CJEU – Recent Developments in Direct Taxation 2016

1. S. 44Introduction

The EU Merger Directive allows tax neutral cross-border company reorganizations. However, Article 10(2) of the Directive allows a Member State, which applies a system of taxing worldwide profits, to tax a transfer of assets when the transferred assets are connected with a permanent establishment of a resident company, which is located in another EU Member State. Finland exercises this option and taxes such transfers immediately in the tax year of the transfer in accordance with Section 52e.3 of the Business Income Tax Act (Laki elinkeinotulon verottamisesta, EVL).

A similar domestic transfer is not taxed immediately in the year of the transfer but only when the transferred assets are later actually alienated and the resulting capital gain realized. Case C-292/16 A Oy concerns the compatibility of the provision resulting in immediate taxation, with Article 49 of the TFEU on the freedom of establishment.

2. Facts of the Case

A Finnish resident company (A Oy) had a permanent establishment in Austria. In 2006 the business connected with the permanent establishment was transferred in the form of a transfer of assets to an Austrian group company (B) in exchange for new shares...