The European Commission has decided to refer the Netherlands and a number of other EU Member States to the European Court of Justice (“ECJ”), in respect of tax legislation which imposes an immediate exit tax on companies that transfer their seat, permanent establishment or assets to another Member State. The Commission considers these provisions, insofar as similar domestic transactions do not result in an exit levy, incompatible with the freedom of establishment, as previously decided by the ECJ in similar cases. The Commission announced this in a press release on November 24, 2010. This decision follows a reasoned opinion to amend the legislation, and is the third step in a pending infringement proceeding initiated by the Commission against Denmark, the Netherlands and Spain.
In dispute is the taxation of unrealized capital gains if a company changes its residence, moves its permanent establishment, or transfers assets to another Member State. For the Netherlands, the case primarily has implications for the following corporate income tax provisions:
· taxation of business assets that are transferred to a business abroad, where the company transfers its effective management abroad (partial exit tax);
· exit tax levied on the transfer of business assets when the effective management of the company is located abroad.
The Commission’s opinion is based on the EU Treaty as interpreted by the ECJ in Lasteyrie du Saillant, March 11, 2004, C-9/02, case N, September 7, 2006, C-470/04, and the Commission’s statement on exit tax of December 2006. Immediate taxation of accrued but unrealized capital gains at the moment of exit is not permitted if in comparable domestic situations no similar final tax is imposed. It follows from this case law that the Member States must defer their tax collection until the moment that capital gains are actually realized.
Commentary KPMG Meijburg & Co
In situations where a tax assessment has not yet been finalized, it is advisable to file a timely objection against the assessment in question. Another option in pending proceedings would be to adopt the position that the assessment conflicts with European law based on the abovementioned case. This is particularly important since European Commission action regarding treaty violations does not result in legal proceedings being stayed.
Furthermore, it is interesting to note that in a decision of July 15, 2010, the Amsterdam Court of Appeals referred to the ECJ for a preliminary ruling regarding the compatibility of the exit tax with the freedom of establishment. This case concerns a Dutch company that moved its effective management to Great Britain at the end of 2000 (National Grid Indus BV, C-371/10). The tax inspector levied corporate income tax on the increase in value of the company’s assets, by applying the exit tax provisions. The taxpayer disputed the permissibility of the exit tax, inter alia, on grounds of incompatibility with the freedom of establishment. The ECJ hearing has not yet been scheduled.