QUOTE OF THE WEEK (VII)

After the French "no" to the EU Constitution, why not a quote on European tax law (that mysterious segment of European unification where 25 different countries and 25 different tax regimes interact with unpredictable results):

“The haggis(*) and European tax law have much in common. They both involve bloody processes, the end results are a mystery and those of a delicate disposition should not get involved in the making of either”.
By Anonymous

(*) Haggis is a small four-legged Scottish Highland creature and it gives its name to a traditional Scottish dish. It is a weighty sausage, and is traditionally served with "neeps and tatties" which is mashed swede (rutabaga) and mashed potatoes.

Previous quotes:
Week I
Week II
Week III
Week IV
Week V
Week VI

Recent and Pending Cases at the ECJ on Direct Taxation

I call upon your attention to a Conference at the Vienna University of Economics and Business Administration in October 13, 14 and 15, dealing with Recent and Pending Cases at the ECJ on Direct Taxation.
The conference starts with a welcome reception, featuring the Dutch jazz musician Arnoud Gerritse (which for those of you who are not aware gives a name to a recent ECJ case on direct taxation, namely Case-234/01).
Amongst the speakers we note: Prof. Jacques Malherbe (Belgium), Prof. Jürgen Lüdicke, (Germany) , Prof. Moris Lehner (Germany), Prof. Pasquale Pistone (Italy), Prof. Dennis Weber (Netherlands), Prof. Philip Baker (UK) and other renowned scholars.
Application forms are to be sent by May 31, 2005. For more details click here.

The Sperm Tax- Prize for best performance by tax authorities (III)

Will a tax on sperm donation lead to a decline in fertility? According to BBC and Reuters, the source of the world's biggest sperm bank may soon run dry if Danish authorities decide to tax donors. Denmark, with the world's highest income tax levels, wants sperm donors to pay tax on the 500 crown (US$84) reimbursement men receive for their services.
However, the story isn't what it seems. Cryos International Sperm Bank predicts a drop in sperm donors not only because of the economic impact of the tax, but also because collecting the tax requires that the identity of donors be revealed to the government, which can lead to trouble with paternity suits down the road. Until now fees earned by sperm donors have been tax exempt. The removal of this tax preference can have worldwide consequences, since Cryos International Sperm Bank is one of the leading Sperm Banks in the world.
See the BBC reports and the report from Reuters.

See also April and March prizes for best performance by tax authorities.

Single tax treaty for Europe. How the US is already looking at the issue!

I already reported earlier about some of the cases (D case and Bujura) being discussed by the ECJ, dealing with the eventual application of a most favoured nation clause in Europe. A positive answer by the ECJ can change the landscape of tax treaties in Europe and this will certainly affect the relationship of third countries with Europe. Acknowledging such possible effects, the National Foreign Trade Council (NFTC) of the United States issued on May 26 a report suggesting the U.S. government should begin to develop a negotiating strategy on the assumption that a multilateral income tax treaty with the European Union may become a practical necessity in the not-too-distant future. The report, produced by the NFTC Tax Treaty Project, also urged the U.S. business community to identify the practical and policy issues that would arise if such a treaty were to become a reality.

In "Towards a U.S. Tax Treaty Policy for the Future: Issues and Recommendations, Part Two," the NFTC predicted the coming years may see rapid movement toward the development of an EU model income tax treaty for use in negotiations between individual EU member states and third countries, or even a single EU multilateral income tax treaty. The report is divided in 3 chapters. The first deals with the effects of EU developments, the second deals with Coordination With The OECD and the last analyses the NFTC Contributions To The U.S. Treaty Process. For the report click here

I should add that, the NFTC launched a tax treaty project (2004-2005) in order to examine and make recommendations on a number of significant issues of U.S. tax treaty policy. The project was divided into two parts. The first report issued in November 12, 2004 represents Part One of the project (Chapters 1 through 7). These chapters dealt with: (i) Issues Regarding the Attribution of Profits to a Permanent Establishment; (ii) Practical Issues Regarding Treaty Implementation Arbitration; (iii) Permanent Establishment Issues; (iv) Withholding Rate Provisions; (v) Issues Regarding Pensions and Equity-Based Compensation; (vi) Issues Regarding the U.S. Model Treaty.

CFC Legislation and EC Law: Lessons from Sweden and UK

On 4 April 2005 the Council for Advance Tax Rulings (Skatterättsnämnden) held, in two different rulings, that:
– the CFC rules in the Swedish tax legislation are incompatible with Art. 43 EC Treaty regarding the freedom of establishment of companies within EU Member States;
– the CFC rules violate Art. 56 EC Treaty regarding the freedom of capital in a situation where a company subject to low taxation is established outside the EU; however, restrictions on the free movement of capital to and from states outside the EU may be justified to uphold the aim of tax avoidance rules; and
– the CFC rules do not violate the applicable tax treaties, i.e. respectively, Sweden's treaties with Luxembourg and Switzerland.

This ruling puts the spotlight on the compatibility of CFC regimes with the fundamental freedoms under EC Law. CFC rules primarily apply to domestic shareholders holding shares in a CFC, depending on the requirements set by domestic law. Such rules may fall under the principle of freedom of establishment conferred by Art. 43(1) (2) of the EC Treaty. In all other cases, the principle of freedom of establishment may be complemented by the freedom of movement of capital, conferred by Art. 56(1) of the EC Treaty. In the end the question lies in determining if CFC rules, which constitute a special regime for low-taxed CFCs with passive income abroad, are justifiable or not under European Community law. And this is for the ECJ to determine.

For the ones that are not aware, this issue will soon be tackled by the ECJ in the Cadbury Schweppes Case (Case C-196/04) referred to the ECJ by the UK Special Commissioners on 29 April 2004.

The facts are the following: Cadbury Schweppes pl is incorporated and resident in the United Kingdom. It is the parent company of a group of companies including two indirect 100 percent subsidiaries incorporated with unlimited liability in Ireland and agreed (for the purposes of this appeal only) to be resident in Ireland, Cadbury Schweppes Treasury Services (CSTS) and Cadbury Schweppes Treasury International (CSTI). CSTS and CSTI were subject to a tax rate of 10 percent within the International Financial Services Centre in Dublin. CSTS and CSTI raised finance and provided that finance to subsidiaries in the PLC worldwide group.

On August 18, 2000 the Inland Revenue assessed Cadbury Schweppes Overseas Limited (the first United Kingdom resident company in the chain of companies) to an amount equal to corporation tax of £8,638,633.54 (being tax at 33 percent on the profits of £34,684,038 equals £11,445,732.54 less credit for Irish tax of £2,807,099) in respect of the profits of CSTI for the period ended December 28, 1996 (CSTS made a loss in the same period that was surrendered for Irish tax purposes partly to CSTI and partly to another Irish company). The taxpayer appealed to the Special Commissioners on August 21, 2000.

The Special Commissioners determined that the reason for incorporating CSTI was to avoid the application to CSTS of certain foreign exchange provisions under United Kingdom tax law in the event that the controlled foreign companies' legislation in issue in this appeal was applied to CSTS. The Special Commissioners ultimately concluded that PLC established CSTS and CSTI as tax resident indirect subsidiaries in Ireland solely for the purpose of ensuring that the profits arising from their intra-group lending treasury activities could benefit from the International Financial Services Centre regime for group treasury companies in Ireland and would not be taxed in the United Kingdom. In view of this, it referred the following question to the European Court of Justice (ECJ) in a decision dated June 6, 2004.

Do Articles 43, 49 and 56 of the EC Treaty preclude national tax legislation, which provides, in specified circumstances, for the imposition of a charge upon a company resident in that Member State in respect of the profits of a subsidiary company resident in another Member State and subject to a lower level of taxation?

For me I have the feeling that the Court will restrict its judgment to the freedom of establishment issue and avoid the question of freedom of capital and its eventual extension to third countries. Let’s see.

Legal ethics: When the business gets though...

After the code of practice, what better than an incursion into legal ethics, with the real life of a tax adviser in the US and the issue of Big Four accounting firms providing aggressive tax planning.

US Senate hearings revealed that from the late 1990s KPMG devoted significant resources to developing and mass marketing hundreds of abusive tax shelters. These products were designed to enable their purchasers, typically high wealth individuals and Fortune 500 companies, to avoid paying taxes on the huge financial gains they enjoyed during the stock market boom. During the last few years, government investigations and lawsuits brought by the IRS and former clients have exposed the tax shelter activities of Arthur Andersen, PwC, Ernst & Young, and Deloitte. But KPMG may be the firm in the most trouble. After its tax shelter activities came to light, the Justice Department launched a criminal investigation, with some thirty current and former partners and employees as subjects. Despite disbanding its tax shelter practice and replacing several high level partners involved, the firm continues to be at risk of indictment and will likely be liable for substantial fines.

It was a lawyer who finally exposed KPMG’s shelter activities. In the summer of 2002, Michael Hamersley, a tax lawyer who had worked at the firm for four years and was a few weeks shy of partnership, refused to sign off on the tax treatment of a transaction that was part of a KPMG audit of a Fortune 500 company. Pressured to destroy documents related to the audit, which he believed was fraudulent, Hamersley contacted federal authorities. His cooperation in a government investigation during the subsequent year brought the details of KPMG’s shelter business to light.

A recent paper called “Travails in Tax: KPMG and the Tax-Shelter Controversy by Professor Tanina Rostain of the New York Law School, discusses this issues and offers a extremely interesting insights on the risks of law practice in large professional organizations in the twenty-first century and some of the particular accounting firm practices in the tax business.

First of all, I should say that KPMG is for no means the only large accounting firm involved, just remember my god old Arthur Andersen (et even disappeared)! Secondly, my short profession experience has told me that the scenario in Europe is much different than the US landscape. Therefore, such stories and calls for reform should always be considered from the perspective of the American business and not easily adapted to the European way of doing business. Nevertheless, and I speak for myself, I think this kind of stories help us understand the ethical problems that many times are inherent of providing any type of advice, as for example tax advice.

If you are interested read the Rostain, Tanina, "Travails in Tax: KPMG and the Tax-Shelter Controversy" LEGAL ETHICS: LAW STORIES, Deborah L. Rhode & David J. Luban, eds., Foundation Press, 2005
I could say that "when the business gets though...the tough go to prison (at least in the US!)".

A Code of Practice for Those Seeking Help from Tax Advisers

1. BE HAPPY AT ALL TIMES
Your tax adviser leads a stressful life dealing with the Tax Authorities and cannot cope with you being depressed as well.

2. DO NOT EXPECT YOUR TAX ADVISER TO BE SYMPATHETIC WITH YOUR PROBLEM

Your tax adviser's ethical code requires him to be objective and independent.

3. DO NOT COMPLAIN IF YOUR TAX ADVISER'S ADVICE LOSES YOU MONEY

You must appreciate that tax IS DIFFICULT and an occasional experience of negative income is only to be expected.

4. DO NOT ASK YOUR TAX ADVISER TO EXPLAIN WHAT HE'S DOING OR WHY

Unfortunately the jargon inherent in tax matters is not compatible with explaining it to someone like you in a way you would understand.

5. BE PREPARED TO TRY COMPLEX TAX SCHEMES WITH ENTHUSIASM

Though the planning may be ineffective and cost you a lot, the resulting thesis on the deficiencies of such schemes may result in the tax adviser acquiring further letters after his name.

6. PAY ALL YOUR TAX ADVISER'S BILLS PROMPTLY

It is an honour and a privilege to contribute, however modestly, to the well-being of such doughty fighters of Government rulebooks.

7. NEVER GO TO JAIL FOR TAX FRAUD WHILE EMPLOYING A TAX ADVISER

This will only cause your tax adviser unnecessary publicity and embarrassment.

Financial transactions: Securities Lending

First of all, what are Securities Lending transactions?

According to http://www.riskglossary.com/ owners of securities frequently lend those securities to other parties who may sell them short or deliver them to another party to satisfy some other obligation. Securities may be loaned for a fixed period of time, or the loans may be open-ended. In return for lending its securities, the lender receives a fee, which is quoted as basis points per annum of the original market value of loaned securities. The fee depends upon how scarce a loaned security is in the marketplace. For example, if Treasury bond futures are maturing, the cheapest to deliver Treasury bond will demand a higher fee than other Treasury bonds. Parties who are short the future will want to borrow that bond and deliver it against the future.

A securities loan is typically collateralized. This reduces the lender's credit exposure to the borrower. Collateral may be cash, other securities or a letter of credit. The lender retains the market risk of loaned securities. This is because the borrower is obligated to ultimately return the securities—not the original market value of the securities—to the lender. If the loaned securities pay dividends, coupons or partial redemptions during the loan, these are returned to the lending party. If cash is used as collateral, interest is credited at the repo rate. The securities lending fee is then deducted as a "rebate" from the interest. Many custodians run securities lending programs for their custody clients. Under such programs, the custodian earns income for the client by lending out the securities the custodian is holding for the client.

If securities lending is collateralized with cash, the transaction is economically equivalent to a repo. Rather than be motivated by the borrowing party's need for a particular security, such transactions may be motivated by the lender's need for cash. In this sense, the transaction is economically a cash loan collateralized by the loaned security. Just as a bond dealer might finance its inventory with repos, so might it do so through securities lending.

As you can imagine this type of transactions raise interesting tax issues (from both the lender and the borrower sides). If you transpose them into a cross-border scenario the issues became also very interesting to analyze (for example the treaty issue of determining which article to apply, Art.10 or 11?). Australia, Canada, the United Kingdom and the United States already enacted specific legislation and regulations to tax securities lending transactions on the basis of their economic substance. If you are interested in knowing a bit more about securities lending transactions, read the following New Zealand discussion document, which examines the tax treatment of securities lending transactions and considers the pros and cons of reforming tax legislation in this area. I am sure you will learn something (if you don't ask your money back!)
Paper: “Taxing securities lending transactions: substance over form A government discussion document”

QUOTE OF THE WEEK (VI)

"The avoidance of taxes is the only intellectual pursuit that still carries any reward".
By John Maynard Keynes (British economist that also said once “"In the long run, we're all dead.")

Previous quotes:
Week I
Week II
Week III
Week IV
Week V

The Article Crawler (I)

This is the first issue of the new feature called “The Article Crawler”. This feature is intended to be one of the high points of the Talk Tax and has the objective to provide a selection of recent bibliography from the latest numbers of the IBFD journals. At a later stage I will enlarge the scope of The Article Crawler to other journals dealing with international tax.

In this first "Article Crawler", I selected from the Juanury-May issues: 5 articles from the Bulletin, 3 articles from the European Taxation and 1 article from the Asia-Pacific Tax Bulletin.

Bulletin for International Fiscal Documentation (Volume 59 - 2005)

TAX TREATY NEWS
Author: Klaus Vogel
First I would highlight the Tax Treaty News (on the January and February issues), a service with which Prof. Vogel cleverly convinced all of us along the time of the importance to follow and track down court decisions of other countries on the application of tax treaties.

PLACE OF EFFECTIVE MANAGEMENT AS A RESIDENCE TIE-BREAKER
Author: John F. Avery Jones
This very interesting article of the January issue summarizes the (so called best) discussion at the 2004 IFA Congress in Vienna on the place of effective management as a residence tie-breaker. The seminar considered the meaning of "place of effective management" in Art. 4(3) of the OECD Model as the tie-breaker for dual resident persons other than individuals. In this context, the panel looked at four interesting cases involving the place of effective management.

DOMESTIC ANTI-AVOIDANCE RULES AND TAX TREATIES - COMMENT ON BRIAN ARNOLD'S ARTICLE
Author: Frederik Zimmer
In a short note of the January issue one founds an interesting comment on a very comprehensive and enlightening article on tax treaties and tax avoidance by Brian Arnold (see June 2004 issue of the Bulletin). In this (must read) article Arnold discussed the hot issue of how the 2003 OECD Commentaries deal with domestic anti-avoidance rules and their interaction with tax treaties. Frederik Zimmer comments on the article of Arnold.

THE EC PARENT-SUBSIDIARY DIRECTIVE IN SWITZERLAND - SWISS OUTBOUND DIVIDENDS
Author: Howard R. Hull
As you may know the recent agreement between the Switzerland and the EU on the taxation of savings includes a provision, which grants Switzerland measures equivalent to those found in the EC Parent-Subsidiary Directive. This is enough to make some parts of this article of the February issue important for a tax advisor that deals with companies located in Switzerland or is considering relocating some activities to this politically correct “tax haven”.

WILL THE OECD INITIATIVE ON HARMFUL TAX COMPETITION HELP DEVELOPING AND TRANSITION COUNTRIES?
Author: Charles E. McLure
In previous posts, I already discussed briefly the controversy behind the initiative against harmful competition. This article examines whether that outcome is likely. The article first considers how tax havens are used to evade tax on income from passive investments. The article of the March issue describes the OECD project and discusses both the appearance and the reality of progress to date. Prof. McLure also describes the implications of such initiative for developing and transition countries.

European Taxation (Volume 45 , 2005)

TRIANGULAR CASES AND THE INTEREST AND ROYALTIES DIRECTIVE: UNTYING THE GORDIAN KNOT?
Author: Michele Gusmeroli
I feel very good in recommending an article written by a good friend! The great Gusme! This long but novel article considers the Interest and Royalties Directive in relation to the problems posed by triangular cases. The article deals with this issue in three parts (January, February and March issues). Part 1 commences by recalling the triangular cases issue in a mere tax treaty setting, considering a number of cases in the process. In Part 2, following a brief description of the scope of the Directive, selected provisions will be analyzed, eventually arriving at the double source issue. Part 3 will provide an overview of the cases that are likely to arise in this area, with specific regard to both “internal” and “external” interest and royalty payments. I have the fealing that Michele wanted to make an epic article which took some magic from the "Lord of the Rings". I think he did it! At least in terms of duration!

THE IMPLICATIONS OF THE ECJ HOLDING THE DENIAL OF FINNISH IMPUTATION CREDITS IN CROSS-BORDER SITUATIONS TO BE INCOMPATIBLE WITH THE EC TREATY IN THE MANNINEN CASE
Authors: Lari Hintsanen and Kennet Pettersson
Following Michelle, yet another Lieden LLM alumni, Lari. In this article of the April issue, the authors provide an in-depth analysis to the Manninen case, the Advocate General's opinion and the decisions of the ECJ and the Finnish Supreme Administrative Court.

NETHERLANDS: THE NETHERLANDS INTERPRETATION OF THE TERM "EMPLOYER" IN ART. 15 OF THE OECD MODEL CONVENTION
Author: Hans de Vries
I select this article of the may issue not only because the topic is interesting and should be reviewed carefully in light of the recent OECD developments, but also because of the references to Dutch judicial interpretations (which we know are becoming more and more mainstream). The author considers the Netherlands interpretation of the term "employer" by looking at its definition, summarizing recent Dutch judicial interpretations of the term and providing an overview of the OECD's comments on Art. 15 of the OECD Model Convention, and, finally, reviewing the current approach of the Netherlands Ministry of Finance.

Asia-Pacific Tax Bulletin (Volume 11 , 2005)

A NEW THREE-TIER PROPOSAL FOR DETERMINING CORPORATE RESIDENCE BASED PRINCIPALLY ON INDIVIDUAL RESIDENCE
Author: Dale Pinto This interesting article (included in the January issue) deals with yet another hot topic within the OECD framework: how to determine the corporate tax residence. The author argues that the existing tests are inadequate and that using an individual's tax residence as the basis of determination is the best alternative.

The EU's Africa-aid ticket tax plan

"There is no such thing as a good tax."
By Winston Churchill

I remembered this quote after I read that the European Commission was asked by European Union finance ministers (ECOFIN) on 11 May 2005 to draw up plans for on levy on airline tickets that each country would be free to implement to help pay for more development aid. The EU Ministers proposed that it be a voluntary contribution that some member states can turn into a mandatory contribution! Confusing! That is what I call harmonization “a la carte” (which can be seen as a contradiction with itself).

At this stage the ministers broadly agreed to a European Commission proposal urging EU member states to increase development aid to the equivalent of 0.56 percent of gross national income by 2010 and to 0.7 percent by 2015. This could mean a levy of something in the region of 1 to 3 euros in all flights. But some experts say that a tax of €10 (£6.90) on airline tickets for flights within the EU and €30 on flights outside the EU would generate about €6bn for development spending. British Airways already described the tax as "absurd" and "illogical" and said there was no reason why airline passengers should be singled out to make a contribution to aid projects. Let’s see how this story develops in the near future.

PS: This EU maneuver to tax air flights comes after the Brazilian president Lula da Silva proposed to the G8 a tax on the arms trade. For myself I prefer this idea (perhaps because I don't buy arms!).

Taxation of Savings Income in the EU - Conference

The Department of Business Taxation of the Johannes Kepler University Linz (province of Upper Austria) as part of the Center of Excellence International Tax Coordination (SFB ITC) will hold a conference on November 24 - 25, 2005 on the topic “Taxation of Savings Income in the EU”.
The Special Research Program International Tax Coordination invites young researchers (under 35 years old) of any nationality to apply for a subsidized participation. Those applying shall be prepared to draft a report on that topic for their respective country. These reports shall be based on the questionnaire, which all national reporters will receive once they are selected. All national reports will be published in a book after the conference. Applications should be sent until May 31, 2005. For details click here and for application form click here.

MFN Clause under EC Law - CFE Forum 2005

The CFE (CONFEDERATION FISCALE EUROPEENNE) holds Forums on current international tax issues every year in the spring. The 2005 Forum took place on the 28 April in Brussels and the topics were: (1) A Tax Treaty for Europe? (2) VAT treatment of immoveable property.

I should highlight the first topic, since it deals with an issue of interest to many of you: the most favoured nation clause under EC Law and the eventual outcome of the “D” and “Bujara” cases that are currently being scrutinized by the European Court of Justice. The following presentations address both, how the MFN clause issue reached the European Court of Justice and what could be the effect of the acknowledgment of a MFN clause in the scope of double tax treaties of the EU Member States. It is worth mentioning the presentations of the following speakers in the Forum:
Dennis Weber (Loyens), Differences Between Tax Treaties: Prohibited Discrimination?
Richard Lyal (Comission), The Position Taken By The European Commission In Case C-376/03 D V Belastingdienst;
Otmar Thömmes (Deloitte), A Tax Treaty For Europe An Independent View Under EU Law; and
Mike Waters (OECD), A Tax Treaty For Europe? MFN and The Outcome Of The D And Bujara Cases In The European Court Of Justice

I should open a betting place with regards to the results of the ECJ proceedings in tax matters. Actually, with the recent Marks & Spencers I would probably would have won some Euros! With regards to the D & Bujara cases and discounting the normal optimism of some advisors and scholars, I would say 75% against 25% not in favor of the MFN clause. But...you never know when the mailman nocks again at the door of the ECJ!

Recasting the Sixth VAT Directive

The European Commission has adopted a proposal on 15 April 2004, for a recast of the existing text of the EC Sixth VAT Directive. The proposal aims to provide a clear overview of the VAT legislation applicable in the European Union. The European Parliament is now analyzing this proposal. The recast is mainly intended to turn the VAT legislation into a coherent legal text and is not designed to substantively modify the existing legislation. Any advisor dealing with VAT welcomes the proposed consolidation of the Sixth Directive. If you look at the text, you will notice that the amended English language text is easier to read.
We will see if the EU will take the opportunity to do some minor arrangements in the text tacking into account, for example recent proposal such as the one dealing with VAT tax avoidance
Link to the full text of the proposal.

Tax Rates in the OECD countries

The OECD provides in its website a comprehensive report on the tax rates (individual income tax, corporate income tax, value-added tax and social security contributions) in OECD countries since 2000. Click here to access the database.

The ECJ Tracker (12 of May)

This week was not very rich in tax cases in the ECJ. Nevertheless, I should highlight 1 Judgment (C-452/03) and 1 opinion of the Advocate General (C-512/03) dealing with tax issues.

The ECJ judgment on the RAL case deals with a situation of eventual VAT abuse relating to the operation of gaming machines sited in amusement arcades in the UK. Under the scheme, the machines were leased to a newly-formed Channel Islands subsidiary, which purported to operate them from its base in Guernsey. The scheme was based on the fact that the place of supply of such gaming services to customers would be deemed to take place outside the territory of the Community for VAT purposes, therefore escaping liability for VAT on the gaming machine services and recovering input VAT on supplies received on the basis of the 13th Directive.
The ECJ followed the opinion of the ECJ Advocate General Poiares Maduro issued on 27 January 2005 in finding that the supply of services consisting of enabling the public to use, for consideration, slot gaming machines installed in amusement arcades established in the territory of a Member State must be regarded as constituting entertainment or similar activities within the meaning of Art. 9(2)(c) of Sixth VAT Directive. It is interesting to note that in this particular case and although the High Court of Justice did not raise the issue of the possible application of Article 9(2)(c) of the Sixth VAT Directive, the ECJ considered that such issue should be examined from the outset. In its decision, the ECJ referred to its previous decisions in the cases of SARPP (C-241/89), Clinique (C-315/92) and Trojani (C-456/02) and repeated that it is for ECJ to provide the national court with all those elements for the interpretation of Community law, whether or not that court has specifically referred to them in its questions. With regards to the issue whether the supplies of services, such as those of the present case, could be characterized as entertainment or similar activities, the ECJ held that Art. 9(2)(c) of the Sixth VAT Directive does not require artistic input by the supplier of the services, and therefore making available slot gaming machines to customers constitutes entertainment or similar activities within the meaning of Art. 9(2)(c).

The opinion of the Advocate General on the Blanckaert case deals on the other hand with the freedom of capital, namely the application of the Schumacker test to a situation of a foreign taxpayer deriving only savings and investments from the Netherlands, and therefore not obliged to pay social security contributions, who is claiming he is entitled under EC law to Netherlands tax credits for national insurance schemes in the calculation of his taxable income from savings and investments.

The Hoge Raad asked the ECJ a preliminary question whether a foreign taxpayer, who is a resident of a Member State and does not receive any income from employment in the Netherlands, but only from savings and investments, and who is therefore not obliged to pay, and does not pay, any social security contributions to the Netherlands national insurance schemes, is entitled under EC law to Netherlands tax credits for national insurance schemes in the calculation of his taxable income from savings and investments. According to the Dutch court resident taxpayers are entitled to those tax credits in the calculation of their taxable income from savings and investments because they are regarded as insured and as obliged to pay social security contributions to the Netherlands national insurance schemes, even if they do not receive any income in the Netherlands from employment, but only from savings and investments, and for that reason do not pay any social security contributions in the Netherlands.

The Advocate General held that non-residents only deriving income from savings and investments in the Netherlands are not in a comparable situation with residents only deriving income from savings and investments, as only the latter are subject to general social security. The Advocate General further indicated that the Netherlands regulations are coherent and therefore the different treatment is objectively justified and not incompatible with the freedom of capital (Art. 56 & 58 of the EC Treaty).

For sake of completeness, I should also mention two further opinions by the Advocate General on VAT cases:
The Levob Verzekeringen case deals with the qualification of a bundled acquisition of software (software plus customization), namely whether such transaction must be regarded as a single supply. The MyTravel case deals with the use of the market value method by a tour operator on certain VAT transactions.

QUOTE OF THE WEEK (V)

Since it is time for filling out tax returns, I remembered this quote that you can use in your next visit to the tax office!

It would be nice if we could all pay our taxes with a smile, but normally cash is required." by anonymous

Previous quotes:
Week I
Week II
Week III
Week IV