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CFC-lagstiftningens förenlighet med EG-rätten - Särskilt om nytt förslag i samband med Cadbury Schweppes-domen och Danmarks anpassning till EG-fördraget

Persson, Emma (2008)
Department of Law
Abstract
During the last half-century there has been an increase in the volume and complexity of international business. Nowadays it is easy to carry through different types of transactions between Member States of the EU. One example can be an establishment, to avoid or at least reduce taxes, particulary by taking advantage of tax incentives offered by many countries to attract geographically-mobile capital and activities. Many countries with high taxes have therefore created a legislation that is worldwide called CFC legislation. The basic motive of the Swedish CFC legislation is to prevent the effects of tax defferal, which implies that the Swedish company will only be taxed in Sweden in respect of subsidiary profits that are distributed to it... (More)
During the last half-century there has been an increase in the volume and complexity of international business. Nowadays it is easy to carry through different types of transactions between Member States of the EU. One example can be an establishment, to avoid or at least reduce taxes, particulary by taking advantage of tax incentives offered by many countries to attract geographically-mobile capital and activities. Many countries with high taxes have therefore created a legislation that is worldwide called CFC legislation. The basic motive of the Swedish CFC legislation is to prevent the effects of tax defferal, which implies that the Swedish company will only be taxed in Sweden in respect of subsidiary profits that are distributed to it in the form of dividends. In general this CFC legislation implies that a shareholder of a foreign legal entity with low taxed income is liable to tax in Sweden in respect of his share of the income of that legal entity. Furthermore it is stipulated that ownership of a foreign legal entity is at hand if at least 25 per cent of the capital or of the voiting rights of the foreign legal entity are held by the Swedish resident potentially subject to CFC taxation. When deciding the holding of a specific owner both direct and indirect holdings through other foreign legal entities are taken into account. The review of the ownership is made at the end of the fiscal year. A condition for taking indirect ownership into account is that there is a community of interest between different owners. The definition of low taxation is complicated and there are two ways of establishing what is low taxation: the main rule and the supplementary rule. The main rule stipulates that the net income of a foreign legal entity shall be CFC taxed if it is either not taxed at all, or taxed at a rate less than 15,4 per cent. To simplify the application of the main rule there is a complement called the supplementary rule. This rule refers to a special list where some countries are considered to have an acceptable taxation, but with some exceptions, and some which do not have it. Nowadays it is known that Member States are prohibited to have restrictions on any of the fundamental freedoms in the EC Treaty. Since Swedish companies often wish to invest in other Member States of the Community, the Swedish CFC legislation must be, as it is formulated today, regarded as a restriction on fundamental freedoms, notably the right of establishment and the free movement of capital. The reason for this is the final decision of the brittish Cadbury Schweppes case. In this case the European Court of Justice (ECJ) stated that only the wish to establish an entity in a low tax state could not be reason enough to justify the CFC legislation. Neither can the rules be justified if the establishment of the foreign legal entity have been carried out a genuine economic activity. The creation of that CFC provision must be regarded as having the characteristics of a wholly artifical arrangement. By the review consideration must be taken to one subjective and one objective factor. The first factor consists of the intention to obtain a tax advantage. Regarding the other element it must be based on objective factors which can be verified by third parties with regard to the extent to which the CFC entity physically exists in terms of premises, staff and equipment. One exampel of a wholly artificial arrangement is the case of a ''letterbox''. Furthermore, it is stated that the resident company, which is best placed for that purpose, must be given an opportunity to produce evidence that the CFC entity is carrying out a genuine economic activity, that is an actual establishment with genuine activities. The Swedish government has, in 2007, formulated a proposal in accordance with the ECJ's findings in the Cadbury Schweppes case. The new legislation must take in to consideration the subjective and objective elements as well as the evidence factor. Still Sweden cannot be sure that the proposed legislation is in accordance with Community law. The case has not settled any details and it will therefore be up to each Member State to decide in these details. The above mentioned proposal is probably the one that will come into force but some tax experts have suggested alternative solutions. One exampel for a modified legislation is that the list shall contain all Member States, including Sweden, and by that the States will be exempt from the CFC rules. Another suggestion is to abolish the CFC legislation and instead expand the special legislation for tax evasion (Swe. ''skatteflyktslagen''). Another possibility for Sweden is to formulate a legislation similar to the Danish CFC legislation which is only applicable to a certain CFC income. For individual shareholders takes it a holdning on at least 50 per cent, and the income of a foreign legal entity shall be CFC taxed if it is taxed at a rate less than 18,75 per cent. Furthermore, the legislation where the shareholders are legal entities, now comprises all financial subsidiaries no matter if it is Danish or foreign. Finally, the European Court of Justice has not yet settled a case about how far the free movement of capital reaches between a Member State and a third country. Instead we must look into national settlements. The Swedish Revenue Law Commission (Swe. ''Skatterättsnämnden'') thought that there must be wider possibilities to justify restrictions to the free movement of capital between a Member State and a non-Member State than between two Member States. But it is still up for discussion and we will not know until the ECJ has settled a case about this issue. (Less)
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author
Persson, Emma
supervisor
organization
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Skatterätt
language
Swedish
id
1561150
date added to LUP
2010-03-08 15:55:27
date last changed
2010-03-08 15:55:27
@misc{1561150,
  abstract     = {During the last half-century there has been an increase in the volume and complexity of international business. Nowadays it is easy to carry through different types of transactions between Member States of the EU. One example can be an establishment, to avoid or at least reduce taxes, particulary by taking advantage of tax incentives offered by many countries to attract geographically-mobile capital and activities. Many countries with high taxes have therefore created a legislation that is worldwide called CFC legislation. The basic motive of the Swedish CFC legislation is to prevent the effects of tax defferal, which implies that the Swedish company will only be taxed in Sweden in respect of subsidiary profits that are distributed to it in the form of dividends. In general this CFC legislation implies that a shareholder of a foreign legal entity with low taxed income is liable to tax in Sweden in respect of his share of the income of that legal entity. Furthermore it is stipulated that ownership of a foreign legal entity is at hand if at least 25 per cent of the capital or of the voiting rights of the foreign legal entity are held by the Swedish resident potentially subject to CFC taxation. When deciding the holding of a specific owner both direct and indirect holdings through other foreign legal entities are taken into account. The review of the ownership is made at the end of the fiscal year. A condition for taking indirect ownership into account is that there is a community of interest between different owners. The definition of low taxation is complicated and there are two ways of establishing what is low taxation: the main rule and the supplementary rule. The main rule stipulates that the net income of a foreign legal entity shall be CFC taxed if it is either not taxed at all, or taxed at a rate less than 15,4 per cent. To simplify the application of the main rule there is a complement called the supplementary rule. This rule refers to a special list where some countries are considered to have an acceptable taxation, but with some exceptions, and some which do not have it. Nowadays it is known that Member States are prohibited to have restrictions on any of the fundamental freedoms in the EC Treaty. Since Swedish companies often wish to invest in other Member States of the Community, the Swedish CFC legislation must be, as it is formulated today, regarded as a restriction on fundamental freedoms, notably the right of establishment and the free movement of capital. The reason for this is the final decision of the brittish Cadbury Schweppes case. In this case the European Court of Justice (ECJ) stated that only the wish to establish an entity in a low tax state could not be reason enough to justify the CFC legislation. Neither can the rules be justified if the establishment of the foreign legal entity have been carried out a genuine economic activity. The creation of that CFC provision must be regarded as having the characteristics of a wholly artifical arrangement. By the review consideration must be taken to one subjective and one objective factor. The first factor consists of the intention to obtain a tax advantage. Regarding the other element it must be based on objective factors which can be verified by third parties with regard to the extent to which the CFC entity physically exists in terms of premises, staff and equipment. One exampel of a wholly artificial arrangement is the case of a ''letterbox''. Furthermore, it is stated that the resident company, which is best placed for that purpose, must be given an opportunity to produce evidence that the CFC entity is carrying out a genuine economic activity, that is an actual establishment with genuine activities. The Swedish government has, in 2007, formulated a proposal in accordance with the ECJ's findings in the Cadbury Schweppes case. The new legislation must take in to consideration the subjective and objective elements as well as the evidence factor. Still Sweden cannot be sure that the proposed legislation is in accordance with Community law. The case has not settled any details and it will therefore be up to each Member State to decide in these details. The above mentioned proposal is probably the one that will come into force but some tax experts have suggested alternative solutions. One exampel for a modified legislation is that the list shall contain all Member States, including Sweden, and by that the States will be exempt from the CFC rules. Another suggestion is to abolish the CFC legislation and instead expand the special legislation for tax evasion (Swe. ''skatteflyktslagen''). Another possibility for Sweden is to formulate a legislation similar to the Danish CFC legislation which is only applicable to a certain CFC income. For individual shareholders takes it a holdning on at least 50 per cent, and the income of a foreign legal entity shall be CFC taxed if it is taxed at a rate less than 18,75 per cent. Furthermore, the legislation where the shareholders are legal entities, now comprises all financial subsidiaries no matter if it is Danish or foreign. Finally, the European Court of Justice has not yet settled a case about how far the free movement of capital reaches between a Member State and a third country. Instead we must look into national settlements. The Swedish Revenue Law Commission (Swe. ''Skatterättsnämnden'') thought that there must be wider possibilities to justify restrictions to the free movement of capital between a Member State and a non-Member State than between two Member States. But it is still up for discussion and we will not know until the ECJ has settled a case about this issue.},
  author       = {Persson, Emma},
  keyword      = {Skatterätt},
  language     = {swe},
  note         = {Student Paper},
  title        = {CFC-lagstiftningens förenlighet med EG-rätten - Särskilt om nytt förslag i samband med Cadbury Schweppes-domen och Danmarks anpassning till EG-fördraget},
  year         = {2008},
}