1. Freedom of investment between EU and non-EU Member States and its impact on corporate income tax systems within the European Union Dr. D.S. Smit LL.M.

2. 2 The Research Question Starting point: international economic integration within the European Union Free movement of persons, services & capital (“freedom of investment”) Huge impact on Member States’ company tax regimes within the EU International economic integration does not stop, however, at the borders of the EU European Commission (2006): “European openness” Article 63 TFEU: free movement of capital between Member States and between Member States and third countries Various Association, Partnership and Cooperation Agreements with third countries

3. 3 The Research Question Research question: What is and should be the impact of the European free movement provisions on Member States’ company income tax systems in the relations between Member States and non-Member States?

4. 4 Scope of the Study Focus on 6 corporate income tax measures in an international context*): Direct third country investments between EU and non- EU Member States: Indirect third country investments between EU and non- EU Member States through an EU intermediary: Non- EU EU *) 1 Withholding taxes 2 Limitations on the deduction of interest expenses 3 Relief for double taxation 4 CFC-legislation 5 Loss compensation 6 Transfer of business assets

5. 5 Benchmark Freedom of investment implies international tax neutrality Inter-nations neutrality: International tax neutrality can be best achieved if taxation does not adversely influence the relation between taxes and public goods to the disadvantage of transnational investment Boils down, in its ultimate implications, to source-state based taxation Neutrality considerations may be constrained by taxpayer equity considerations Striking match with CJEU case law relating to freedom of investment: Economic concept Implies a genuine economic link with the territory of a Member State through the exercise of a genuine economic activity

6. 6 Structure and Conclusions of the Study H1: Research question and acknowledgements H2: Benchmark H3: Dividing line between EU Member States and non-EU Member States Position of associated and dependent territories: (part of a) Member State or third country? Conclusion: third country to the extent not bound to apply the Treaty provision at stake H4: Relevant positive integration between the Member States H5: Relevant negative integration between the Member States Conclusion: significant impact on Member States company tax systems

7. 7 Structure and Conclusions of the Study H6: Access to freedom of investment vis-à-vis third countries Conclusion: The bigger the investment, the lower the protection (benchmark of “definite influence”) H7: Discrimination and justification grounds under freedom of investment vis-à-vis third countries Conclusion: More room to successfully rely on justification grounds H8: Temporal scope of freedom of investment vis-à- vis third countries Conclusion: Limits the protection under the free movement of capital under Article 63 TFEU Extends the protection under the APC Agreements

8. 8 Structure and Conclusions of the Study H9: Indirectly held third country investments (intermediate companies & dual resident companies) No protection in case of tax avoidance Benchmark: Intermediate company has no genuine economic link with the economy of Member State Requirement of proportionality: taxpayer must still be allowed to provide proof to the contrary

9. 9 Structure and Conclusions of the Study H10: Recommendations & conclusions Amendment of existing tax Directives Definition of “third countries” Common relief for double taxation for income from third country investments Common CFC-provision for third country investments with no genuine economic link or subject to special tax regime Common WHT system in case of intermediate EU companies with no genuine economic link

10. 10 Closing Thank you for your attention…!