ECJ – Recent Developments in Direct Taxation 2014

I. S. 52Introduction: The ECJ’s Jurisdiction on Exit Taxes

The following two cases should be read in the context of the Court’s jurisdiction on so-called exit taxes, i.e. on the taxation of latent increases in value (hidden reserves) on the occasion of the transfer of a taxpayer’s seat to another Member State so that the Member State of origin’s power to tax the company ceases to exist.

The landmark decision on this issue was taken by the Grand Chamber in the case of National Grid Indus, where a company resident in the Netherlands transferred its place of effective management to the United Kingdom and was, in accordance with the applicable convention on double taxation, thereafter regarded as a company resident in and liable to tax in the United Kingdom. The question was whether Article 49 TFEU precluded tax legislation of a Member State, under which unrealized capital gains relating to the assets of a company incorporated under the law of that Member State which transfers its place of effective management to another Member State are taxed at the time of transfer, whereas such gains are not taxed when such a company transfers its place of management within the territory of the Member Stat...