tax notes international - Tuck School of Business - Dartmouth College

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occur when the national antiabuse rules are general in nature. The ECJ stated that it could not be claimed that there was such abuse when an undertaking hired assets out for remuneration to another undertaking that used them primarily in other member states, highlighting, in particular, that that hiring out ‘‘cannot be the basis of a general presumption of abusive practice and justify a measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty.’’ This key flaw in the design of many member states’ tax antiabuse rules is apparent from the ECJ’s jurisprudence, including the Austrian rules in this case. Burden of Proof Clearly, the burden of proof in the area of tax abuse should remain on the tax authorities, at least until they make a prima facie case that the abuse exists. However, this is rarely the case when the antiabuse rules are drafted in a general way to include situations like those seen in Jobra, where no apparent abuse was happening. The ECJ dealt with this issue for the first time in Jobra when it commented that ‘‘the legislation at issue affects every lessor eligible for the investment premium which hires out assets for remuneration to undertakings carrying out cross-border activities, and does so even where nothing points towards the existence of such an artificial arrangement.’’ The requirement that some evidence pointing toward the existence of wholly artificial arrangements or abuse should exist may be helpful to taxpayers facing antiabuse rules in the future as, clearly, they can advance the argument to the tax authorities that the ECJ’s ruling in Jobra specifically mentioned that there is an onus on the tax authorities to at least demonstrate that something abusive is occurring. This is an additional part of the tax authorities’ burden of proof before the burden gets transferred over to the taxpayer to show that no abuse is taking or has taken place. The ECJ, following the reasoning of its earlier tax avoidance case law, goes on to make it clear that in the circumstances of this case, the Austrian rules do not allow lessors ‘‘to adduce evidence that no abuse is taking place.’’ The consequences of this are significant because the taxpayer is never given the opportunity to rebut the allegation of abuse. Perhaps more importantly, as a result, the ECJ found that the Austrian tax rules at issue do not make it possible to limit the refusal to grant the investment-premium tax advantage to cases involving wholly artificial arrangements, which indicates that the rules go too far and are a disproportionate restriction on the fundamental freedom to provide services. Protective Nature of the Austrian Rules Finally, it is useful to highlight the protective nature of the Austrian tax rules at issue in Jobra. Article 49 of the EC Treaty precludes such rules because their aim was to provide tax advantages mainly for Austrian residents who leased assets to other Austrian residents who used the leased assets mainly in Austria. In an internal market, it is clear that such rules seriously hamper cross-border trade and economic activity, and the provision of leasing services in particular, because the tax advantage is limited to Austrian lessors and lessees who lease assets for mainly Austrian domestic use purposes. With many leasing companies providing services cross-border, Jobra may be one of the ECJ’s most significant preliminary rulings in the area of cross-border leasing, on a par with its earlier judgment in Eurowings (C-294/97), in which German tax rules that penalized a German company for obtaining its leasing services from an Irish company came under scrutiny and were found to be incompatible with the freedom to provide (and to receive) services as set forth in EC Treaty article 49. In the eyes of the ECJ, protectionist rules of this nature have no place in an ‘‘area without internal frontiers.’’ Although direct taxation remains within the competence of the member states, the exercise of that competence when the member states design their tax systems must take place in full compliance with EU law. In this case, the protectionist Austrian tax rules will have to be either amended (to ensure compliance) or repealed. ♦ Tom O’Shea, Queen Mary University of London, Centre for Commercial Law Studies Germany GERMANY Former Deutsche Post CEO Convicted Of Tax Evasion A German court on January 26 convicted Klaus Zumwinkel, former CEO of Deutsche Post and the most prominent German taxpayer to be caught up in the Liechtenstein tax scandal, of tax evasion, according to media reports. The Bochum court reportedly handed down a twoyear suspended sentence and fined Zumwinkel €1 million (about $1.3 million). The fine and two-year suspended sentence was what prosecutor Gerrit Gabriel called for in his closing remarks, according to a January 26 Associated Press report. ‘‘He knew exactly what he was doing,’’ Gabriel was quoted as saying. Gabriel requested a relatively light sentence (conviction of tax evasion can lead to up to 10 years in prison under German law) given that Zumwinkel has paid €3.9 million (about $5.1 million) in back taxes and TAX NOTES INTERNATIONAL FEBRUARY 2, 2009 • 393 (C) Tax Analysts 2009. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
GERMANY confessed to his wrongdoing on January 22 at the start of his trial. (For prior coverage, see Doc 2009-1382 or 2009 WTD 13-3.) Since news of the Liechtenstein scandal broke in February 2008, German prosecutors have reportedly recovered over €150 million from German taxpayers seeking to avoid a trial. German authorities claim that up to €4 billion was hidden in Liechtenstein. Haiti ♦ Randall Jackson, Tax Analysts. E-mail: rjackson@tax.org Mobile Phone Service Providers Oppose Tax Hike Mobile phone service providers in Haiti are protesting a 2008-2009 budget measure that would increase the tax on mobile phone users. Radio Kiskeya, a Port-au-Prince news radio station reported on January 16 that the new proposal would amend the taxation component of the Telecommunications Act of 2002. Mobile service providers have joined together to oppose the tax increase, claiming it would hurt the economy. Digicel, Voila, and Haitel insist that raising the tax on cell phone use would actually reduce tax revenue by discouraging cell phone use and in turn reducing general business activity. The three companies say they have invested more than $600 million in the nation’s networks and services over the past 10 years, and that they directly employ more than 2,000 Haitians. They claim that as many as 55,000 jobs indirectly rely on the smooth functioning of the telecommunications sector. Haiti’s General Tax Directorate acknowledged that the telecom sector has been the greatest source of government tax income since 1999, producing 28 percent of Haitian revenues in fiscal 2007-2008, which ended September 30, 2008. The proposed changes reportedly include a new charge of HTG 3.60 per minute (about $0.09) for local calls and HTG 4 per minute for international calls. The new charges would come on top of the current charge of HTG 4.70 per minute that subscribers must pay; the current charge includes a 10 percent revenue tax. ♦ Randall Jackson, Tax Analysts. E-mail: rjackson@tax.org Hungary Employer Tax Cut, VAT Increase Under Consideration The Hungarian government has proposed cutting the payroll tax employers must contribute to the nation’s social security system by 5 percentage points to augment employment as Hungarian businesses struggle with liquidity and credit issues arising from the world financial crisis. In announcing the proposed payroll tax cut, Prime Minister Ferenc Gyurcsany was careful to emphasize that overall government revenue cannot be allowed to plummet as a result of tax breaks, according to media reports. He therefore also proposed increasing the VAT rate by 2 to 3 percentage points — to 22 percent or 23 percent — to offset the revenue loss from the payroll tax reduction. The government estimates that the proposed payroll tax reduction would cost an estimated HUF 300 billion (about $1.4 billion). The tax proposals follow a January 25 meeting at which Gyurcsany told economists that a reduction in Hungary’s tax and contribution rates is necessary to maintain the nation’s competitiveness. The economists suggested that Budapest put in place an overall economic and social reform plan that would cover the next three to four years, extending beyond the next parliamentary elections in 2010. Hungarian industrialists offered their own suggestion at the January 25 gathering. Peter Furo, head of the Confederation of Hungarian Employers and Industrialists, told the Hungarian press that his organization suggested that Budapest suspend the capital gains tax for a year or two to spur savings and the purchase of government securities. While Gyurcsany was receptive to the economists’ suggestion, he remained noncommittal toward the CGT proposal. The government expects the economy to contract by 2 percent to 3 percent in 2009, forcing an adjustment in the budget that was approved in December 2008. But while Gyurcsany pointed to the need to lessen the tax burden on businesses, he also spoke of the need to maintain the budget’s deficit target of less than 3 percent of GDP, as required by the European Union. The government therefore hopes it can redistribute the tax burden, freeing up corporate money while preserving the income needed to hold down borrowing and the potential of an inflated deficit. Unnamed government sources were quoted as saying that Budapest wants to rearrange about HUF 1 trillion of spending and revenue items in the 2009 budget, 394 • FEBRUARY 2, 2009 TAX NOTES INTERNATIONAL (C) Tax Analysts 2009. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
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