1 Panel 2 “Acte Clair” in ECJ Decisions on direct tax discrimination The example of host state discrimination against foreign owned permanent establishments By Servaas van Thiel ©

2 A. Discrimination Different treatment By one Member State Of a cross border situation which is similar to a domestic situation On the basis of an arbitrary criterion of distinction To the disadvantage of the cross border situation

3 B. Host State discrimination against incoming economic activity A higher host state tax burden on foreign as compared to domestically owned permanent establishments A higher host state tax burden on incoming as compared to domestic frontier workers/professionals A higher host state tax burden on workers/professionals who are active in more than one Member State

4 270/83 – Commission v. France ( ) Discrimination (credit) because a resident enterprise receives (French source dividends and) an imputation credit, and a PE of a German enterprise receives (French source dividends and) no imputation credit (because of the seat of the head-office), whereas the same rules are applied to both enterprises to determine their taxable income DE FR Bourse de Paris

5 C-330/91 – Commerzbank ( ) Discrimination (procedural) because resident enterprise is entitled to interest on late refund on undue taxes, whereas a PE of an enterprise from another Member State is not DE UK USA T

6 C-307/97 – Saint Gobain ( ) Discrimination (measures to avoid (economic) double taxation of dividends) because a resident enterprise is entitled to domestic law and tax treaty based participation exemptions and imputation credits on dividends received from subsidiaries in other Member States and third countries USACH FR DE

7 C-311/97 – Royal Bank Scotland ( ) Discrimination (tax rate) because a resident Bank can, under circumstances, benefit from a reduced tax rate, which is never available to a PE of a foreign bank, whereas both are taxed in the same way UK GR

8 C-253/03 – CLT-UFA ( ) Discrimination (split rate) because reduced rate that is available to (foreign owned) subsidiaries (when they distribute rather than retain their profits) is never available to foreign owned PE LU DE

9 Conclusion A PE of a company from another Member State is normally taxed according to the same rules as a domestic enterprise, and it is thus in a similar situation Refusal of a tax benefit (base, rate, credit, procedure) to such a PE constitutes discrimination because to the disadvantage of the cross border situation

10 E. Home state discrimination against outbound economic activity Home state taxation on (unrealised) capital gains, when the beneficiary/asset moves abroad (and not when he stays at home) Home state refusal to allow deductible expenses when incurred abroad rather than at home (particularly clear line of case law on insurance premiums and pension contributions)