In Portuguese conversion tax law, there were two restrictions on fundamental freedoms, which were taken up in the ECJ judgment of 21.12.2016 – Az.C-503/14. The first restriction was on the exchange of shares in corporations. Here, the shareholder had to remain in the Portuguese domestic market, as tax neutrality is retroactively abolished when he leaves. The second limitation of the fundamental freedoms was the transfer of assets to corporations, since tax neutrality was granted only for transfers to domestic corporations – but not also to foreign corporations, which is a limitation of the freedom of establishment. In his critical analysis, Kanzlei Meyers & Partner AG addresses the ECJ’s reasoning and concludes from this the significance for German tax law.
In 2016, both the Portuguese rules on the exchange of shares and on transfers were under review by the ECJ.
Portuguese tax law (Art. 10 CIRS) allowed a tax-neutral share exchange, but retroactively taxed the transfer transaction if the shareholder subsequently ceases its registered office in Portuguese territory. Furthermore, the Portuguese tax law saw in art. 38 CIRS provides for the tax-neutral transfer of assets only to corporations having their registered office and effective management in Portuguese territory.
Portuguese tax law granted tax neutrality in the exchange of shares irrespective of the extent to which the transferring natural person subsequently participates in the acquiring company. On the other hand, in the case of the transfer of assets, Portugal granted tax neutrality only if there was a minimum shareholding of 50 % after the transfer.
2nd Decision
In both cases, the ECJ found that the liquidity disadvantage associated with the respective act (departure or transfer) constitutes a restriction on the freedom of establishment. While recognising the objective of a balanced distribution of taxation powers as a legitimate objective, it regarded immediate taxation as a non-proportionate intervention in line with its previous case-law. Referring to the decision of principle in the Rs. National Grid Indus, he saw the Portuguese Government in the obligation to grant the EU citizen the choice between immediate taxation and a tax deferral with the collection of interest and the use of guarantees.[785]
The fact that the ECJ tested both standards uniformly in the light of the freedom of establishment may be surprising at first glance, but is true on closer inspection. For Article 10 CIRS (share exchange), the restriction on the freedom of establishment follows from the fact that early taxation does not result from the share exchange alone, but only in connection with the departure of the shareholder and thus with the establishment of a new establishment in another Member State. In the case of Art. 38 CIRS (transfer to a foreign limited company), the restriction arises from the fact that tax neutrality is only granted above a minimum participation ratio of 50 percent and thus covers control participations which primarily fall within the scope of protection of the freedom of establishment.
In addition, it was now clear that the ECJ turned away from the earlier decisions in Cases Lasteyrie du Saillant[787] and N[788] and no longer differed in the future between the de-involvement in private assets (personal de-involvement by removal) and the de-involvement in business assets (figurative de-involvement by transfer). The ECJ now granted the State of origin – contrary to the view held here – to make tax on both private and business assets dependent on the provision of securities and the collection of interest. In addition, the State of origin does not have to take account of ex post impairments.[790]
3.1. Effects of the ECJ principles on German conversion tax law
This judgment is also confirmation of the presumption, which has so far only prevailed in the literature,[791] that the principles established by the ECJ in the Rs. National Grid Indus can be transferred to the special de-tricking standards of the UmwStG. It is now clear that the de-knitting standard according to § 20 Abs. 2 S. 2 No. 3 UmwStG a deferral regulation in accordance with the aforementioned requirements
Must provide.[792]
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.