In a decision of July 15, 2010, the Amsterdam Court of Appeals has referred questions to the European Court of Justice (“ECJ”) for a preliminary ruling on exit taxes for corporate income tax purposes. Based on these taxes, a Dutch-resident company has to settle any present surplus values – also called hidden reserves – when moving abroad. The questions basically address the fact of whether or not exit taxes are in conflict with the freedom of establishment as stipulated in the EC Treaty – the current TFEU.
The procedure evolves around a Dutch private limited company that transferred its actual management to Great Britain. Its assets included a group monetary claim in British pounds sterling. As a result of the high British pound sterling compared to the Dutch guilder at the time, a surplus value of more than 22 million guilders arose in this claim.
When the actual management of the company was transferred to Great Britain, the inspector applied exit taxes and levied corporate income tax to this surplus value. The taxpayer disputed this with three arguments.
1. The exit tax is contrary to good faith that the Netherlands should consider towards its treaty partner, Great Britain, in accordance with the Treaty of Vienna.
2. The exit tax is contrary to the way in which the double taxation treaty between the Netherlands and Great Britain divides tax jurisdiction between both countries.
3. The exit tax is contrary to the freedom of establishment as stipulated in the EC Treaty.
The Amsterdam Court of Appeals has rejected the first two arguments, but will refer the third question to the ECJ for a preliminary ruling.
In addition: Infraction proceedings on exit taxes
It is also of interest to note that, in the matter of exit taxes, European Commission infraction proceedings are pending. On March 18, 2010, the Commission officially requested, inter alia, the Netherlands to change its rules with regard to both personal and corporate income tax that impose an immediate final levy on a company that transferred its seat or assets to another EU Member State, because such rules are inconsistent with the freedom of establishment. The Netherlands was subsequently given a two-month period to carry out the Commission’s request but has failed to do so as of yet. The Commission may therefore take this case before the ECJ.