uk v ec . 19 September 2024
CORRECT.INTERPRET.NAT.LAWS >> CORRECT FOR >> CORRECT BA >> CORRECT MEASURE >> CORRECT DECISION
ECJ Uphold the appeals (UK WINS!) and clarifies how member’s national laws must be interpreted to learn the correct FOR (reference framework) to be able to ‘select’ amongst measures (ex: tax exceptions) and only so, to be able to decide , for ex: if such measure is illegal SA.clp.alp.ilp.elp …
BESIDES, ECA FINDING: EC IS FAILING TO REQUEST TRANSPARENCY DISCLOSURE FROM NATIONS DURING THE EC S.A. INVESTIGATIONS >> THE EC S.A. DECISIONS ARE FLAWED BECOS THEY LACK INFO TO CORRECTLY DECIDE.
The question whether the GC adequately defined the relevant FOR and, by extension, correctly interpreted the law, is a question of law >> can be JR’d on appeal. -which is the correct FOC to be able to decide if the exemptions gave a selective (and competitive?) advantage?: the appellants (uk…) say that is not the GCTS but the rules applicable to CFC
ecj: to be able to classify a national tax measure as ‘selective’, EC must:
1- identify the (FOR = the ‘normal’ tax system applicable in a given Member State), and
2-demonstrate that the tax measure is ‘anormal’ (so that is out of the FOR). the anormality = that it differentiates between cos who are in a comparable factual and legal situation, and such differentiation cannot be justified to find the correct FOR, we need to look at the national rules’ : content, structure and effects
a/if a national tax measure is inseparable from that nation’s general tax system, the FOR is the nation’s general tax system
b/if a nat.tax.measure is separable from that general system, the FOR is more limited (than the gen.system’s FOR)
ecj: is for that nation to decide, the [FOR >> the nation has the r2interpret its national law] , except if the EC can show that another interpretation prevails in the case-law or administrative practice of that nation. the nation is bound by a duty of sincere cooperation and must in good faith provide the EC with all relevant information requested (to be able to show that the nation’s interpretation cannot prevail over that nation’s caselaw/admin practice)
ecj: the GC found that the GCTS is based on the principle of territoriality (only taxes profits made in the UK), but that also taxes profits artificially diverted from the UK for the benefit of a CFC. ecj: this gc finding is based on a logic supplementary, but separable, from the GCTS. gc also found that those rules did not constitute an exception to the GCTS, but could rather be regarded as an extension thereof.
ecj: national provisions which are only supplementary.extension of a wider FOR, is not separable from it.
The exemptions make it possible not to apply, in whole or in part, the CFC charge where that risk is insufficiently high. Thus, the rules providing for the CFC charge and for the exemptions, complement each to define the scope of the CFC charge the appelants’ interpretation of the cfc rules, is consistent with Cadbury Schweppes and Cadbury Schweppes Overseas. (3) According to that judgment, Articles 49 and 54 TFEU preclude a Member State from taxing a resident company on the profits made by a CFC in another Member State, unless those profits result from wholly artificial arrangements intended to escape the national tax normally due
ecj: ec, gc, were wrong to view the CFC rules as a separate system of taxation and had failed to take into account how the rules, essentially, protected the mainstream CT system in the UK. Seen properly they were not separate but a part of that general system, designed to protect it from profit diversion and abuse
ecj: the GC and EC erred in law in finding that the FOR for deciding the selectivity of the exemptions, consisted solely of the rules applicable to CFCs. Since the FOR determination is the starting point for the assessment of selectivity, the GC’s error vitiates the whole of that assessment. Consequently, we set aside the GC judgment in its entirety and annuls the EC decision
FACT: UK taxes:
– profits generated by activities and assets in the Uk, and
– profits of controlled foreign companies (CFC) ,(ex like halma plc, is the head of a group that contains cfcs) must pay ‘the CFC charge’, if hmrc considers that profits have been artificially diverted from the UK. It charges only the CFC’s non-trading finance profits, when they arise from activities involving significant human functions carried out in the United Kingdom or are generated from United Kingdom funds or assets. Exception (from the cfc charge): profits from intragroup loans granted by a CFC (‘the exemptions at issue’)
chronology: [FOR = COCOO’S NIP.IN.THE.BUD]
0-In 2013, the UK introduced a new and modernised CFC regime following extensive consultation. One aspect of this new regime was the inclusion of a “finance company exemption”. This exemption enabled a UK headquartered group to use an foreign financing company (FFC) with the benefit of a 75% exemption from the CFC rules on intra-group financing activities outside the UK, notwithstanding that the income of that FFC might otherwise fall within the CFC rules. This might be the case because, for example, the funds used by the FFC for its financing activities derived from the UK or because activities related to the lending by the FFC took place in the UK.
1-By decision of 2 April 2019 , EC categorised those exemptions as an illegal SA and incompatible with the internal market, and forced UK to remove the exemption in jan 2019
2-The United Kingdom and a number of companies which had all benefited from the exemptions, asked the GC to annul the EC decision
3-By judgment of 8 June 2022, GC held that the EC had not erred in law, on the basis that the FOR is only of the set of rules applicable to CFCs, and not the entire uk gcts (general corporation tax system)
4-appeal to ECJ August 2022 by UK v GC: (Case C-555/22 P): uk v ec, itv.plc, lse :
The appellant claims that the Court should: set aside in its entirety the judgment under appeal and grant the relief sought by United Kingdom before the General Court; alternatively, set aside in its entirety the judgment under appeal and remit the case to the General Court for final determination; and order the Commission to pay the costs of this appeal and the proceedings before the General Court.
Pleas in law and main arguments In support of the appeal, the appellant relies on five pleas in law:
1- the General Court erred in law and/or infringed EU law because it distorted the underlying facts and mischaracterized them in law when it concluded that the reference system was the United Kingdom CFC (controlled foreign companies) legislation.
2- the General Court erred in law when it held that the United Kingdom CFC legislation gave rise to an advantage. This error of law followed from the distortions and mischaracterisations of the facts in relation to the role of significant people functions (“SPFs”) in the United Kingdom CFC legislation and the relationship between Chapters 5 and 9.
3- the General Court erred in law when assessing the objective and the selectivity of the United Kingdom CFC legislation. The judgment under appeal contains repeated distortions and/or manifest errors of understanding with regard to the role of SPFs in the United Kingdom CFC legislation and the interrelation between Chapters 5 and 9 thereof. It also fails to record or address core elements of the United Kingdom’s pleading, in breach of the duty to give reasons.
4- the General Court failed to address the United Kingdom’s argument that the distinction in the Commission Decision1 between United Kingdom SPFs and United Kingdom connected capital was irrational, in breach of the duty to give reasons. Furthermore, the General Court rejected the justification of administrative practicability for two reasons related to the alleged lack of evidence before the General Court; neither was sustainable, and both involved a clear distortion of the facts that were in evidence before the Court.
5- the General Court’s reasoning contains a clear error of law as to the requirement of the freedom of establishment and the meaning of the judgment of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C-196/04, EU:C:2006:544, (the “Cadbury Schweppes case”) amounting to a disregard of that case. The General Court’s conclusion on this issue reveals several errors. First, it rests on a misunderstanding of the role of the SPFs in United Kingdom CFC legislation. Second, the General Court appears to have assumed that United Kingdom adopted a purely territorial system. Third, this part of the judgment under appeal fails to record or deal with the substantial arguments made by United Kingdom with regard to the impact of the Cadbury Schweppes line of cases on the design of its CFC legislation