Opinion Statement ECJ-TF 4/2019 on the CJEU Decision of February 26, 2019, in Case C-135/17, X-GmbH, Concerning the Application of the German CFC Legislation in Relation to Third Countries

European Taxation, vol. 60, n. 4 (2020)

9 Pages Posted: 20 Aug 2020 Last revised: 17 Oct 2020

See all articles by João Félix Pinto Nogueira

João Félix Pinto Nogueira

International Bureau of Fiscal Documentation; University of Cape Town (UCT)

Francisco Alfredo Garcia Prats

Universitat de València

Werner C. Haslehner

Universite du Luxembourg

Volker Heydt

Independent

Eric Kemmeren

Tilburg University; Fiscal Institute Tilburg

Georg Kofler

Vienna University of Economics and Business - Institute for Austrian and International Tax Law

Michael Lang

Vienna University of Economics and Business

Jürgen Lüdicke

PriceWaterhouseCoopers LLP - PricewaterhouseCoopers GmbH

Pasquale Pistone

Vienna University of Economics and Business

Emmanuel Raingeard de la Blétière

Independent

Stella Raventos-Calvo

affiliation not provided to SSRN

Isabelle Richelle

Independent

Alexander Rust

Independent

Rupert Shiers

Independent

Date Written: December 1, 2019

Abstract

This article deals with case, X-GmbH (Case C-135/17) concerning the compatibility of German CFC legislation with regard to third countries. In Germany, CFC legislation only applies in cross-border situations and not in purely domestic situations. In general, the application of CFC legislation requires that the shareholders have control over the foreign subsidiary, that the foreign subsidiary be taxed at a lower rate and that it earn passive income. Concerning a special type of passive income, there is even no control requirement. In relation to other EU and EEA countries, Germany does not apply its CFC legislation if the taxpayer proves that the company carries on a genuine economic activity. However, this "Cadbury Schweppes exception" does not apply in relation to third countries. The referring German Court asked whether the relevant German tax rules were compatible with the TFEU provisions on the free movement of capital. The first and second question concerned the interpretation of the standstill clause in article 64(1) of the Treaty on the Functioning of the European Union (TFEU) (2007). With its third question, the German Court inquired whether the Cadbury Schweppes jurisprudence can be transferred to the free movement of capital.

The CFE Tax Advisers Europe note that the Court's decision in X GmbH constitutes a continuation of the Court's prior case law regarding the meaning of the standstill clause. The CFE welcomes the clarification with regard to the question of whether a restriction already existed on 31 December 1993.

The Court further developed its Cadbury Schweppes (Case C-196/04) jurisprudence, illustrating how to interpret the phrase "wholly artificial arrangements" in relation to the free movement of capital. The Court held that this concept has to be interpreted in a broader way in relation to third countries. It would be helpful if the Court were to give further guidance in a future decision on the meaning of "artificial transfer of profits".

X GmbH is also likely to be relevant in respect of domestic legislation implementing articles 7 and 8 of the EU Anti-Tax Avoidance Directive (2016/1164) (ATAD) in that Member States will also have to apply the "substance escape" to third countries with an exchange of information clause.

Keywords: Taxation, Tax law, European taxation

JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24

Suggested Citation

Pinto Nogueira, João Félix and Garcia Prats, Francisco Alfredo and Haslehner, Werner Christof and Heydt, Volker and Kemmeren, Eric and Kofler, Georg and Lang, Michael and Lüdicke, Jürgen and Pistone, Pasquale and Raingeard de la Blétière, Emmanuel and Raventos-Calvo, Stella and Richelle, Isabelle and Rust, Alexander and Shiers, Rupert, Opinion Statement ECJ-TF 4/2019 on the CJEU Decision of February 26, 2019, in Case C-135/17, X-GmbH, Concerning the Application of the German CFC Legislation in Relation to Third Countries (December 1, 2019). European Taxation, vol. 60, n. 4 (2020) , Available at SSRN: https://ssrn.com/abstract=3644235 or http://dx.doi.org/10.2139/ssrn.3644235

João Félix Pinto Nogueira (Contact Author)

International Bureau of Fiscal Documentation ( email )

Rietlandpark, 301
Amsterdam, 1019 DW
Netherlands
+31205540100 (Phone)

HOME PAGE: http://https://www.ibfd.org/IBFD-Profiles/Jo-o-F-lix-Pinto-Nogueira

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Werner Christof Haslehner

Universite du Luxembourg ( email )

Luxembourg

Volker Heydt

Independent

Eric Kemmeren

Tilburg University ( email )

Warandelaan 2
Tilburg, Noord-Brabant 5037AB
Netherlands
+31.13.466.8129/2412 (Phone)
+31.13.466.3073 (Fax)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/kemmeren-3.htm

Fiscal Institute Tilburg ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31.13.466.8129/2412 (Phone)
+31.13.466.3073 (Fax)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/kemmeren-3.htm

Georg Kofler

Vienna University of Economics and Business - Institute for Austrian and International Tax Law ( email )

Welthandelsplatz 1
Buildind D3
Vienna, VIenna 1020
Austria

Michael Lang

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Jürgen Lüdicke

PriceWaterhouseCoopers LLP - PricewaterhouseCoopers GmbH ( email )

Wirtschaftsprüfungsgesellschaf
Alsterufer 1
Hamburg, D-20354
Germany

Pasquale Pistone

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Stella Raventos-Calvo

affiliation not provided to SSRN

Isabelle Richelle

Independent

Alexander Rust

Independent

Rupert Shiers

Independent

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