FII 2 and the Applicable Freedoms of Movement in Third Country Situations

EC tax review 2013-5 - E. Nijkeuter & M.F. de Wilde

In this article, the authors discuss the approach that the Court of Justice of the European Union (CJEU) adopts in deciding which of the European treaty freedoms apply to third country situations. On 13 November 2012 the CJEU delivered a landmark ruling on this matter in the Test Claimants in the FII Group Litigation case. The CJEU observed that if the tax legislation in question is of a general nature then the free movement of capital also applies where European Union (EU) resident entities derive taxable proceeds from majority interests held in companies resident in third countries. In reaching this conclusion, the CJEU adopted an approach that seems to differentiate from that applied in earlier judgments. Moreover, the CJEU’s findings clearly differ from the approach taken by the Dutch Supreme Court in various recent judgments. The Dutch Supreme Court considers external cross-border investments in majority shareholding interests as acts of establishment, which are not protected under EU law, because the freedom of establishment does not apply to third country situations. Assessing EU jurisprudence, the authors seek to answer the question which treaty freedom applies in cases involving the direct taxation of proceeds from cross-border third-country corporate shareholding interests and where does the approach adopted by the CJEU differ from that of the Dutch Supreme Court? The authors further address some potential consequences that the CJEU case law on this matter could have on the future interpretation of the freedom of capital.