The IRAP Case (C-475/03 Banca Popolare di Cremona)
This case concerns an Italian municipal tax (IRAP) considered to have the features of a turnover tax which is prohibited under article 31(1) of the EC Sixth Directive. It has been the subject of much attention because of the assertion that such a finding would bankrupt Italy. In consequence there have been two hearings and two Advocate Generals' opinions, particularly directed at whether a temporal restriction should be introduced on new principles to protect Italy.
Interestingly, despite both Advocate Generals concluding that IRAP was an unlawful turnover tax, the Court has concluded that it is not. Accordingly, it does not need to consider the temporal restriction issues. This perhaps explains the considerable interest in the issue of temporal restrictions in the pending Meilicke case.
C-452/04 Fidium Finanz
Judgment in this case was also delivered today (a full copy is not yet available). This case was thought likely to provide useful insight into the Court's approach to third country issues namely, claims made by non residents of the EU relying upon their rights under article 56 (Free movement of capital and payments). In this case a Swiss company which provided loans to German residents via the internet was denied necessary authorisation to trade as a finance company in Germany. It contended that this breached its freedom to move capital.
Again however, the Court appears to have failed to address the issue of third country rights directly. It has concluded against Fidium Finanz. The Court accepts that Fidium Finance could exercise its right to the free movement of capital and that the German provisions inhibited its ability to do so. It concludes that in reality what the German provisions were doing was limiting the freedom to provide services which could legitimately be limited where the service provider was from a non resident country.
The case then continues to show a reluctance of the Court to address the issue of third country rights (similar to the van Hilten case).
C-231/05 Oy AA (The Esab case)
The Advocate General's opinion in this case was delivered on 12 September. The opinion is not binding on the Court, but usually followed.
The case concerned the Finnish group subsidy system. The system achieves a level of group consolidation by entitling one company in the group (logically the profit maker) to make a deductible payment to another member of the group (the loss maker) which receipt is taxable. It works therefore in the opposite direction to the group relief system in the UK where the loss maker surrenders the relief to the profit maker.
Like the UK system, the Finnish system is limited to domestic tax payers. In the case a Finnish subsidiary has sought a deduction for a group contribution payment made to its ultimate UK parent which company was in loss. We reported earlier that at the hearing the UK Government had contended that under UK tax law the receipt would not be taxable, meaning that if the deduction was allowed in Finland the profits which were the subject of the payment would not be taxed anywhere.
The Advocate General concludes that the Finnish system, while amounting to the inequal treatment of cross border and domestic groups can be justified and is probably proportionate to meet its aim.
Of immediate relevance to the UK case s we are running is some very supportive comments made by the Advocate General in relation to the Marks and Spencer case (see in particular paragraphs 70 and 71). The Advocate General comments that she does not need to consider whether in the Esab case the possibilities for the use of the loss in the local jurisdiction had been exhausted because those circumstances did not appear on the facts. She however comments that the facts in the Marks and Spencer case met those conditions. The Advocate General is apparently of the opinion that the practical inability to use losses in the local jurisdiction will meet the requirements for cross border surrender. She clearly does not support HMRC's argument that the loss must be beyond legal use let alone in the year in which it arose.
C-470/04N
Judgment was delivered in this case on 7 September. This case concerns the Dutch exit tax provisions which provided for the taxing of unrealised capital gains upon emmigration subject to a possible deferral for 10 years on the provision of security. Following the de Lasteyrie case, the Dutch authorities had returned the security.
In a less than clear cut decision the Court appears not to have followed the Advocate General and seems to hold that the Dutch exit tax provisions contravene community law to the extent both that they required a security and that they failed to take full account of reductions in value capable of arising after the transfer of residence where the new state of residence did not take them into account. The return of the security did not retrospectively rectify the legislation.
This case seems to support both our loss relief claims in the UK and the ACT Class 2 case. In the former it is interesting that the Court takes a fairly hard line on the ability of a member state to rectify non compliant legislation. Moreover the Court is concerned with the fact that a tax adjustment is made somewhere in the community. This supports our argument that for the Marks and Spencer conditions the proper test is whether there has been practical use of the loss inhe local jurisdiction.
In the ACT Class 2 context we argue that causation (namely the need to show that a group would have made a group income election if it was available) simply does not arise where the claim is for "reimbursement of charges improperly levied". The definition of that phrase applied in the N judgment would include the claims of the ACT Class 2 claimants (see paragraphs 60-63). This supports similar remarks found in the opinion in the FII GLO.