CYIL vol. 12 (2021)

tomáš křivka CYIL 12 (2021) and 54 of the TFEU. An important conclusion, which was made in that decision of the CJEU is then the consideration according to which cross-border transformations of companies are a result of economic cooperation and consolidation between companies founded in other Member States of the EU, and as they are a manifestation of business activities, the EU Member States are obliged to respect basic freedom of establishment in cross-border transformations as well. 31 Case C-196/04 – Cadbury Schweppes 32 Cadbury Schweppes Plc incorporated in the United Kingdom was a parent company which founded two subsidiaries in the International Financial Services Centre in Ireland, which enabled them to make use of a more advantageous Irish tax regime. Nevertheless, in order that the incomes of these subsidiaries controlled by a British entity should not be taxed in the United Kingdom, it was necessary, pursuant to English law, to meet specific conditions relating to actual activities, motivation or rate of taxation of a foreign entity in a foreign state. Whilst British authorities assessed an income tax to the subsidiaries pursuant to English law because they considered their conduct to be circumvention of the Act with a view to avoiding proper taxation, Cadbury Schweppes challenged the tax assessment through a judicial action stating that such a procedure is in contradiction with freedoms guaranteed by Articles 49, 56 and 63 of the TFEU. This means that in this case the CJEU was dealing with the question referred for a preliminary ruling, i.e. whether British tax regulations are in accordance with the freedom of establishment and free movement of services and capital regulated in Articles 49, 56 and 63 of the TFEU. During the decision-making process, the CJEU consented to the British arguments that the freedom of establishment as well as free movement of services or capital can be limited for reasons of public interest on the one hand, nevertheless it stressed that such a public interest is present only in cases when the matter concerns obvious circumvention of legal regulations, the foreign entity in question does not perform any actual business activities and the purpose of the foreign seat of a subsidiary is only to avoid a tax obligation in the state of the parent company. A consequence of this principle is the fact that it is not possible to found purely specific-purpose subsidiaries in the form of “PO box” in the states with a more advantageous regime in terms of taxes, and by doing so to influence resulting taxation of parent companies. On the other hand, however, the CJEU added that “the sole fact that a company founds a side branch, such as a subsidiary, in another Member State, cannot lead to a general presumption concerning a tax fraud and justify measures affecting the exercising of the basic freedom guaranteed by the Treaty”, 33 and therefore in the final judgement it supported Cadbury Schweppes and declared the approach of British tax authorities as a standard that is in contradiction with the freedom of establishment guaranteed by primary law of the EU.

31 Judgement: SEVIC . Case C-411/03. Par. 22, 23. 32 Judgement of the Court of Justice of 12 September 2006. Cadbury Schweppes plc and Cadbury Schweppes Overseas

Ltd v. Commissioners of Inland Revenue. Case C 196/04. 33 Judgement: Cadbury Schweppes . Case C 196/04. Par. 50

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