Exit Taxes: Case C-64/11 Commission v Spain

01 April 2013
Author: JHA

By Federico M.A. Cincotta

The CJEU concluded that the taxation of unrealised capital gains on assets assigned to a permanent establishment which ceases to operate in Spain does not amount to a restriction on the freedom of establishment. This is considered a purely domestic situation, since that taxation does not result from a transfer of the place of residence or of the assets of a company to another Member State, but merely from a termination of its activities. However, as decided in National Grid Indus, the immediate taxation of unrealised capital gains on the transfer of the place of residence or of the assets of a company established in Spain to another Member State amounts to a restriction on the freedom of establishment. The right to the freedom of establishment does not preclude capital gains generated in a territory from being taxed, even if they have not yet been realised. By contrast, it does preclude a requirement that that tax be paid immediately.

This article appears in the JHA April 2013 Tax Newsletter, which also features:

  1. Interest on a Tax Refund Case: C-565/11 Mariana Irime by Federico M.A. Cincotta
  2. Recovering unlawful “passed on” VAT: ITC v Commissioners for HMRC, 2nd High Court Judgment by Robert Waterson
  3. Cross Border Group Relief: Marks & Spencer in the Supreme Court by Michael Anderson
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