The European Court of Justice ruled on March 11 2004 that the French legislation taxing unrealized capital gains simply because a taxpayer moves to another EU member state infringes the freedom of establishment (case C-9/02 Hughes de Lasteyrie du Saillant).
The case involved an individual who moved from France to Belgium for professional reasons. Upon the move, he was required by French law to pay taxes immediately on unrealized capital gains on qualifying participations he and his family had held during the preceding five years. Suspension of payment of the tax was subject to application, provision of guarantees and the designation of a representative in France.
The ECJ held that these laws restrict the freedom of workers to move within the EU and cannot be justified because they infer a tax evasion motive as a result of a mere change in residence and because the rules are disproportionate.
The decision follows the opinion of Advocate General Mischo and means that all countries that have similar exit tax rules (Germany for example) must revise their relevant laws. The ruling is also important for companies that want to transfer their registered office or place of management and sheds new light on the 1988 Daily Mail decision (case C81/87).
UK court decision restricts scope for tax relief claims
In a decision of March 3 2004, the High Court in the UK held that claims by companies for cross-border loss relief on the basis that UK group relief laws are contrary to the EC Treaty and to double tax treaty provisions cannot be pursued initially through a High Court group litigation order (GLO or class action), but that each company concerned must follow the normal procedure for tax appeals.
Many companies in the UK have been seeking to pursue claims for relief and compensation on the basis that UK group loss relief provisions and a number of other key provisions of UK corporate tax law are illegal under EC law, or under tax treaties, through a GLO. A GLO was often regarded as more advantageous than normal tax appeal procedures as it not only allowed a large number of litigants to work together and share costs, but also may extend normal time limits, increase opportunities for covering litigation costs and result in amounts recovered qualifying for higher rates of interest.
It appears that it will now be necessary for each claimant to separately follow the normal tax appeal procedure, initially with their own tax Inspector, with a subsequent appeal to the Tax Commissioners, a tax tribunal.
Anno Rainer (arainer@deloitte.com), Brussels
Otmar Thoemmes (othoemmes@deloitte.de), Munich
Eric Tomsett (etomsett@deloitte.co.uk), London
