1. CADBURY SCHWEPPES
CASE C-196/04, 12 SEPTEMBER 2006

2. Background Establishment of two subsidiaries in Ireland
Purely to take advantage of more favorable tax regime in Ireland (10%)
HMRC demanded corporate tax by UK controlled foreign company (CFC) rule.
Cadbury appealed on the basis of EC Treaty:
Article 43: Freedom of establishment
Article 49: Freedom to provide services
Article 56: Free movement of capital and payment

3. UK Controlled Foreign Companies
Target: Subsidiaries of UK companies in Member States with low level of taxation
Subsidiaries: Foreign company in which British company owns more than 50%
Low level of taxation: Less than ¾ of tax should have been paid under UK tax law
Treatment: Profits from those subsidiaries are taxed in UK under credit tax system
UK Controlled Foreign Companies

4. Cadbury Schweppes’ Internal Financing
Irish subsidiaries raised finance and provide that finance to other subsidiaries in Cadbury group
Profit from other subsidiaries was shifted to Ireland in the form of inter-company interest payment
Cadbury Schweppes’ Internal Financing

5. Does Cadbury Schweppes abuse freedom of establishment?
Does CFCs be viewed as discrimination?
Are these justification acceptable?
Equal tax liability compared with domestic subsidiaries
Prevention of tax avoidance
Questions for EUCJ

6. The establishment to benefit from favorable tax regime is not in itself abuse the freedom
Separate tax treatment results in disadvantage for companies with subsidiaries in the Member State with low level of tax => discrimination
3. Restriction is permissible only if it is justified by overriding reasons of public interest.
Mere fact that company sets up subsidiaries do not enough to assume tax evasion and compromise freedom treaty
Necessity to test the “Wholly artificial arrangement” on case-by-case basis
Results