Limiting Benefit Shopping: Measures of Four Large EU Member States to Counter Erosion of Their Dividend Tax

Abstract

This article forms 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 EU law.

In this second panel, we outline the measures that Germany, France, Spain and Italy have introduced in order to combat dividend tax-saving arrangements involving conduit companies.

The generic measures available to combat abuse of rights within the four Member States have in common the fact that they consist of a combination of carious tests. Interestingly, these tests conform to a large extent with the subjective and the objective elements of the ECJ's abuse test diffused in the first panel of this triptych. Strikingly, however, the generic measures available as a means of combating abuse set tighter requirements for assessing the motive (in other words, the sole purpose must be to obtain a tax advantage) than the subjective element of the abuse test applied by the ECJ. Given that the national generic measures available in the relevant Member States allow considerable scope for national courts to apply the abuse test in concrete situations, the question of whether the tests are compatible with EU law depends on how exactly they are interpreted in these concrete situations. Generic tests of this nature also have the disadvantage for taxpayers and tax administrations that they offer little legal certainty and can result in arbitrary decisions.

The specific measures available in then Member States to combat abuse seek to counteract these disadvantages by applying tests that are more objective in nature. These tests may, however, be found to be incompatible with the EU freedom of establishment, as discussed in section 4 of this article. This analysis demonstrates that EU Member States should refrain from objective tests when seeking to determine the motive for the interposition of intermediate companies if these tests focus on the size and structure of the EU conduit company's economic activities. The solution to this problem should primarily be sought in a case-by-case assessment of whether there can be said the be a secondary establishment. We will present our solution in the third and final panel of the triptych.