Hybrid Mismatch Arrangements Within EU: Under what Conditions could Single Taxation Be Secured?
Abstract: The purpose of the thesis is to analyse the problems of hybrid mismatch arrangements within the EU and how single taxation, which requires income to be taxed once, not more or less, can be secured under EU law. After the amendments of the Parent-Subsidiary Directive (PSD), where an anti-hybrid rule was enacted, the legal environment for companies within the European Union changed. Parent companies are now punished by using, regardless of the purpose behind the arrangements, disparities of jurisdictions between Member States. Participation exemption of dividends is after the amendments disallowed in accordance to Article 4.1(1) of the PSD, if a payment, on the other hand, is deductible as interest expenses in the subsidiary State. The Council, as well as the Commission, is certain that mismatch arrangements create an obstacle for the internal market, but such an assessment is doubtful. For instance has the ECJ ruled in its judgments that juridical double taxation is not an obstacle which restricts or discriminates the TFEU fundamental freedoms. By analogy, the same should apply for double non-taxation. The Court has not agreed on that a Member State is obliged to take into consideration the deviating tax treatment of the another Member State, which is exactly what the PSD anti-hybrid rule requires the parent State to do. A lack of a subjective measure within the anti-hybrid rule results in arrangements which are reflecting economic reality and commercially justified are captured by the rule. Interestingly, this is not considered by the EU legislators to be an obstacle to the internal market. This is contrary to various judgements of the Court where it has been concluded that Member States cannot enact measures in a general manner which presume tax avoidance. It is according to the Court only justified to restrict the freedoms provided in the TFEU if the arrangements are wholly artificial, as well as proportionate. However, that is not the case with the anti-hybrid rule and an attempt was made in this thesis to find a solution which does not infringe EU law. The single taxation will play a key role and therefore, it will be examined under which conditions single taxation can be secured when counteracting hybrid mismatch arrangements within the Union.
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