Jacobs v French Minister for Finance and Public Accounts (C-327/16)
This was a request for a preliminary ruling from the French Council of State relating to interpretation of Article 8 of the Merger Directive (Directive 90/434/EEC), in particular whether Article 8(2) precludes national legislation which establishes a mechanism to defer taxation of the capital gains arising when shares or securities are exchanged until such shares or securities are subsequently transferred.
The facts of the case concern a decision of the tax authorities to tax the capital gains arising out of an exchange of securities on the subsequent transfer of the securities received. In 1996 Mr Jacobs transferred securities he held in one French company to another. At his request, the taxation on the capital gain arising on the exchange of those securities was deferred pursuant to the French provisions in force. In October 2004, Mr Jacobs moved his residence for tax purposes to Belgium. In 2007 he transferred all of his securities in the second company. Following that transfer, the capital gain that was still subject to deferred taxation was taxed, together with default surcharge and a 10% surcharge. After an initial discharge of the taxes, an appeal by the Minister resulted in them being reinstated. Mr Jacobs then lodged a review with the Council of State, who requested the preliminary ruling.
The AG proposed that the court answer that Article 8(1) and (2) do not preclude a mechanism, which, in the event of an exchange of securities falling within the scope of that directive, defers taxation of the capital gain established on such an exchange until the subsequent transfer of those securities. The AG stated that the freedom of establishment prevents a Member State, in which the taxation of the capital gain on an exchange was deferred until the subsequent transfer of the securities exchanged, from taxing the gain at the time of that transfer without taking account of the capital losses arising after the exchange if such an advantage would be granted to a resident taxpayer. If national law provides a mechanism to defer taxation of a capital gain established on an exchange of securities falling with the scope of the Directive until the subsequent transfer of those securities, and if it provides for account to be taken of the capital losses arising after the exchange of securities for resident taxpayers, the Member State of origin must grant the same advantage to non-resident taxpayers.
This article appears in the JHA November 2017 Tax Newsletter, which also features:
- Commission State Aid Enquiry – UK CFC Provisions
- 2017 Budget – Cross Border Issues
- A Oy – immediate taxation of capital gains of non-resident PE
- Advocate General finds Dutch tax consolidation regime to infringe the freedom of establishment
- Belgian rules limiting interest deduction to the extent of dividends received
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