Books and Articles

04-07-2007 - Thin capitalization sui prestiti transfrontalieri: l’intento elusivo rende ammissibili limitazioni alla libertà di stabilimento

A recent judgment by the Court of Justice of the European Communities solves the question of the compatibility, with the Treaty provisions on freedom of establishment, of the United Kingdom legislation on thin capitalization, in force in the United Kingdom until 2004, which limited the deductibility of interests paid by British subsidiaries to parent companies or intermediate non-resident companies. The British tax system has thus made a difference in treatment between resident borrower companies because of the tax residence of the parent company, which owns the control, directly or indirectly. Such discrimination limits the freedom of establishment by non-residents companies and that restriction, potentially justifiable in terms of prevention of tax evasion and illegal acts in general, was contained in a national legislation not likely to constitute an appropriate remedy to its purpose, respecting the principle of proportionality. In other words, the British authorities have been condemned as, though moved by the need to ensure the coherence of the national tax system in the fight against tax evasion, have set up thin capitalization rules which did not have an examination of objective evidence with which to evaluate the wrongfulness operation, which, moreover, did not granted the taxpayer the right to provide proof of commercial reasons underlying the transaction and finally not retrained interests paid as dividends to the parent company only for the part exceeding the maximum limit recognized as eligible under the freedom to competition.

LOMBARDO M., Thin capitalization sui prestiti transfrontalieri: l’intento elusivo rende ammissibili limitazioni alla libertà di stabilimento, in Fiscalità Internazionale, Maggio-Giugno 2007.


 

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