Intra-Group Financial Transfers C-231/05, ”Oy AA” Intra-Group Financial Transfers

Background Information 100 % of the shares in the Finnish Oy AA indirectly owned by a British AA Ltd Oy AA wants to shift its taxable income within the group with an intra-group financial transfer to AA Ltd The Finnish National Law requires both companies of the transaction to be established in Finland Oy AA asks whether the transfer is deductible from the taxable income Central Tax Commission: not deductible -> disputed Supreme Administrative Court: let’s ask the European CoJ whether the Finnish National Law is in line with the EU law

Argumentation of the Court Targeted at group companies → restriction on Freedom of Capital is a consequence of restriction on Freedom of Establishment Directive 90/435 deals with subsidiaries distributing dividents and other benefits to its parent company → not applicable → The question must be answered in light of Freedom of Establishment alone

Existence of A Restriction Treatment of subsidiaries in Finland differs depending on whether their parent companies are established in the same Member State The Member State can make the deductibility of the intra-group financial transfer conditional to the tax treatment of the received transfer Freedom of Establishment includes the freedom to choose the legal form in which to run the business No need for actually having affected decision-making to impose restrictions on Freedom of Establishment

Justification Balanced allocation of taxing powers Member States’ right to tax activities that take place on their territory could be jeopardised By tranferring taxable income between Member States, groups of companies could decide where to pay taxes Anti tax avoidance measures Groups of companies could transfer taxable income into Member States that have lower tax rates or differences between the bases of assessment of the tax applied Proportionality test Even if there were conditions on the acceptability of the tranfer, without the current legislation groups would be left with too much power to decide on the taxation

Implications from the perspective of taxpayers Increased tax burden for multinational groups of companies compared to groups that only operate in Finland Reduced willingness to operate on multiple Member States