EU INNOVATION POLICY AND THE ECJ’S ABANDONED FORAY INTO THE REALM OF NATIONAL DIRECT TAXATION MEASURES
Abstract: For over a decade and recently as a means to overcome the crippling effects of the credit crunch and its recessionary effects on European economies, EU institutions have initiated an expansive innovation policy centered on the development and support of entrepreneurs and emerging growth ventures. Private investment in the form of venture capital (VC) is necessary to support this policy in that the VC market provides a unique and essential link between finance and innovation. Tax incentives, tax treatment, and legal (tax) certainty are of paramount importance in both attracting entrepreneurs as well as driving the financial commitments of reputable VC funds. The high level of risk that an entrepreneurial “idea”, emerging growth venture, or start-up will never be commercialized demands both tax incentives for risk-taking as well as confidence that an investor’s exit from a VC investment will not be subjected to unfavorable tax treatment. Thus, in that cross-border investment is often considered necessary for VC funds to achieve required economies of scale in the EU, the creation of a robust VC industry demands that the risk of double taxation in cross-border investments is eliminated. At the EU-level, this risk can be immediately addressed only through the collective will(s) of the Member States as manifested in secondary legislation. Otherwise, in light of the ECJ’s 2006 decision in Kerckhaert, the middling VC industry of the EU appears certain to confront the Member States’ unreliable coordination of their overlapping, autonomous taxing jurisdictions under a continuing shadow of double taxation uncertainty.
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