1. Transfer and Change of Tax Residence Remarks on EU Law and Trends
Łódź, 2 June 2017

2. Transfer and Change of Residence Terminology
«Transfer» of residence: Voluntary decision to transfer domestic tax residence, which may, or may not, entail a transfer also of the legal seat
«Change» of residence: Move of tax residence “forced” by tax residence claims by the Revenue Agency challenging foreign tax residence declared by the company

3. Transfer of Tax Residence Selected UE Law Issues
Transfer within a Member State and transfer to another Member State should be treated equally
CJEU, C-371/10, National Grid Indus, par. 38: «the situation of a company incorporated under the law of that Member State which transfers its place of management to another Member State is similar to that of a company also incorporated under the law of the former Member State which keeps its place of management in that Member State»
But see CJEU, C-210/06, Cartesio, parr
An exit tax may be justified to ensure the balanced allocation of taxing powers between Member States
CJEU, C-371/10, National Grid Indus: It is proportionate for the Member State of origin, «for the purpose of safeguarding the exercise of its powers of taxation, to determine the tax due on the unrealised capital gains that have arisen in its territory at the time when its power of taxation in respect of the company in question ceases to exist, in the present case the time of the transfer of the company’s place of effective management to another Member State»

4. Transfer of Tax Residence Selected UE Law Issues
Immediate collection not proportionate
CJEU, C-371/10, National Grid Indus, par. 73: «national legislation offering a company transferring its place of effective management to another Member State the choice between, first, immediate payment of the amount of tax, […] and, secondly, deferred payment of the amount of tax, […] would constitute a measure which, while being appropriate for ensuring the balanced allocation of powers of taxation between the Member States, would be less harmful to freedom of establishment than the measure at issue in the main proceedings [i.e., the immediate collection of exit tax]»

5. Transfer of Tax Residence Selected UE Law Issues
Instalment payments proportionate?
CJEU, C-164/12, DMC, par. 62: «in the light of the fact that the risk of non-recovery increases with the passing of time, the ability to spread payment of the tax owing before the capital gains are actually realised over a period of five years constitutes a satisfactory and proportionate measure for the attainment of the objective of preserving the balanced allocation of the power to impose taxes between Member States»
Reference to risk of non-recovery apparently inconsistent with other case law (e.g., C-269/09, COM v. Spain) where CJEU emphasized Directive 2008/55/EC on mutual assistance in recovery of taxes

6. Transfer of Tax Residence Selected UE Law Issues
Instalment payments proportionate?
Art. 5(2) ATAD: payment of exit tax in instalments over five years
But Art. 29 CCTB 2016 proposal does not mention any deferral
However, the CCTB 2016 does not deal with tax collection
Primary EU law prevails over inconsistent (and not fully harmonized) secondary EU law
Thus, Art. 29 should be read as imposing the duty to levy an exit tax, while not dealing with “when” such tax must be levied

7. Transfer of Tax Residence Selected UE Law Issues
Domestic transfer equal to cross-border transfer
YES
(National Grid Indus)
Taxation of gain in State of departure
YES
(National Grid Indus)
Less Harmful
(National Grid Indus)
Deferred payment
Immediate payment
5-year instalment period
Proportionate NO
(National Grid Indus) ?
(CCTB) OK
(DMC) OK
(CCTB)
But see other case law

8. Transfer of Tax Residence Selected UE Law Issues
Different rules for individuals?
Indefinite deferral?
See CJEU, C-9/02, Lasteyrie; C-470/04, N; C-503/14, COM v. Portugal  No mention of any acceptable deferral (e.g., the 5-year term indicated in DMC)
See AG Opinion, C-503/14 (parr ) proposing to apply case law on companies’ exit taxation also to individuals as regards payment of interests and provision of guarantees
CJEU apparently shares Advocate General’s opinion (see CJEU, C-503/14, COM v. Portugal, parr )

9. Transfer of Tax Residence Selected UE Law Issues
EU Member States and EEA States domestic law regimes
No exit tax: Czech Republic, Ireland (under certain conditions), Poland
No deferral: Belgium, Norway (for intangible assets and inventory items)
Deferral until realisation: Finland, Ireland (under certain conditions), Luxembourg, Norway (for tangible assets), Sweden (for certain assets), the Netherlands
Limited deferral: for 10 years (Sweden for certain assets; Italy); 7 years (Austria for certain assets); 5 years (Sweden for certain assets); 2 years (Austria for certain assets)
Instalments payments in 10 years (the Netherlands); 7 years (Denmark); 6 years (Italy); 5 years (France, Germany, Portugal)

10. Transfer of Tax Residence Selected UE Law Issues
Is the ATAD mandatory?
Obligation to introduce exit tax (ATAD) vs. obligation to provide tax benefits (PS Directive)
Obligation to introduce an option for a 5-year instalment payments
Obligation to replace indefinite deferral or deferral for more than 5 years with a 5 years instalments payments (?)
See Art. 3 ATAD (Minimum Level of Protection): «This Directive shall not preclude the application of domestic or agreement-based provisions aimed at safeguarding a higher level of protection for domestic corporate tax bases.»
Shorter deferral / instalment period? See, however, DMC “rule of thumb”

11. Transfer of Tax Residence Selected UE Law Issues
NO Deferral/Instalment
Too “Punitive”
5Y Deferral/Instalment
Art. 5 ATAD
DMC
7Y Deferral/Instalment
10Y Deferral
Too “Soft”
Indefinite Deferral
No Exit Tax
Czech Republic
Ireland
Poland
Finland, Ireland (conditions), Luxembourg, Norway (not IPs), Sweden, Netherlands
Italy
Sweden (certain assets)
Denmark
Austria
France
Germany
Portugal
Sweden (certain assets)
Belgium
Norway (for IPs)

12. Transfer of Tax Residence Selected UE Law Issues
Scope of Art. 5 ATAD
Strict interpretation would lead to exclude cross-border mergers and demergers
Any room for unlimited deferral?
E.g. Italy applies the same regime to transfer of residence and EU cross-border mergers

13. Transfer of Tax Residence Selected UE Law Issues
Losses incurred after the transfer of residence: Is exit tax no longer proportionate?
CJEU, C-371/10, National Grid Indus, par. 58: «Since, […] the profits of a company which transfers its place of effective management are, after the transfer, taxed exclusively in the host Member State, in accordance with the principle of fiscal territoriality linked to a temporal component, it is also for that Member State, […] to take account in its tax system of fluctuations in the value of the assets of that company which occur after the date on which the Member State of origin loses all fiscal connection with the company»
Art. 5(1) ATAD: losses incurred after the transfer of residence do not affect the exit tax due to the State of departure
CCTB 2016 proposal: no specific provision in Art. 29

14. Transfer of Tax Residence Selected UE Law Issues
Symmetry between exit tax and step-up upon immigration
Art. 5(5) ATAD: «Where the transfer of assets, tax residence or the business carried on by a permanent establishment is to another Member State, that Member State shall accept the value established by the Member State of the taxpayer or of the permanent establishment as the starting value of the assets for tax purposes, unless this does not reflect the market value»
Possible risk of double taxation. Proposed Directive on Double Taxation Dispute Resolution Mechanisms
Step-up does not apply in case of transfers from third countries
See new Italian rules on “entry tax” and lump-sum regime for individuals

15. Transfer of Tax Residence Selected UE Law Issues
Symmetry between exit tax and step-up upon immigration
Art. 29 (2) CCTB Proposal: «The Member State to where the assets, tax residence or the business carried on by a permanent establishment are transferred shall accept the value established by the Member State of the taxpayer or of the permanent establishment as the starting value of the assets for tax purposes»
Difference with Art. 5(5) ATAD?
Symmetry of tax treatment in State of departure and State of arrival is in line with Article 12(2)-(3) of EU Merger Directive on transfers of registered office of SEs and SCEs

16. Changing Residence “Without Moving” How to Compute Taxes Due by “Deemed Resident” Companies
The “deemed resident” company may still be subject to the accounting rules applicable in the country where it purported to be resident
Should it redraft its accounts pursuant to GAAP (or IAS/IFRS) applicable in the country where it is deemed to be resident?
See CJEU, C-250/95, Futura Participations SA (parr )
Comparison with CFC regimes
Can the company apply elective tax regimes (e.g., group taxation, patent box, or tonnage tax)?

17. Changing Residence “Without Moving” How to Compute Taxes Due by “Deemed Resident” Companies
How to avoid the double taxation resulting from the redetermination of a company’s residence?
Should the country assessing residence eliminate double taxation?
Issue: foreign tax credit may only be claimed if a tax return is timely filed
Recognizing “at least” a PE in the State of “original” residence?
Branch exemption?

18. Art. 4 OECD ML Convention
Article 4(1) of the OECD Multilateral Convention
“Where by reason of the provisions of a Covered Tax Agreement a person other than an individual is a resident of more than one Contracting Jurisdiction, the competent authorities of the Contracting Jurisdictions shall endeavour to determine by mutual agreement the Contracting Jurisdiction of which such person shall be deemed to be a resident for the purposes of the Covered Tax Agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by the Covered Tax Agreement except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting Jurisdictions”
Can the State abdicating residence apply an exit tax?
Impact on transfers / changes of tax residence within the EU
Application of EU tax directives and Proposed Directive on Double Taxation Dispute Resolution Mechanisms