Scuola Europea di Alti Studi Tributari Bologna 2017 Doctoral Seminar Tax treaties and EU law Jacques Malherbe Professor emeritus, Catholic University of Louvain Direction : Prof. Adriano di Pietro

European directives and tax treaties European directives have so far reduced taxation of companies Anti-BEPS directive oblige MS to increase it: they must modify domestic law Parent-subsidiary directive: distributed profits must be taxed to the parent if they are deductible to the subsidiary (directive 2014/86/UE, 8 July 2014)

Tax treaties Divide tax base between Contracting States Are above domestic law

ATAD 1 and ATAD 2 directives Determine taxable base of companies Profits of PE in Source State may be exempt in Residence State only if tax in Source State ≥ ½ of tax in Residence State Otherwise tax credit, no exemption (switch over) Tax treaty providing for exemption of foreign PE? CFC rules? Reservation in signature of MLI What about ATAD?

CCTB and CCCTB proposed directives Determine tax base Divide tax between MS Definition of PE: only in EU No definition of PE of companies resident of third countries in EU companies resident of EU in third countries What about treaty definitions? Even treaties between MS?

Limitation on Benefits (LOB) US - India - Japan Open skies, C-466/98 No benefits to airline of UK controlled by nationals non-contracting States Violation of freedom of establishment

Limitation on Benefits (LOB) US - India - Japan Gottardo, C-55/00 Only Italian nationals may include years worked in Switzerland for Italian pensions Discrimination

Limitation on Benefits (LOB) US - India - Japan D, C-376/03 Resident of Germany denied allowance for Dutch wealth tax because did not hold 90% of his wealth in the Netherlands Belgium-Netherlands treaty waives this condition Discrimination? No Not in comparable situations Consequence of convention Traditional: comp. Schumacker

Limitation on Benefits (LOB) US - India - Japan Class IV ACT, C-374/04 UK company dividend to Dutch company: imputation credit If Dutch company owned by non-residents, denied if State of resident does not have similar treaty with UK Not comparable: treaty and non-treaty situations But: if ACT credit, there is UK withholding

Limitation on Benefits (LOB) US - India - Japan Treaty Japan-Netherlands: LOB clause Restriction? Yes Otherwise all treaties could discriminate Comp. Gibraltar State Aid Justification? Prevents treaty shopping Balance of powers between Contracting States Proportional? Limited to artificial arrangements? Cadbury Schweppes: yes Colombus Container: no Competent Authority?

Corporate law Centros, C-212/97 Überseeing, C-208/00 Treaty shopping allowed Primary establishment without substance Secondary establishment admitted

Tax on foreign UCITS NN (L) International, C-48/15 Belgian tax on Luxembourg UCITS placing units in Belgium On the amount placed in Belgium No violation of freedom of establishment But violation of double tax treaty? Tax on assets only in State of residence (Brussels Court of first instance – appealed)

Exemption of dividends Saint-Gobain Treaty Germany-US must apply to PE in Germany of French company

Art. 293 EC MS will engage in negotiations to eliminate double taxation Disappeared in Treaty of Lisbon A multilateral convention is not subject to scruting of ECJ cfr. Arbitration convention on transfer pricing to be replaced by directive (90/436/CEE)

Art. 293 EC Competence of the EU to enter into tax treaties with third countries Common Commercial policy? Tax clauses are accessory cfr. FSC case of WTO Implicit competence? Art. 216-219 TFEU No tax competence But what if CCTB adopted? ex. Agreement with Switzerland extending parent-subsidiary directive

Tax Advantage not conform with object and finality of treaty MLI PPT test Tax Advantage not conform with object and finality of treaty Vague: legal norm must be clear and its effects predictable SIAT Itelcar Tax administration has no burden of proof COM(2016)271: treaty applicable only if real economic activity