Browsing by Author "Parvela, Petri"

Nowadays, it is common knowledge that while the responsibility for direct taxation falls within the competence of the member states of the EU, they must nonetheless exercise this competence consistently with EU law. As a result, the EU Member States' direct tax measures may not constitute a prohibited restriction on the exercise of the fundamental freedoms, including the free movement of capital. The free movement of capital is enshrined in Article 63(1) TFEU as follows: "Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited." Unlike the other freedoms, Article 63(1) TFEU also extends its protective effects to extra-EU situations by prohibiting, in equal terms, restrictions on movements of capital between Member States and third countries (i.e., countries that are not Member States of the EU). Despite this unique dimension, the scope of the free movement of capital appears nonetheless to overlap with the scopes of other fundamental freedoms. This overlap is especially evident with the freedom of establishment, since the economic activity of direct investment may constitute at the same time an act of establishment within the meaning of Article 49 TFEU and a capital movement under Article 63(1) TFEU. The overlap concerns situations where a direct investment meets the definite influence criterion (i.e., confers on the holder a definite influence over an undertaking's decisions and activities), which is one of the characteristics of the notion of the establishment. This study investigates the relationship between Articles 63(1) TFEU and 49 TFEU in the field of direct taxation to find an answer to the following research question: In which situations may a taxpayer who has made a direct investment from a Member State to a third country or from a third country to a Member State invoke Article 63(1) TFEU in order to question the compatibility of a national direct tax measure with the free movement of capital? This is a critical question for the erga omnes effects of Article 63(1) TFEU: If the provisions on the freedom of establishment can restrict the scope of application of Article 63(1) TFEU in a third-country context with respect to direct investments, such investments made to or from third countries would be excluded from the protection of the Treaty. The Court's doctrinal understanding of the relationships between the Treaty freedoms at issue has gradually developed over the last two decades. In its early intra-EU case law, the Court seemed to be of the view that parallel application of the free movement of capital and the freedom of establishment is possible. However, in its subsequent third-country case law relating to direct taxation, the Court has not followed the same approach but developed a "primarily affected" doctrine under which, the primarily affected Treaty freedom, if found, will preclude the application of other potentially (but less) affected Treaty freedom(s) in the case at stake. According to the findings of this study, the freedom of establishment is the primarily affected freedom and thereby precludes the application of Article 63(1) TFEU in the case where a national direct tax measure exclusively applies to holdings involving definite influence. In all other situations, regardless of the type of tax legislation, Article 63(1) TFEU applies. The Court's restrictive approach to the applicability of Article 63(1) TFEU in third-country settings can be criticized on several grounds. Even though the Court is not expected to change its settled approach in this respect, it should clarify in its future case law when the definite influence criterion is met for different types of holdings, especially concerning holdings in companies limited by shares and in partnerships. The needed guidance would enhance the uniform application of Article 63(1) TFEU in different Member States and provide legal certainty to taxpayers.