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Preliminary ruling requested from ECJ on interpretation of Merger Directive in connection with scheme to avoid Netherlands property transfer tax

On 11 July 2008, a preliminary ruling was requested from the European Court of Justice (ECJ) by the Netherlands Supreme Court (Hoge Raad der Nederlanden) on the interpretation of the Merger Directive 90/434/EEC (Directive) in connection with a scheme designed to avoid the property transfer tax in the Netherlands.

(a) Background. Under Art. 3.55 of the Income Tax Law and Art. 14 of the Corporate Income Tax Law, stock and enterprise mergers are tax-neutral, subject to certain conditions.

In addition, Art. 15 of the Law on Various Legal Transactions provides, inter alia, for an exemption from property transfer tax of property transfers executed in connection with a merger within a group of companies.

According to Art. 11(1)(a) of the Directive, Member States may refuse to apply or withdraw the benefit of all or any part of the benefits of the Directive where it appears that the merger has as its principal objective or as one of its principal objectives tax evasion or tax avoidance.

In the case at issue, a ruling on the exemption from the property transfer tax was requested in connection with an enterprise merger. In view of similar criteria, the exemption from that tax would also result in a tax-free merger from a corporate income tax viewpoint. The tax inspector, however, denied both benefits, since the scheme was mainly aimed at avoiding the property transfer tax.

(b) Question. The national court requested the ECJ to answer the following question:

"Must Art. 11(1)(a) of the Merger Directive be interpreted as meaning that the benefits of that Directive may be denied because of a series of legal acts aimed at avoiding a tax other than those to which the Merger Directive applies?" (Unofficial translation.)

Preliminary ruling requested from ECJ regarding compatibility of Netherlands rules disallowing cross-border group taxation with EC freedom of establishment

On 11 July 2008, preliminary ruling was requested from the European Court of Justice (ECJ) by the Netherlands Supreme Court (Hoge Raad der Nederlanden) on the compatibility of Netherlands rules disallowing a cross-border group taxation with Arts. 43 and 48 of the EC Treaty (freedom of establishment).

(a) Background. A Netherlands company was the sole shareholder of a company resident in Belgium. The Belgian company had no permanent establishment in the Netherlands and was not subject to corporate income tax therein. Both companies requested to be treated as a group (fiscal unity) for Netherlands tax purposes.

Under the Netherlands group regime, the separately calculated profits and losses of companies forming a fiscal unity are aggregated, if the parent company owns at least 95% of shares of the subsidiary. Furthermore, capital gains realized on the transfer of assets within the group and services provided between group companies are tax exempt. One of the requirements for the application of the group regime is that all group companies must be resident in the Netherlands. A subsidiary resident in another Member State can, however, also be part of a Netherlands group in respect of its permanent establishment located in the Netherlands.

(b) Question. The national court requested the ECJ to answer the following question:

"Must Arts. 43 and 48 of the EC Treaty be interpreted as precluding national legislation of a Member State, which whilst enabling a parent company and its subsidiary to opt for taxation as a single taxpayer at the level of the parent company, limits this option only to companies whose profits fall within the fiscal jurisdiction of the Member State concerned?" (Unofficial translation.)

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