Abstract
Taxation is one of the most significant factors affecting financial integration. It involves custom duties, withholding taxes applied to the free flow of capitals running from one country to another, or the conditions under which an investment that a business of a certain country does on the territory of another can be taxed in the latter jurisdiction. The paper addresses the impact of taxation in the Mediterranean area, considering, in particular, the effect of direct and indirect taxes in the flow of investments. In this respect, however, the fiscal integration of the two main areas the Mediterranean region is divided into (North and South) are remarkably different. While the European Union appears a homogeneous area seen from outside, with an harmonized Value Added Tax system, uniform custom duties and relevant aspects of direct taxation sharing general rules and principles, a lot remains to be done. For what concerns the interaction with third Counties, free movement of capital is the only provision clearly and positively set also to the advantage of individuals and legal bodies resident or belonging to them. In a perspective of integration there is a basic approach that requires the implementation of a common system of rules applicable to specific income only, but the main way is the harmonization of the VAT system even in neighbour countries of the Mediterranean and the sharing of the same principles to prevent double taxation.
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- 1.
See the Treaty establishing the European Economic Community (EEC), opened for signature 25 March 1957, 298 UNTS 11, Article 293 (entered into force 1 January 1958). The EEC has been renamed the European Community (EC) and the text of the Treaty has been changed and re-numerated (now Article 293 is 307) after the entry into force of the Treaty of Amsterdam on 7 May 1999 (1997) OJ C340. Consolidated versions of the Treaties can be found at (2006) OJ C321 E. All the references shall be intended to the consolidated version of the Treaties establishing the EC (the Treaty, from now on). The Treaty of Lisbon, signed on December 13th 2007, (2008) OJ C115, however abolished Article 293. It could be argued that the EU in the future won’t suffer from any limitation in this respect.
- 2.
European Economic Communities (EEC) Council Directive No. 435/1990 of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States [1990] OJ L225, 6. The directive was subsequently amended by the European Community (EC) Council Directive No. 123/2003 of 22 December 2003 amending Directive 1990/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States [2004] OJ L7, 41 and European Community (EC) Council Directive No. 98/2006 of 20 November 2006 adapting certain directives in the field of taxation, by reason of the accession of Bulgaria and Rumania [2006] OJ L363, 129. European Economic Communities (EEC) Council Directive No. 434/1990 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States [1990] OJ L225, 1. The Directive was subsequently amended by the European Community (EC) Council Directive No. 19/2005 of 17 February 2005 amending Directive 90/434/EEC of 23 July 1990 on the Common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States [2005] OJ L58, 19 and European Community (EC) Council Directive No. 98/2006 of 20 November 2006 adapting certain directives in the field of taxation, by reason of the accession of Bulgaria and Rumania [2006] OJ L363, 129.
- 3.
European Community (EC) Council Directive No. 49/2003 of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States [2003] OJ L157, 49. The Directive was subsequently amended by European Community (EC) Council Directive No. 66/2004 of 26 April 2004 adapting various directives in the fields of free movement of goods, freedom to provide services, agriculture, transport policy, and taxation by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia [2004] OJ L168, 35; European Community (EC) Council Directive No. 76/2004 of 29 April 2004 amending Directive 2003/49/EC as regards the possibility for certain Member States to apply transitional periods for the application of a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States [2004] OJ L157, 108; European Community (EC) Council Directive No. 98/2006 of 20 November 2006 adapting certain directives in the field of taxation, by reason of the accession of Bulgaria and Rumania [2006] OJ L363, 129.
- 4.
Treaty establishing a Constitution for Europe, open for signature 16 December 2004 [2004] OJ C310 (never entered into force). The Treaty of Nice amending the Treaty of the European Union, the Treaties establishing the European Communities and certain related Acts open for signature 26 February 2001 [2001] OJ C80, should also be considered. So far, however, no specific provisions involve direct taxation.
- 5.
Not counting the abolition of Article 293, as mentioned above. Some other changes actually took place in this respect, but their relevance is not significant to the limited aim of this paper.
- 6.
- 7.
European Community Council and Parliament Regulation No. 1606/2002 of 19 July 2002 on the application of international accounting standards [2002] OJ L243, 1.
- 8.
Common Corporate Consolidated Tax Base. See inter alia Schön et al. (2008).
- 9.
Kovács (2008).
- 10.
Bretherton and Vogler (1999).
- 11.
Namely, free movement of goods, services, persons (workers) and capitals
- 12.
Article 94, before the TFEU. This Article reads as follows: “The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the common market”.
- 13.
In the EC Treaty Article 12, now 18 TFEU (prohibition of discrimination), 23, now 28 TFEU (goods), 39, now 45 TFEU (workers), 43, now 49 TFEU (establishment), 49, now 56 TFEU (services), 56, now 63 TFEU (capitals and payments).
- 14.
The most advanced research in European tax law is arguing about the possibility of extending the free movement of services to third countries as far as the movement involves EU citizens; see Pistone (2006, p. 235).
- 15.
Article 63 reads as follows: 1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited. 2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.
- 16.
Article 56, before TFEU.
- 17.
Pistone (2006, p. 235).
- 18.
This evidently does not mean that the provision is void of any significance for the European countries that refused the euro currency, such as the UK, being relevant as it is to any investment in assets or financial operations.
- 19.
However Pistone (2006, p. 236), noted that the Advocate General Kokott (Re Manninen (C-319/02) [2004] ECR I-7477) seemed to limit the protection of Article 56 to the inbound investment (paragraph 79 of the Conclusions). This interpretation is clearly inconsistent with the ratio that arguably inspired Article 56 and its importance to enhance the reliability of the European currency worldwide. Other reasons are clearly expressed and delineated by the previously mentioned author.
- 20.
Article 43, before the entry into force of TFEU.
- 21.
Since the reference is to a case law developed before the TFEU, we preferred to leave the quotation to the article as it was in the previous EC Treaty. The same reference shall be maintained from now onwards when a citation of academic articles or position of scientific literature shall be taken into consideration.
- 22.
Pistone (2006).
- 23.
This is the opinion, for instance, of Advocate General P. Wattel cited in Pistone (2006, p. 237).
- 24.
The free movement of capital protects third countries’ investors without any need of reciprocity in their home states in favour of EU investors.
- 25.
Article 19 of the Treaty.
- 26.
Article 48 Ibid.
- 27.
See footnote 19 (Article 48 before TFEU).
- 28.
This article was amended as well by the aforementioned 2003/123/EC Directive.
- 29.
Double Taxation Conventions.
- 30.
Some exceptions do exist. This is the case, for instance, of some Nordic countries, which are experiencing a Multilateral Convention: see Helminen (2007).
- 31.
See amongst others Bosal Holding BV v Staatssecretaris van Financiën (C-168/01) [2003] ECR I-9409; Océ van der Grinten v Commissioners of Inland Revenue (C-58/01) [2003] ECR I-9809.
- 32.
See Article 2(2) as introduced by the 2003/123/EC Directive. A clear reference to the permanent establishment was missing in the 1990 version, urging academics to question the analogical application of the EU provisions.
- 33.
The hypothesis put forward above should be considered as purely theoretical and has never been tested by the ECJ.
- 34.
Terra and Wattel (2005).
- 35.
Controlled foreign Companies regulations. See inter alia Sandler (1998).
- 36.
Greggi (2008) noted that the case was decided by the ECJ under the freedom of establishment provision: the case was a purely European one with a company resident in the UK and another in Ireland (financing the first one). It could be interesting to argue what the outcome of the judgment would have been if a third- country company would have been involved, thus allowing a test of CFC regulations under Article 56.
- 37.
Holböck v Finanzamt Salzburgland (C-157/05) [2007] ECR I-4051; for an in-depth analysis, see Lang et al. (2006).
- 38.
While the dividends suffer also from the economical one, the distinction is clearly explained by Helminen (1999), 9 and 38.
- 39.
Or the exemption mechanism in case the state of the payee chose this second solution in a way similar to the one in Article 23B of the OECD Model.
- 40.
Du Toit (1999).
- 41.
Italy implemented legislation on Trusts very recently (in 2005), adding Article 2645 ter to the Civil Code.
- 42.
- 43.
Article 1(4).
- 44.
The time dedicated to inquiry about the nature (anti-elusive or anti-fraud or not) of a provision in the Directive could seem wasted under a practically oriented approach to the text of the Directive and its implication in the different national law. In the Italian experience (at least) it is, however, fundamental to allow flexible, extensive or simply literal interpretation of the words and of the concept used by the legislature. The more a provision is finalised to contrast specific operations with a tax-avoidance purpose, the more the interpretation of that provision shall be restricted to those issues enumerated by the legislature.
- 45.
Article 4(1) also contains anti-avoidance provisions, but they are generally limited to interest payments covered by the Directive together with royalties.
- 46.
Article 110, Italian Direct Taxation Act, T.U. 917/86.
- 47.
Excluding perhaps Article 1(2) of the “Parent–Subsidiary” Directive 1990/435/EEC. These provisions have been repealed by Directive 2011/96/UE that updated the system applicable to “parent-subsidiary” flow of dividends within the EU.
- 48.
Article1(a) of the Directive rules that it is going to be applied to … mergers, divisions, partial divisions, transfers of assets and exchanges of shares in which companies of two or more Member States are involved …. The directive has been repealed by 2009/133/EC directive of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member states and to the transfer of the registered office of an SE or SCE between Member states.
- 49.
Italy implemented the concerned Directive only in 2011.
- 50.
The year in which the directive was drafted in the version that came in force in 2010.
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Greggi, M., Sidoti, M.R. (2013). The Role of Taxation in the Mediterranean Financial Integration. In: Peeters, M., Sabri, N., Shahin, W. (eds) Financial Integration. Financial and Monetary Policy Studies, vol 36. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-35697-1_6
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