(Panel 3 of a Triptych: Shopping for tax advantages: what can (and cannot) be done to prevent it.)
This article is the final part of a triptych, each panel of which is independent of but also complements the other two. The theme of the triptych is what measures are possible – and impossible – in combating conduit arrangements under EU law. The first panel was published in EC Tax Review 2009/6 and deals with the issue of when Member States – specifically in their capacity as source state – can deny advantages to conduit companies under the EU freedom of establishment. In the analysis of ECJ case law led us to the conclusion that Member States have substantial discretion when seeking to combat conduit arrangements that are inteded to minimize taxation on dividends. The second panel, which was published in EC Tax Review 2010/5, examines the measures applied by four large Member States to combat dividend tax-saving arrangements involving EU conduit companies. In this panel we concluded that the motive test ub oarticular contained in the specific measures to combat EU dividend conduit arrangements was not compatible with the freedom of establishment. These large EU Member States were subsequently exceeding the discretionary powers available to them under EU law. These conclusions prompted in this third and final panel, in which we set out the criteria that Member States can derive from ECJ case law on the scope of the freedom of establishment and also consider the legislative principles to be taken into account when designing a measure to combat EU dividend conduit arrangements. The result of this analysis is a balanced, EU-compliant measure enabling Member States to combat conduit arrangements and this ensure that dividend tax relief is available only in situations genuinely meriting such treatment and that no additional legal obstacles stand in the way of such situations. In this way, EU Member States will no linger have to contend, as has often been the case to date, with the downslide of efforts to promote capital mobility but will instead start seeing the positive effects of these efforts.