ECJ-Recent Developments in Direct Taxation 2013

S. 104I. Introduction

The EFTA Surveillance Authority (ESA) brought an action against the Government of Iceland before the EFTA Court on 3 July 2013. The case is pending and written submissions are still being made. A hearing date has not been set.

The case is based on the assertion that Iceland is in breach of Articles 31 (right of establishment) and 40 (free movement of capital) of the Agreement on the European Economic Area (the EEA Agreement) by maintaining in force a difference in treatment between domestic mergers and cross-border mergers as a result of the application of Article 51 paragraph 1 of the Icelandic income tax act No 90/2003 (ITA). The ESA argues this difference in treatment represents a failure by Iceland to fulfil its obligations as regards the freedom of establishment and the free movement of capital under Articles 31 and 40 of the Agreement on the European Economic Area by imposing an immediate tax on income from deemed realization of assets of companies that merge cross-border with companies established in the other EEA states and on the shareholders of such companies, whereas similar transactions within the Icelandic territory do not attract any immediate tax conseq...