Business Operations in the European Union — Taxation (Portfolio 7450)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. In this Portfolio, our expert authors provide an overview of the development of EU law in the direct and indirect tax areas.

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The Business Operations in the European Union — Taxation Portfolio digs deeper into the relatively successful progress that has been made in the indirect tax area (customs duties, excise duties, value-added tax).

While the harmonization or approximation of the Member States’ legislation in the direct tax area has proven to be a far more cumbersome process, the case law of the EU Court of Justice has, over time, evolved into a substantial source of “negative integration.” Analysis of the case law of the EU Court of Justice is therefore a common thread running through the Portfolio.

The Worksheets provided in this Portfolio set out website links directing readers to content with particular relevance to EU taxation matters.



Bloomberg BNA Portfolios are written by leading tax professionals who set the standard as leaders in their fields. The Business Operations in the European Union — Taxation Portfolio was authored by the following expert. 




Pascal Faes is a Partner with Nauta Dutilh and leads the firm's Tax Practice Group. Pascal has extensive experience in all areas of tax law, with particular emphasis on tax structuring and international tax planning. He is a member of the International Fiscal Association, the Tax Section of the American Bar Association, and the Advisory Board of European Tax Strategies.

Pascal received his law degree from the University of Ghent (UG) in 1984, a special degree in business economics from the University of Brussels (VUB, 1988) and a master degree in tax management from the University of Brussels (ULB, 1991). He was admitted to the Brussels bar in 1994 and joined NautaDutilh as a partner in 2011.

Pascal is also the author Tax Management Portfolio 953-3rd, Business Operations in Belgium.



Portfolio Description




Detailed Analysis

I. General Introduction — Structure of the Portfolio

II. European Union Primary Legislation — Tax Provisions of the Treaty on the Functioning of the European Union

Introductory Material

A. Customs Duties and Charges Having Equivalent Effect

1. General

2. Charges Having Equivalent Effect to Customs Duties — Concept

3. “Out of Scope” Charges

a. Charges for Services Conferring a Benefit

b. Charges for Services Required Under European Union or International Law

4. Demarcation Issues — Charges Having Equivalent Effect versus Internal Taxation

B. Discriminatory and Protective Internal Taxation

1. General

2. Discriminatory Internal Taxation

a. “Similar” Products

b. Differential Tax Treatment

3. Protective Internal Taxation

4. Pursuit of Legitimate Objectives

5. “Sanctions”

6. Demarcation Issues — Charges Having Equivalent Effect versus Internal Taxation

7. Demarcation Issues — Free Movement of Goods versus Internal Taxation

III. European Union Primary Legislation — Nontax Provisions of the Treaty on the Functioning of the European Union

Introductory Material

A. Fundamental Freedoms

1. General

2. Testing Direct Tax Measures Against Fundamental Freedoms — Concepts and Methodology

3. Grounds of Justification — Proportionality

a. Context

b. Fiscal Cohesion

c. Loss of Tax Revenue

d. Double Use of Losses

e. Effectiveness of Fiscal Supervision

f. Principle of Territoriality

g. Prevention of Tax Avoidance

h. Balanced Allocation of Taxing Powers

i. Proportionality

4. Selected Case Law

a. General

b. Free Movement of Goods

c. Free Movement of Workers

(1) Transfer of Residence

(2) Personal or Family-Related Tax Allowances

(3) Income-Related Tax Allowances

(4) Pensions and Social Benefits

(5) Immovable Property

d. Freedom of Establishment

(1) Secondary Establishments, Branches and Agencies (Inbound and Outbound)

(2) Cross-Border Losses — Group/Consortium Relief

(3) Tax Integration and Fiscal Unity

(4) Controlled Foreign Company Regimes

(5) Thin Capitalization

(6) Exit Taxes

(7) Transfer Pricing — Intra-Group Transfers

(8) Ownership of Shares

(9) Costs Related to Shareholdings

(10) Capital Gains on Shares

(11) Interest Payments

e. Freedom to Provide Services

f. Free Movement of Capital

(1) Outbound Dividends — Taxation of Nonresident Shareholders by Source State

(2) Inbound Dividends — Taxation of Shareholders in Residence State

(3) Capital Gains on Shares and Other Assets

(4) Immovable Property

(5) Cross-Border Philanthropic Activity

5. Fundamental Freedoms and (Bilateral) Tax Treaties

a. Primacy of European Union Law — European Union Law Compatibility Issues

b. Most Favored Nation Treatment

c. “Limitation on Benefits” Clauses

B. State Aid

1. Legal Basis and Overview

2. The Concept of State Aid in the Form of Tax Measures

a. “Aid”

b. “Granted by the State or Through State Resources”

c. “Favoring Certain Undertakings or the Production of Certain Goods” — Selectivity

(1) General

(2) Material Selectivity

(3) Geographical Selectivity

(4) Selectivity Test

(5) Justification Based on Nature or General Scheme of Tax System

d. Distortion of Competition and Effect on Trade Between Member States

3. De Minimis Aid

4. Exemptions from the Prohibition on State Aid

5. Procedural Rules and Recovery of Unlawful State Aid (Cursory Overview)

6. Recovery of Unlawful State Aid

IV. European Union Secondary Legislation — Customs Duties

A. Legislative Framework

B. Customs Territory of the Community

C. Customs Classification

1. Common Customs Tariff — Harmonized System — Combined Nomenclature

2. ECJ on Criteria for Classification

3. Binding Tariff Information

D. Origin of Goods

1. Nonpreferential versus Preferential Rules of Origin

2. Nonpreferential Rules of Origin

a. General

b. Basic Concepts for Determining Nonpreferential Origin: “Wholly Obtained” and “Last Substantial Processing or Working”

(1) “Wholly Obtained”

(2) “Last Substantial Processing or Working”

c. Origin Rules for Specific Products

d. List Rules

e. Certificates of Origin

3. Rules of Preferential Origin

a. General

b. Basic Concepts for Determining Preferential Origin: “Wholly Obtained” and “Sufficient Working and Processing”

(1) “Wholly Obtained”

(2) “Sufficient Working or Processing”

(3) Requirement of Direct Transportation

(4) “Cumulation” Rules

4. General System of Preferences

5. Binding Origin Information

E. Customs Value

1. Methods of Valuation

a. General

b. Transaction Value

c. Identical or Similar Goods

d. Deductive Value

e. Computed Value

f. Residual Valuation Method

2. Charges Excluded from Customs Value

a. Transportation Within the European Union

b. Advertising Expenses

c. Technical Assistance

d. European Union Customs Duties and Other Taxes

e. European Union-Based Engineering and Development

f. Financing Charges

g. Software

h. Patents, Trademarks, and Know-how

3. Implementation of the Customs Valuation Methods

F. Provisions Applicable to Goods Brought Into Community Customs Territory Until Assignment of Customs-Approved Treatment or Use

1. Entry of Goods into the Customs Territory of the Community

2. Presentation of Goods to Customs

3. Unloading of Goods Presented to Customs

4. Obligation to Assign Goods Presented to Customs Customs-Approved Treatment or Use

5. Temporary Storage of Goods

6. Other Provisions

G. Customs-Approved Treatment or Use

1. General

2. Customs Procedures

a. Placing of Goods Under Customs Procedure

b. Release for Free Circulation

c. Suspensive Arrangements and Customs Procedures with Economic Impact

(1) General

(2) External Transit

(3) Customs Warehouses

(4) Inward Processing

(5) Processing Under Customs Control

(6) Temporary Importation

(7) Outward Processing

d. Export

e. Internal Transit

3. Other Types of Customs-Approved Treatment of Use

a. Free Zones and Free Warehouses

b. Re-export, Destruction and Abandonment

H. Goods Leaving Community Customs Territory

I. Privileged Operations

1. Reliefs from Customs Duty

a. General

b. Relief from Import Duties

c. Relief from Export Duties

2. Returned Goods

3. Products of Sea Fishing

J. Customs Debt

1. General

2. Incurring of Customs Debt

a. Overview

b. Incurring of Customs Debt on Importation

c. Incurring of Customs Debt on Exportation

d. Joint and Several Liability of Debtors

e. Determination of Applicable Import or Export Duty

f. Place Where Customs Debt Is Incurred

g. Third Countries

3. Recovery of the Amount of Customs Debt

a. Entry into Accounts and Communication of Amount of Duty to Debtor

b. Time Limit and Procedures for Payment of Amount of Duty — Payment Facilities

4. Extinguishing of Customs Debt

5. Repayment and Remission of Duty

K. Appeals

L. Future Prospects

V. European Union Secondary Legislation — Value Added Tax

A. Subject Matter and Scope

B. Territorial Scope

C. Personal Scope: “Taxable Person”

1. “Economic Activity”

2. “Independence”

3. Public Bodies

4. “Taxpayer Acting as Such”

D. Material Scope — Taxable Transactions

1. Supply of Goods

a. Scope of “Supply of Goods”

(1) General

(2) Assimilations to “Supply of Goods”

(3) Transfers to Another Member State: Intra-Community Supply of Goods

(4) Transfer of Totality of Assets or Part Thereof

b. Right to Dispose as Owner

c. Tangible Property

d. Supply of Goods versus Supply of Services — Composite Supplies — Conflicts of Qualification

2. Intra-Community Acquisition of Goods

3. Supply of Services

a. Scope of “Supply of Services”

b. Supply of Services versus Supply of Goods — Composite Supplies

4. Importation of Goods

5. “For Consideration”

E. Place of Taxable Transactions

1. Place of Supply of Goods

a. Place of Supply of Goods that Are Not Dispatched or Transported

b. Place of Supply of Goods that Are Dispatched or Transported

c. Place of Supply of Goods on Board Ships, Aircraft or Trains

d. Place of Supply of Gas, Electricity, Heat and Cooling Energy Through Networks

2. Place of an Intra-Community Acquisition of Goods

a. Applicable Rules

b. Chain or Triangulation Supply Chain Transactions

c. Simplification Measures for Intra-Community Triangulation

3. Place of Supply of Services

a. Two “Default” Rules

b. Particular Provisions

c. “Effective-Use-and-Enjoyment” Option

4. Place of Importation of Goods

F. Chargeable Event and Chargeability of Value Added Tax

1. General

2. Time of Taxable Transactions

a. Supply of Goods and Provision of Services

b. Intra-Community Acquisition of Goods

c. Importation of Goods

G. Taxable Amount

1. Supplies of Goods and Services

a. General Rule

b. Derogatory Rule: “Open Market Value”

2. Intra-Community Acquisition of Goods

3. Importation of Goods

4. Miscellaneous Provisions

H. Tax Rates

1. Introduction

2. Structure and Level of Rates

a. Standard Rate

b. Reduced Rates

3. Particular Provisions — Special Provisions Applying Until the Adoption of Definitive Arrangements

4. Overview of Value Added Tax Rates Applied in Member States (Situation on January 1, 2015)

5. Future Developments

I. Exemptions

1. General

2. Exemptions Without Right to Deduct

a. Exemptions for Activities in the Public Interest

(1) Public Postal Services

(2) Hospital and Medical Care and Closely Related Activities

(3) Provision of Medical Care in the Exercise of Medical and Paramedical Professions

(4) Supply of Human Organs, Blood and Milk

(5) Services of Dental Technicians — Dental Prostheses

(6) Independent Groups of Persons

(7) Welfare and Social Security Work

(8) Protection of Children

(9) Education

(10) Tuition

(11) Supply of Staff by Religious or Philosophical Institutions

(12) “Trade Union” Exemption

(13) Sport or Physical Education

(14) Cultural Services

(15) Fund Raising

(16) Transportation Services for Sick or Injured Persons

(17) Public Radio and Television

b. Exemptions for Other Activities

(1) Insurance and Reinsurance Transactions; Financial Transactions

(a) Insurance and Reinsurance Transactions

(b) Financial Transactions

(c) Need for Legislative Review

(2) Supply of Postage Stamps, Fiscal Stamps and Other Similar Stamps

(3) Betting, Lotteries and Other Forms of Gambling

(4) Certain Supplies of Immovable Property: Supplies of Buildings and Land; Leasing and Letting of Immovable Property

(a) General

(b) Supplies of Buildings and Land

(c) Leasing and Letting of Immovable Property

3. Exemptions with Right to Deduct

a. Introduction

b. Intra-Community Transactions

(1) Intra-Community Supplies of Goods

(2) Intra-Community Acquisitions

(3) Certain Transportation Services

c. Importation

d. Exportation

e. International Transportation

f. Certain Transactions Treated as Exports

g. Supply of Services by Intermediaries

h. Transactions Relating to International Trade

(1) Customs Warehouses, Warehouses Other than Customs Warehouses and Similar Arrangements

(2) Transactions Exempted with a View to Export and Within the Framework of Trade Between the Member States

J. Deductions

1. General

2. Origin and Scope of Right of Deduction

3. Proportional Deduction

4. Rules Governing Exercise of Right of Deduction

5. Adjustment of Deductions

K. Obligations of Taxable Persons and Certain Nontaxable Persons

1. Obligation to Pay

2. Identification

3. Invoicing

4. Accounting

5. Returns

6. “Recapitulative” Statements

7. Option for Member States to Impose Other Obligations

L. Special Schemes

1. Special Scheme for Small Enterprises

2. Common Flat-Rate Scheme for Farmers

3. Special Scheme for Travel Agents

4. Special Arrangements for Secondhand Goods, Works of Art, Collectors' Items and Antiques

5. Special Scheme for Investment Gold

6. Special Scheme for (Non-established) Taxable Persons Supplying Electronic Services to Nontaxable Persons

a. Legislation Before and After January 1, 2015 — Summary Table

b. Rules Until 2015

c. Rules from 2015

M. Future Prospects

VI. European Union Secondary Legislation — Excise Duties

A. Legislative Framework

B. Horizontal Directive — Overview

1. General Provisions

2. Chargeability of Excise Duty; Reimbursement and Remission; Exemptions

a. Time and Place of Chargeability

b. Person Liable to Pay Excise Duty

c. Chargeability Conditions and Rate of Excise Duty

d. Reimbursement and Remission of Excise Duty

e. Exemptions

3. Suspension Arrangements

4. Movement and Taxation of Excise Goods After Release for Consumption

a. Acquisition by Private Individuals

b. Holding in Another Member State

c. Distance Selling

d. Destruction and Losses

e. Irregularities During Movement of Excise Goods

5. Marking

C. “Product-Specific” Directives

1. Manufactured Tobacco

a. General

b. Definitions

c. Minimum Rates of Excise Duty

(1) Cigarettes

(2) Other Products

d. Determination of Maximum Retail Selling Price; Collection of Excise Duty; Exemptions and Refunds

2. Alcohol and Alcoholic Beverages

a. General

b. Alcohol Structure Directive

(1) Beer

(2) Still Wine and Sparkling Wine

(3) Fermented Beverages Other than Wine and Beer

(4) Intermediate Products

(5) Ethyl Alcohol

(6) Refund of Excise Duty; Exemptions

(a) Refund of Excise Duty

(b) Exemptions

c. Alcohol Rate Directive

3. Energy Products and Electricity

a. General

b. Scope of Application

c. Minimum Levels of Taxation

d. Exemptions and Tax Reductions

e. Future Prospects

VII. European Union Secondary Legislation — Indirect Taxes on the Raising of Capital

A. Subject Matter and Scope

1. General

2. Transactions Covered

a. Contributions of Capital

b. Restructuring Operations

c. Issue of Certain Securities and Debentures

B. Applicable Taxation Rules

1. General Prohibition on the Imposition of Indirect Taxes

2. Authorized Duties and Taxes

3. Derogatory Regime — Levying of Capital Duty in Member States Charging Capital Duty as at January 1, 2006

C. Impact of Proposed Financial Transaction Tax

VIII. European Union Secondary Legislation: Direct Taxes — Corporations

A. Introduction

B. Merger Tax Directive

1. Introduction

2. Scope of Application

a. Material Scope; Types of Operations

b. Personal Scope — Eligible (Types of) Companies

3. Common System of Taxation

a. Rules Applicable to Mergers, Divisions, Partial Divisions, Transfers of Assets and Exchanges of Shares

(1) At the Level of the Transferring or Acquired Company and at the Level of the Receiving Company

(2) At the Level of the Shareholders

(3) Special Case of Transfer of Permanent Establishment

(4) Special Case of Transparent Entities

b. Rules Applicable to the Transfer of the Registered Office of a European Company or a European Cooperative Society

4. Anti-Abuse Rule

C. Parent-Subsidiary Tax Directive

1. Introduction

2. Scope

a. Material Scope

b. Personal Scope — Minimum Holding and Minimum Holding Period Requirements

3. Elimination of Double Taxation at Level of Parent Company

a. Exemption versus Credit Method

b. Fiscally Transparent Treatment of Subsidiary

c. Charges Related to Holdings and Losses Resulting from Distribution of Profits

4. Exemption from Withholding Tax at Level of Subsidiary

5. Anti-Abuse Rule

D. Interest and Royalty Directive

1. Introduction

2. Scope of Application

a. Material Scope

b. Personal Scope

3. Elimination of Double Taxation

4. Fraud and Abuse

5. Further Developments

E. European Corporate Vehicles: European Economic Interest Grouping, European Company, European Cooperative Society and European Private Company

1. European Economic Interest Grouping

2. European Company, European Cooperative Society, European Private Company

F. Arbitration Convention

1. Introduction

2. Scope of Application

a. Territorial Scope

b. Material Scope — Taxes Covered

c. Personal Scope

d. “Serious Penalty” — Exclusion

3. Arm's-Length Criterion

4. Methods of Eliminating Double Taxation

5. Procedural Aspects

a. Unilateral Relief or “Amicable” Procedure

b. Mutual Agreement Procedure

6. Codes of Conduct

7. Future Prospects

G. Proposed Legislation

1. Loss Consolidation

2. Common Consolidated Corporate Tax Base

a. Introduction

b. Eligibility to Apply Common Consolidated Corporate Tax Base

c. Optional System

(1) General

(2) Conditions

(3) Implications of Option

d. Calculation of Tax Base

(1) General

(2) Taxable and Exempt Revenues

(3) Deductible Expenses

(4) Nondeductible Expenses

(5) Provisions

(6) Bad Debts

(7) Depreciation of Assets

(8) Losses

e. Consolidation

f. Apportionment and Computation of Tax Liability

(1) Formulary Apportionment

(2) Items Deductible Against Apportioned Share

(3) Computation of Tax Liability

g. Anti-Abuse Provisions

(1) General Anti-Abuse Rule

(2) Specific Anti-Abuse Rules

h. Future Prospects

IX. European Union Secondary Legislation: Direct Taxation — Individuals; Savings Directive

A. Legislative Framework

B. “Interest,” “Beneficial Owner” and “Paying Agent”

1. “Interest”

2. “Beneficial Owner”

3. “Paying Agents”

C. Exchange of Information; Transitional Regime

1. Automatic Exchange of Information

2. Transitional Regime

X. European Union Secondary Legislation: Administrative Cooperation and Recovery of Tax Claims

A. Introduction

B. Administrative Cooperation

1. Administrative Cooperation in the Field of Value Added Tax

a. General

b. Institutional Framework

c. Types of Exchange of Information

(1) Exchange of Information on Request

(2) Exchange of Information Without Prior Request

d. Limitations on Exchange of Information

e. Storage and Exchange of Specific Information

f. Request for Administrative Notification

g. Presence in Administrative Offices; Participation in Administrative Enquiries; Common/Simultaneous Controls

h. Provision of Information to Taxable Persons

i. Eurofisc

j. Provisions Concerning Special Schemes in Chapter 6 of Title XII of the Common VAT System Directive

k. Exchange and Conservation of Information in the Context of the Procedure for the Refund of Value Added Tax to Taxable Persons Established Not in the Member State of Refund But in Another Member State

l. Relations with the Commission

m. Relations with Third Countries

n. Confidentiality

o. Miscellaneous

p. Commission “State of Play” Report 2014

2. Administrative Cooperation in the Field of Excise Duties

a. General

b. Institutional Framework

c. Information or Documents Obtained with the Authorization or at the Request of the Judicial Authority

d. Cooperation on Request

e. Exchange of Information Without Prior Request

(1) Mandatory Exchange of Information

(2) Optional Exchange of Information

f. Limitations on Exchange of Information

g. Storage and Exchange of Electronic Information on Economic Operators

h. Confidentiality; Evidential Value of Information Obtained

i. Relations with Third Countries

j. Commission Reporting to European Parliament and Council

3. Administrative Cooperation in the Tax Field

a. General

b. Subject Matter and Scope

c. Institutional Framework

d. Types of Exchange of Information

(1) Exchange of Information on Request

(2) Mandatory Automatic Exchange of Information

(3) Spontaneous Exchange of Information

e. Other Forms of Administrative Cooperation

(1) Presence in Administrative Offices and Participation in Administrative Enquiries

(2) Simultaneous Controls

(3) Administrative Notification

(4) Feedback

(5) Sharing of Best Practices and Experience

f. Conditions Governing Administrative Cooperation

(1) Disclosure of Information and Documents

(2) Limits on Administrative Cooperation

g. Evaluation of Administrative Cooperation

h. Exchange of Information with Third Countries

i. Reporting by Commission

j. Further Developments — Council Directive 2014/107/EU of December 9, 2014

k. Further Developments — Proposal for a Council Directive on Mandatory Automatic Exchange of Information Regarding Cross-Border Tax Rulings

C. Mutual Assistance for Recovery of Claims Relating to Taxes, Duties and Other Measures

1. Legislative Framework

2. Subject Matter and Scope

3. Institutional Framework

4. Types of Exchange of Information; Presence in Offices and Participation in Enquiries

a. Exchange of Information on Request

b. Exchange of Information Without Prior Request

c. Presence in Administrative Offices and Participation in Administrative Enquiries

5. Assistance in Notification of Documents

6. Recovery or Precautionary Measures

a. Requests for Recovery

b. Requests for Precautionary Measures

7. Limits on Granting Assistance

8. Questions on Periods of Limitation

9. Disclosure of Information and Documents

10. Commission Reporting

D. Savings Directive

XI. European Union Secondary Legislation (Proposed) — Financial Transaction Tax

A. History and Background; Estimated Revenues

B. Analysis of Current Financial Transaction Tax Proposal

1. Scope of the Common Financial Transaction Tax System

a. Material Scope

b. Personal Scope — Financial Institutions

c. Territorial Scope

2. Chargeability; Taxable Amount; Rates

a. Chargeability

b. Taxable Amount

c. Rates

3. Payment of Financial Transaction Tax; Related Obligations

a. Payment; Joint and Several Liability

b. Related Obligations

4. Prevention of Evasion, Avoidance and Abuse

5. Administrative Cooperation

6. Relation to Other Taxes

C. Implementation and Future Prospects

XII. Soft Law

A. Introduction

B. Code of Conduct for Business Taxation

1. Background — Adoption of Tax Package

2. Harmful Tax Competition Under Code of Conduct

3. Implementation of Code of Conduct

4. Standstill and Rollback of Harmful Tax Measures Under Code of Conduct

C. Interpretative and Decisional Soft Law

XIII. Anti-Abuse Doctrine

A. Abuse of European Union Law

B. Prevention of Abuse as Justification for Restriction of Fundamental Freedoms

C. Impact on Member States' National Anti-Abuse Measures

D. Anti-Abuse Provisions in Secondary Legislation

Working Papers

Table of Worksheets

Worksheet 1 Composition of Taxation and Customs Union Directorate General (“TAXUD”) of the EU Commission

Worksheet 2 EU Tax Legislation

Worksheet 3 ECJ Case Law on Direct and Indirect Taxation