Case C48/11 Veronsaajien oikeudenvalvontayksikkö ( Tax Recipients' Legal Services Unit) v A Oy Katja Tiainen Anne Koskela

Question referred Reference for a preliminary ruling from the Finnish Supreme Administrative Court (KHO) Exchange of shares between Finnish limited liability company (A Oy) and a Norwegian company (B AS) Is an exchange of shares considered as a disposal between A Oy and B AS according to the Finnish Business Income Tax Act? The meaning of EEA Agreement: Article 31 (freedom of establishment) and Article 40 (Free movement of capital)

Finnish Business Income Tax Act Exchange of Shares (52f §) Arrangement where a limited liability company (e.g. D Oy) acquires a portion of the shares of another limited liability company (e.g. E Oy) and as compensation gives to the shareholders of this company (E Oy) new shares which it (D Oy) has issued or shares that it holds After the exchange the acquired shares must give to the acquiring company more than 50% of the total voting rights. Alternatively if the company already holds more than 50% of the voting rights, the company can acquire more shares Cash compensation max. 10% of the nominal value of the shares The exchange of shares is not regarded as a disposal (OBS! Cash compensation is considered as a disposal) Applicability of 52f § Exchange of shares of domestic limited liability companies Exchange of shares between companies of different EU Member States (implementation of Directive 2009/133)

Exchange of shares Before acquisitionAfter acquisition A Oy C Oy B AS C Oy A Oy 19,7% 80,3% 6,0% 100,0% 19,7%

EEA Agreement Examination of the Finnish domestic law in the light of the EEA Agreement The purpose of the EEA Agreement is to ensure free movement of goods, persons, services and capital within the EEA The internal market established within the EU is extended to the EFTA States (e.g. Norway)

Freedom of establishment Question of free movement of capital or the freedom of establishment?  operations involving ownership or taking control of a company  covered by the freedom of establisment Article 31 of the EEA Agreement: no restrictions of the freedom of establishment of nationals of a Member State of the European Community or a State of the European Free Trade Association (EFTA) in the territory of any other of these States. This shall also apply to the setting up of agencies, branches or subsidiaries. Guarantee the benefit of national treatment by prohibiting any discrimination based on the place where companies have their seat All measures that prohibit, hinder (etc.) this freedom must be regarded as restrictions

Discrimination? Domestic companies and/or companies in EU Member States  exchange of shares not regarded as disposal Company in a third country (party to the EEA Agreement)  exchange of shares is treated as a taxable disposal The tax treatment is determined solely by the place of the company’s registered office  the difference in treatment was not explained by a difference in the objective situation Principle of non-discrimination (Article 31 of the EEA Agreement)  the tax treatment of exchange of shares for domestic companies must be applied to a situation where the other party is a company established in a country which is a party to the EEA Agreement

Justifications to a restriction of the freedom of establishment? Overriding reasons related to public interest? Public interest related to the need to combat tax evasion? ▫No presumption of tax evasion based on the issue that the acquiring company is situated in an EEA country Effectiveness of the tax supervision? ▫Agreement on mutual administrative assistance signed between Finland and Norway. ▫Finnish government has confirmed that exchange of information is effective  No grounds for justifications

The Ruling The tax rules of tax neutral exchange of shares must be applied to the exchange of shares between A Oy and B AS The exchange of shares between A Oy and B AS is not regarded as a disposal for taxation purposes