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

2. 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

3. 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

4. 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

5. 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

6. 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