
activities (controlling holding)
7
If the nature of the rule is not explicit, continue with the assessment in order to determine with which freedom it
deals
8
Decisive influence does NOT require a majority shareholding in decision making! It will depend on a factual analysis
(25% is OK). The thing to consider is whether the domestic rule requires such ‘decisive influence’.
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