 We beginnen nu de 2e sessie. Ik denk dat er een heel grote conclusie van de eerste sessie is dat er zoveel legitimiteit is van fiscals State Aid. En we kunnen allemaal op dat agreeen. Het is niet volledig illegaal. Dus de volgende vraag is, als het legitief is, wat denk ik exact? Dat is het topic van de 2e sessie. En eerst would like to give the floor to Professor Daniel Schmid, who is professor at this university, and also connected to IWA, Daniel Frosius. Ja, thank you, Mr. Chara. In my presentation, I will focus on test avoidance. Test avoidance measures, and the extent to which this area is governed by EU State Aid groups. Clearly, we are talking about an area here which has been developing under EU law tremendously over the last year. It's still developing. And we have seen that as a result of the economic crisis, large multinational companies are being accused of not paying their fair share by setting up international tax planning strategies. And in response, member states already have acted. Member states already have adopted, implemented to some extent specific anti-invoordance measures in order to mitigate or combat international tax planning strategies by those national enterprises. However, with all these measures, the initiative is with the member states, meaning it's for the member states to decide how far they want to go in combating tax avoidance practices by those nationals. In the light of this development, the question becomes legitimate to what extent State Aid groups are developing accordingly. And this is an important question, because under the State Aid rules, it's no longer member states that are in charge. It's the European culture that is in charge. And essentially, this tension over who is in charge, who is the boss. This question essentially is reflected in this quote which was already discussed this morning, where we see that the commissioner of the DG competition actually says two important things here. The first thing she said is we don't like tax avoidance, something needs to be done against that. But we see that the member states don't act, or at least they don't act sufficiently. So if the member states don't act in combating tax avoidance, we as a commission will act. So this raises a question of someone who is the boss, who is in charge. There is another important aspect of this quote which is in the second bullet. Because what commission essentially is saying here is OK, if the rules are not changed by the member states, we will change. We will create change by applying the State Aid rules to tax planning practices. There is however only one important distinction between changing the rules through legislation which normally only has effects for the future to no retroactivity and preparing or combating tax avoidance practices for the State Aid practices which by nature has de facto retroactive effect because if the commission finds out that the measure comes to state, the beneficiary needs to repay the benefit as received over the last 10 years. So effectively this rolls down to retroactivity. As I see it, is that commission tries to kind of stretch state rules here or tries to achieve something policy objective, combating tax avoidance which normally should be done through legislation. And then that raises, I think, a question of the source of legal certainty. The commission is going to proceed and the question then is OK, who decides which amount of tax has to be paid but more importantly if the commission is in charge it may determine how tax avoidance measures should look like but then it has 10 years retroactive effect. So again that raises legal certainty concerns as well. Well this brings me to my final statement of this presentation. Our measure states restricted under the EU status rules in their choice whether and how to design tax avoidance measures. I will address this question based on a couple of concrete examples and I will mainly focus on this question from a legal point of view a more legal presentation. And as I will conclude I'm not sure I will make all the slides so let's already give my conclusion then please then we are the measure states I need to some extent restrict but it's uncertain to what extent. Before discussing my question I want to focus briefly on two important elements of the state testing framework which is the element of cell activity and the criteria of justification. Those are very closely interrelated from a conceptual point of view but nevertheless they constitute two separate testing frameworks which have different aspects. So let's first have a quick look on the cell activity test. The cell activity test I think it's the most important one when we talk about fiscal status actually goes down to the question whether a certain group of undertakings or single undertaking is treated more favorably in comparison to other undertakings that find themselves legally and factually in a similar situation. So it goes down to a question of discrimination exception but also it goes down to the core question before you can establish discrimination you need to find out what the normal rule is what the benchmark rule is if you don't have a benchmark rule you can't come to a deviation on that benchmark rule that can't be an exception. You first need to find out what is the benchmark rule what is your normal regime and a burden of proof that is with the European Commission. Interessantly, if you look to the case law of the court the answer of the question how to establish your normal regime it's nothing that the answer to the question is not up to your own given it depends and there are several approaches you can say well your general system should be as broad as possible so if you talk about tax points measures well you tax law as a whole at the corporate context as such should be your starting framework and then every exception being made within that corporate tax law act constitutes a deviation which means selectivity the other approach is you have to approach selectivity by looking to the specific measure at state so if you talk about tax affordance measure deviation of your general rule or you should maybe even go on a step further say well if there is again an exception being made in your anti-vorn information exception to the exception you should only test that last that is the first exception so it's a very narrow approach as such there is no clear answer a priori last december a very interesting conclusion was issued by the general val and he asked during the in that case the commission was asked how do you determine the reference framework and also the commission was well we can't really explain that in the abstract it depends um it describes a process of finding the main rule as a search for the logic in the system which is a very very abstract now i think there is a case of not determining the reference framework too narrow because if you do that you could actually what you were saying is that every exception constitutes a separate main rule and if you do that you are actually those completely meaningless so i think indeed there is a case of um determining the reference framework more broadly however if you do that for example if you say well the corporate income tax act such should constitute your reference framework and every deviation must give them access to safety that does mean that the commission has a lot of power potential to participate in the exception his community regime which are all deviations on the Dutch corporate income tax as an entire thing then you should as a member state come up with a good justification for that regime for that deviation so you should justify the participational change in the participational union and the room of maneuver the leeway members they have we have some written non tax related policy reasons that member states could rely on these are listed in the treaty themselves but these are very limited ground so in the area of taxation those written justification grounds i think in most cases will not be of any help for member states then there is also the concept of unwritten justification grounds which means that member states also may justify selective treatment based on i call it tax policy reasons domestic tax policy reasons for example the need to avoid international taxation or the need to avoid tax avoidance the need to achieve tax neutrality so you can have tax policy objectives which may be justifiable however there are two important fine tuning mechanisms for the commission here first the commission says well if you have tax policy reasons it must be proportionate so we are going to apply a proportionality test and then we are going back to the example of the participation exception assume we have a participation exception in place which for now let's assume that constitutes a selective advantage because it deviates from your normal corporate tax regime is justified based on the need to avoid double taxation but what if the regime also applies to situations where there is actual no double taxation is that then still a justified measure should we say well believe in double taxation if there is no double taxation that's enough proportion that goes beyond what is necessary to obtain the objective that might then be a problem for member states the requirement is the consistency test consistency if a member state comes up with a tax policy reason to justify a selective tax treatment the commission will typically assess whether that policy objective is the real objective behind the measure and the commission will kind check whether the reasoning of the member state is really inherently consistent so if you say well we have an exception to this anti warning rule based on administrative simplicity reasons we don't want to make life too complicated for certain groups of taxpayers that may be fine but the commission won't look okay if that applies to group A but now let's have the group B most of us under the same anti warning rule who also may face administrative difficulties but hey there the exception does not apply why so if the member state can't really explain that the commission may start doubting whether the objective the tax policy objective raised by the member state is the real objective behind the measure and if the commission is not convinced the burden of fruit in an area of justification browsers with the member state if the commission is not convinced it will decide well so in the area of selectivity it's I will say the commission has to prove something but once you cast the gate of selectivity it's up to the member state and the commission has all kinds of fine tuning mechanisms to kind of steer determine to some extent how tax measures specifically tax reform measures should you plan the objective follow statement therefore how it depends on how the commission is winning or actually interpreting the concept of selectivity the concept of benchmarking the main room finding a reference system broad approach versus the very narrow approach and in the way how the commission will interpret the concepts like proportionality how far the commission will go into this consistency test so the outcome depends on those two issues now let's go to some concrete examples because I realized this may sound quite abstract and theoretical but maybe to make it more appropriate to some examples the first example is by the straight forward although I think it's quite difficult we have taxpayer taxpayer A who is generally hit buy in to your board of room let's say an interest limitation we hate him badly so the tax supported rules apply there is no taxpayer taxpayer B who is not committed in a tax planning event no tax planning on stage so he is outside the room he is outside taxpayer B he is outside the tax supported room so he can deduct his interest expenses taxpayer A can't deduct the interest expense taxpayer B can't deduct the interest expense can taxpayer A in her claim or complain that taxpayer B is getting in his voltage but hey you can get deduction I can't get deduction so my tax is higher than the taxes to be paid by a compare is this selective treatment I would say no how I would approach is that from the angle of the corporate income taxes of all good and bad taxpayers are not in legal comparable situation they are different I would say you can't claim treatment of taxpayer B because it's not comparable to you interestingly commission and also the court seem to accept at least implicitly that there is actually selective treatment granted to taxpayer B which then may be justifiable based on the need to prevent tax avoidance by taxpayer that's strange because taxpayer B good taxpayer he is just falling on the normal regime he is just claiming interest deduction which I assume it's the normal regime so where is the selective treatment then so how do you can get to justification without selective treatment I think this example which actually the commission has published in its 2016 state of emergency is quite puzzling I don't see really how the justification could come here into play let's go to the second example which is maybe more complicated than puzzling it's playing case it's a case, German case which is a court of justice it's about Germany's voting room which aims at avoiding lost track of key which aims at avoiding companies that are no longer carrying on enterprise which have carrying forward losses in the transition that those companies are sold to new shareholders which then can start up new activities en buy losses come forward losses from someone else which you can offset against your future profits so by buying actually the room seeks to prevent the trade in so called loss companies loss tax losses, they have a value if you have millions of losses for the next couple of years probably you won't have to pay any tax to your profits against all those acquired losses so therefore the German rule says if a loss company is sold to a new shareholder and if this change in shareholder shape is substantial more than 50% is changed then all the losses vaporize no loss compensation in the future anymore so your loss compensation might disappear this has an empty board to abort trade however a rule is quite tough simply more than 50% transfer of shares triggers the vaporization of losses this is quite wrong it is also a German business experience during the economic crisis a lot of companies almost failed almost went bankrupt but there were some other parties who wanted to buy those ailing companies to restructure to give the company a second life so to speak however if you will buy this company this ailing company the losses would disappear so the German legislator said we want to facilitate those tradeovers because we are in a crisis we need to stimulate our local economy let's make an exception to the rule let's agree or let's put it a law that if there is a transfer of shares in a ailing company the vaporization rule will no longer apply the question is whether that is selective or illegal whether this goes down to selectivity the general court has answered this question with a yes court said the main rule here is you use your carrier for a rise of losses in case of a substantial shareholder a change in shareholder that's the main rule and we see that there is one specific exception being made here if there is a takeover in a ailing company and all of a sudden your losses revive so that is clearly selected no justification because the real policy reason is not tax intrinsic it's a non tax policy objective to make sure that the German economy will survive the court explicitly said we don't consider this a real anti-awarder rule because it's so rough that we see just the mere effect that you change just the simple fact that you change ownership that should be the main rule the ethical general because in this case it has been appealed comes to the official conclusion he says no no no the benchmark should be the anti-awarder rule and there is some overkill in this rule it's too rough and the only thing the Germans are doing is reducing the overkill in this provision so this is not an exception to the rule actually what you are doing is since the takeover of ailing companies has nothing to do with app use with tax appointments we are simply applying a normal rule which says if if there is a app which at least according to the logic of the German logic there it is if there is no app use if there is no loss company then then the rule then there is no tax appointments so the question here is what is your benchmark do you lose your right of losses or is the benchmark do you always keep the right to offset your losses unless there is tax appointments if a general takes the second approach why is the question because if you say ok you may reduce overkill that's fine should not be selected I have sympathy for the argument the problem is if you want to reduce the overkill in provision why are you only reducing the overkill for a well specific route namely the ailing companies and why not for all other companies that suffer from a rule which are not purely abusive to those companies as well so is a selective reduction of overkill still selective I am not 100% sure about the answer to that question let's go to the opposite example and that's where the rule contains underkill there are some caps some misfits the tax generator wants to attack certain tax plan structures but some situations are outside the scope and it can be done explicitly the legislator can say well for this group of companies we won't apply the tax support measure but it can also be more implicit it can also be that the law has been drafted in such a way that there are some gaps in the law some situations that were not for sheen or where for sheen where the legislator said well we just leave that and of course the legislation in the rule is perfect so you will always find some imperfections also in tax support measures the question is if a tax payer relies on this gap or exemption let's call it a gap in a tax support measure can that constitute a selective treatment the commission has stated in this notice in 2016 that indeed interviews rooms might be selective if they provide for a derogation to specific attackings or transactions which would not be consistent with the underlying logic of the interviews room so what the commission said if you exclude the certain group which doesn't make sense from the rationale of your measure that may be selective I think that makes sense but the question is how far should you go mustn't be explicit mustn't be an explicit derogation or is also a set a wrong legislation can that also already give wise to selectivity in interesting sample which is now studied by the commission is the UK free procedure for an opening against the CFC anti-forage rules under the CFC rules in the UK in a UK parent was a foreign subsidiary and this foreign subsidiary carries on financing activities which are loaded tax then the UK CFC rules will apply which basically means that all the income of the CFC will be attributed picked up by the UK and taxed accordingly provided that the activities of the subsidiary are financed by UK resources UK funds and the underlying idea is that the CFC rule should avoid that UK profits are shifted to load tax jurisdiction subsidiaries where for example where the CFC starts to land out this funds to other other parties in the provision of loans one exception applies intra-group financing activities carry on by the CFC therefore on a special paragraph if the CFC carries on intra-group financing activities only 25% of the CFC interest income will be attributed to the UK so not 100% pick up only 25% pick up because the UK government said well in the case of other nationals it will be extremely difficult to figure out to trace the origin of the funds lended by the CFC and it's extremely difficult to trace where these funds find their origin in the UK because remember the CFC rule only applies if the profits originally were originated in the UK en this is for other nations very difficult if not possible therefore we apply for a sake of simplicity we apply a simple practical benchmark which is 25% which is a reasonable estimation of the outcome that would be obtained if we would have applied to the real difficult route because that's too difficult the best estimate which is 25% how should we assess that argument we want to keep the thing simple we don't want to make large too complicated I think it may be a fair argument the commission will then look okay very good but why are we doing this only for multinational intra-group financing activities isn't the same problem there for other companies that don't fall under the exception is explained and if the UK can't really convince the commission here then I'm afraid that the commission will say well we don't believe you the argument you're putting forward administrative simplicity if you apply that then you have to do it consistently for all the other entities that suffer from the CFC rule as well if you're doing that then the policy you get is not real well so I think here we won't say we'll leave it here the real question here what is the real reason for this underking is there a real test policy objective lying behind that or is there a hidden other reason behind the exception for multinational entities this is I think where the commission will now start to investigate more detail to find out the real policy reason here one more job we'll never stop we'll then go to the example of where you started the idea start with an apple and I just want to make two short comments I assume you all more of us know where the apple is where those cases are all about and essentially there are cases of two things that come first they all haven't come that the European Commission is applying or assessing sensitivity not against a domestic rule but against a European benchmark the commission is testing whether member states deviate from a European armed left that's the first one I think this is a more legal issue there's also political issues which Peter already pointed out you see that the downward transcription adjustment in the member state state is not neutralized by a corresponding levy in any of the other states maybe in the US and this indeed was explained by Peter the US obviously does not tax offshore profits only taxes profit when they are distributed back to the US so if you look to the bigger picture there is an overall bilateral tax benefit it's not only the fact that the profits in the EU in the EU are reduced but it's also the fact that there is no pickup corresponding pickup in the US and this combination the use of those two different systems goes down to an overall tax benefit and and I think this is more a political thing this is not what the commission has legally been calling on a scope to stay but if you read press releases every time you see coming back the fact that profits eventually are taxed nowhere so politically this seems to be really an issue for the commission and now the legal compression comes up what about the US tax reform impact because under the US rules as they have been applied as of this year actually all those retained profits those profits that fall between in the ocean will now be picked up with retroactive effect immediately at once in the US against a relatively lower rate but still everything is taxed so the bilateral benefit is no longer there what does this mean legally and what does this mean politically I just will raise the question and not go into detail because I know there are other speakers at least I know from my experience that this question is really really an emerging question mainly by the US and those nationals because they feel if they are a tax agent in the US there should be no advantage anymore we are paying our tax so the state aid rules should no longer be applied I think legally that's not right but maybe politically that could be the case Still confused I think those examples demonstrate that the member states are indeed restricted to some extent in a choice how and whether still difficult to say to which extent and I summarise the questions which relate to specific cases in the subsequent bullets which I won't repeat them they just summarise essentially what the cases I just discussed are over now I have to stop I will I thank you for your attention and I hand over to Mark, thank you very much