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Following the Ukrainian authorities’ failed attempt to intervene in President Yanukovych’s application to the General Court of the EU for sanctions to be lifted, that Court has ruled that Ukraine must pay President Yanukovych’s legal costs.

President Yanukovych started proceedings for the annulment of sanctions in May 2014.

Four months later the Ukrainian authorities applied to the General Court of the EU for permission to intervene in the annulment case. President Yanukovych opposed that application. Subsequently in December 2014 the Ukrainian authorities informed the Court that they were withdrawing their application.

Following an application made by President Yanukovych’s legal team, the General Court ruled in March 2015 that Ukraine must pay the costs incurred by President Yanukovych opposing the Ukrainian authorities’ attempt to intervene in the annulment proceedings.

The General Court’s ruling has only now been made public (see link here).

President Yanukovych’s annulment proceedings are continuing before the General Court.

Joe Hage of Joseph Hage Aaronson LLP, President Yanukovych’s UK lawyer, said:

“This is an important ruling. President Yanukovych is challenging sanctions which were imposed by the EU on the basis of false criminal allegations made by the Ukraine regime, which he vigorously denies. The Ukraine regime’s attempt to intervene in the EU sanctions proceedings was politically motivated and misguided. President Yanukovych was right to resist this, and now Ukraine must pay his legal costs.

We continue to move forward with our application to have the sanctions against President Yanukovych annulled”.

END

Re Familienprivatstiftung Eisenstadt concerned the Austrian system of Interim Tax (IT) imposed on resident Private Foundations (PFs). IT applied to all PFs making gifts from certain categories of income to beneficiaries whether resident or non-resident in Austria. However, for the purposes of computing the taxable amount of IT, Austrian tax legislation permitted a deduction for payments made to all beneficiaries save for an important category of persons – beneficiaries resident in jurisdictions which have concluded an OECD Model Double Tax Treaty (DTT) with Austria (in which case Austria did not have the right to tax the gifts granted to those beneficiaries as per the Other Income Article).

The CJEU found that the gifts made by the PF fell within the scope of the free movement of capital such that (current) TFEU, Art 63(1) was engaged. The IT regime was held to restrict the free movement of capital as PFs making payments to resident beneficiaries will, all other things being equal, always have greater financial means at its disposal. Further, the IT serves as a material disincentive for the founder of the PF and the PF itself if there are non-resident beneficiaries in jurisdictions which have concluded a DTT with Austria. Further, the calculation of the IT was capable of resulting in a disadvantage in terms of cash-flow in a cross-border scenario as opposed to in a domestic scenario.

The free movement of capital may be legitimately restricted where, as per TFEU Art 65(1)(a), the taxpayers are not in the same situation with regards to their place of residence. It was noted that the PF which made gifts to a resident beneficiary was in a comparable situation to a PF which made gifts to non-resident beneficiaries as, in both cases, the PF made gifts from its assets or increases in such assets. Interestingly, the court added that the renunciation by Austria of its taxing jurisdiction over the capital gains (of Austrian-source gifts) to non-residents (by way of a DTT) meant that Austria was precluded from invoking the differences in taxability of the two groups of PFs (those which made gifts to residents and those which made gifts to non-resident beneficiaries resident in a DTT jurisdiction).

As reported in our July 2015 newsletter, in George Anson v HMRC the Supreme Court found that the denial of a double taxation relief (“DTR”) claim made by Mr. Anson, a member of a Delaware Limited Liability Company (“LLC”), violated article 23(2)(a) of the UK-US Double Taxation Convention. HMRC had argued that what Mr. Anson received was a distribution from the LLC and no DTR was due because the US tax was charged on a share of the profit rather than on a distribution of it. The Supreme Court found, agreeing with the First-tier Tribunal (“FTT”), that the profits of the LLC belonged to the members as they arose and therefore belonged to Mr. Anson when it was taxed in the US. Consequently his claim to double tax relief was well-founded.

HMRC have now issued Revenue and Customs Brief 15 (2015) as their response to the Supreme Court’s decision. HMRC believe the case can be distinguished on its facts and intend to carry on applying their previous approach where appropriate. No details are provided of the type of facts which would distinguish the Anson case from others.This article appears in the JHA September 2015 Tax Newsletter, which also features:

C-89/14 A2A: Compound interest by Cristiana Bulbuc

C-386/14 Groupe Steria: Dividend Tax by Alessia Riposi

C-10/14, C-14/14 and C-17/14 Miljoen: Withholding Tax by Alice McDonald

You can download the complete newsletter as a PDF here: September 2015 – Tax Newsletter

On 17 September 2015 the CJEU handed down judgment in three joined cases concerning the interpretation of Art 63 TFEU (free movement of capital) in the context of Dutch withholding tax legislation. The legislation in question imposed a withholding tax on dividends distributed by a resident company to both resident and non-resident taxpayers. It contained a mechanism by which resident taxpayers could offset the withheld tax against their income tax or corporation tax. However for non-resident taxpayers the tax paid was a final tax.

The Court confirmed that, for companies, relevant factors when comparing the tax burdens of resident and non-resident taxpayers include taking into account expenses which are directly linked to the actual payment of dividends. It held that if, after taking relevant factors into account, the referring court found that the legislation resulted in a higher tax burden to non-resident taxpayers, this would be liable to deter non-resident taxpayers from investing in resident companies and would constitute a restriction on the free movement of capital.

The CJEU held that the difference in treatment could not be justified by a relevant difference in the situations of resident and non-resident taxpayers. Neither could the restriction on Art 63 TFEU be justified by the application of a double taxation convention.

This article appears in the JHA September 2015 Tax Newsletter, which also features:

1. HMRC response to George Anson v HMRC: Double Tax Relief by Katy Howard
2. 
C-89/14 A2A: Compound interest by Cristiana Bulbuc
3. C-386/14 Groupe Steria: Dividend Tax by Alessia Riposi

You can download the complete newsletter as a PDF here: September 2015 – Tax Newsletter

ASM Brescia and AEM, which merged to create the company A2A, benefitted from a three year exemption from corporation tax and subsidised loans granted by Italy. In 2002, the Commission considered that those tax exemptions constituted state aid incompatible with the common market and ordered Italy to recover the aid. In 2008, Italy took the necessary measures to recover the aid in question and provided in its legislation that, by reference to an EU regulation (not yet applicable on the date the recovery of the aid was ordered by the Commission), the amounts to recover would be subject to compound interest.

A2A contested the basis of calculation of interest before the Italian courts. The Italian Court of Cassation asked the CJEU whether the Italian legislation could provide for compound interest by reference to a regulation which was not yet applicable on the date recovery of the aid was ordered by the Commission.

The CJEU held that the Italian legislation did not have retroactive effect as the aid had not even been assessed at the time of its introduction. More interestingly the CJEU endorsed the provision of compound interest observing that “the application of compound interest is a particularly appropriate means of neutralising the competitive advantage granted unlawfully to undertakings benefitting from that State aid.”

While not directly on point for claimants seeking compound interest on the recovery of CT and VAT charged contrary to EU law, it is helpful to see the CJEU endorsing a compounding approach as a “particularly appropriate means” to recompense breaches of EU law.

This article appears in the JHA September 2015 Tax Newsletter, which also features:

HMRC response to George Anson v HMRC: Double Tax Relief by Katy Howard

C-386/14 Groupe Steria: Dividend Tax by Alessia Riposi

C-10/14, C-14/14 and C-17/14 Miljoen: Withholding Tax by Alice McDonald

You can download the complete newsletter as a PDF here: September 2015 – Tax Newsletter

Case C-386/14 Groupe Steria concerned French legislation which provided for the differential taxation of dividends received by parent companies of a tax-integrated group, depending on where their subsidiaries were established. Where dividends came from companies belonging to a tax-integrated group, any costs and expenses could be deducted from the profits, so that the dividends were not subject to tax. However it was only possible for French-established companies to belong to such a group. Therefore parent companies receiving dividends from subsidiaries established in other Member States would not be able to benefit from the deduction mechanism, and would be subject to 5% tax. The Applicant was a parent company with holdings in subsidiaries established in France and other Member States.

The Court found that the French legislation disadvantaged parent companies with subsidiaries established in other Member States and, consequently, was liable to make it less attractive for those companies to set up subsidiaries in other Member States. There was no overriding reason in the general interest which justified such treatment. The legislation therefore breached Art 49 TFEU. This case is interesting for the Court’s detailed analysis of recent case law in this area concerning the interpretation of what may constitute an overriding reason in the general interest. The Court’s reasoning was also partly based upon settled case-law, including C-446/04 Test Claimants in the FII Group Litigation, for the proposition that Member States may only exercise decisions in relation to the preventing or mitigating the imposition of charges to tax or economic double taxation in compliance with the fundamental provisions of the TFEU.

This article appears in the JHA September 2015 Tax Newsletter, which also features:

1. HMRC response to George Anson v HMRC: Double Tax Relief by Katy Howard
2. C-89/14 A2A: Compound interest by Cristiana Bulbuc
3. C-10/14, C-14/14 and C-17/14 Miljoen: Withholding Tax by Alice McDonald

You can download the complete newsletter as a PDF here: September 2015 – Tax Newsletter

David Hedqvist intended to buy and sell Bitcoins, a virtual currency, in exchange for Swedish Krona. Before commencing this activity he sought a preliminary opinion from the Swedish Tax Law Committee as to whether he would need to account for VAT. The preliminary opinion evaluated the activity as a supply of services for consideration, but a supply of services which was exempt from VAT, since Bitcoins are a method of payment that are used like legal tender. The Swedish tax authorities appealed this ruling and the Swedish Supreme Administrative Court referred two questions to the Court of Justice of the European Union.

Advocate General Kokott has now opined on this matter, as follows:

Even where a pure means of payment was not guaranteed and regulated, from a VAT perspective it fulfilled the same function as legal tender and in principle was therefore to be treated the same on the basis of the principal of fiscal neutrality. This meant that the case of First National Bank of Chicago (C-172/96) EU:C:1887:354 was applicable. Therefore, the exchange of a pure means of payment for legal tender and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, is the supply of a service effected for consideration within the meaning of Article 2(1)(c) of the VAT Directive.

Such transactions are exempt under Article 135(1)(e) of the VAT Directive (“transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest”). Article 135(1)(f) (“transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2)”) was not applicable.

The judgment of the Court will follow in due course. Although the Court often follows the Advocate General’s opinion, this is not invariably the case.

At the time of writing the Advocate General’s opinion was not available in English, but other language versions are available on the link below.

Skatteverket v David Hedqvist (C-264/14)

This article appears in the JHA Summer 2015 Tax Newsletter, which also features:

1. EU Tax Law Group Meeting, Basel
2. The Trustees of the BT Pension Scheme v HMRC by Lucy Needle
3. Holding companies, input VAT and VAT grouping by Katy Howard

You can download the complete newsletter as a PDF here: August 2015 – Tax Newsletter

JHA is a member of the EU Tax Law Group, a network of independent EU tax lawyers specialising in EU tax law.

The EU Tax Law Group will be holding a free seminar at this year’s IFA Congress in Basel, Switzerland, covering topics such as the new EU GAAR, new EU Anti-hybrid instruments provisions, Patent boxes, new EU exchange of tax rulings rules, the re-launch of Corporate Tax harmonization, pending EU cases and more.

The seminar will run from 14.30 to 18.00 on 1 September 2015. For more information please visit www.actl.uva.

For more information please visit www.actl.uva.nl, or alternatively contact us to reserve a place.

This article appears in the JHA Summer 2015 Tax Newsletter, which also features:

1. The Trustees of the BT Pension Scheme v HMRC by Lucy Needle
2. Advocate General considers VAT treatment of Bitcoins by Katy Howard
3. Holding companies, input VAT and VAT grouping by Katy Howard

You can download the complete newsletter as a PDF here: August 2015 – Tax Newsletter

The latest decision in the test case for the Foreign Income Dividend (“FID”) and Tax Credit Group Litigation were delivered on 9 July 2015 by the Court of Appeal (“CA”), [2015] EWCA Civ 713. The decision follows appeals and cross appeals from a 2013 decision of the Upper Tribunal (“UT”), [2013] UKUT 0105 (TCC).

In the UT, the Trustees of the BT Pension Scheme (“Trustees”) were successful in establishing that the UK breached EU law by denying tax credits to UK pension funds in respect of foreign income dividends (“FID Claims”) and overseas dividends (“Manninen Claims”) paid by UK companies. HMRC were also successful however in arguing that all but one of the Trustee’s claims (for the 1997/1998 tax year) were out of time. Permission to appeal to the CA was granted to both parties to allow:

1. HMRC to attempt to overturn the Trustee’s win on the Manninen and FID claims; and
2. The Trustees to submit arguments that all of their claims were in time.

Following a two stage hearing, the CA agreed with the UT that all claims except the 1997/1998 claim were time-barred. The CA decided to refer certain questions arising in the in-time claim to the Court of Justice of the European Union (“CJEU”). The questions to be referred relate to:

1. Whether the Trustees as shareholders of the paying company have had their EU rights infringed or can rely on the infringement of the paying company’s EU rights; and
2. The nature of any relief, should the CJEU find that EU rights have been infringed.

Parties must now consider the form of such questions which are to be included in the reference to the CJEU.

This article appears in the JHA Summer 2015 Tax Newsletter, which also features:

1. EU Tax Law Group Meeting, Basel
2. Advocate General considers VAT treatment of Bitcoins by Katy Howard
3. Holding companies, input VAT and VAT grouping by Katy Howard

You can download the complete newsletter as a PDF here: August 2015 – Tax Newsletter

The Court of Appeal dismissed appeals in Arcadia Group Brands and others v Visa Inc and others, and upheld the decision by Simon J in the High Court ([2014] EWHC 3561 (Comm)) to strike out claims for damages of around £500 million by a number of well-known high street retailers, including Asda, B&Q, Debenhams and Argos against Visa.

This case has important ramifications in respect of the limitation period for competition law damages claims and the circumstances in which indemnity costs may be awarded.

The key points in the judgment are as follows:

• The Judge had not wrongly applied the “statement of claim” test set out in Johnson v Chief Constable of Surrey Times (CA, unreported, November 23, 1992) when striking out the retailers’ claims pursuant to Section 9 of the Limitation Act 1980.
• Section 32(1)(b) of the Limitation Act 1980 is concerned with facts which relate to the prime facie case, not those which improve the prospect of success in a claim or are broadly relevant to a claimant’s case. Section 32(1)(b) is to be construed narrowly.
• Facts relevant to the issue of exemption under Article 101(3) of the Treaty on the Functioning of the European Union are not “relevant facts” and so any concealment of such facts does not stop time running.
• Notwithstanding their complexity, competition law damages claims do not fall within an exceptional category calling for a different approach to the application of Section 32(1)(b).
• A six-year limitation period for competition law claims, with the benefit of Section 32(1)(b) postponement, is not incompatible with the EU principle of effectiveness. The recently enacted Damages Directive has no application to the present case and does not merely give effect to the existing law. The EU law position is clear and there is no basis for a reference to the Court of Justice of the European Communities.
• The Judge has a wide discretion regarding costs. However, in this instance, he had erred in awarding costs on the indemnity basis. The weakness of a legal argument is not a justification for an order for indemnity costs, which is penal in nature. The position might be different if proceedings or steps taken within them are not only based on a clearly hopeless case, but are also driven by an ulterior commercial or personal motive, or for a tactical purpose unrelated to a real belief in the merits of the case. Consequently, the Court of Appeal allowed the retailers’ appeal against the costs order.

[Arcadia Group Brands and others v Visa Inc and others [2015] EWCA Civ 883]