Brussels, 28/09/2012 (Agence Europe) - On Thursday 27 September, the European Commission decided to send Germany to the European Court of Justice for discriminatory inheritance tax rules and hidden reserve allowances and the United Kingdom to the European Court of Justice for failure to correctly implement a Court of Justice ruling on tax relief for cross-border losses within a company.
Germany. - Hidden reserves. Under German legislation, hidden reserves can only be transferred tax-free into a reinvestment if the newly purchased assets belong to a permanent establishment in Germany. In practice, this means that a taxpayer wishing to sell certain fixed assets in order to establish himself in another EU Member State, or to expand his business activities abroad, will clearly be at a disadvantage. This unequal treatment can discourage cross-border investments, and its discriminatory nature is contrary to EU rules. - Inherited property. Under German law, there is a higher tax exemption (amounts up to €50,000) for inherited German property if the testator or the heir is living in Germany, than if they are both living abroad (€2,000). As a result, non-residents are taxed much higher on inherited assets located in Germany than German residents are. Such a provision could dissuade citizens living abroad from investing in property located in Germany and the Commission believes this is discriminatory and a restriction on the free movement of capital.
United Kingdom. The Commission says that the United Kingdom has not properly implemented the European Court of Justice's 2005 “Marks & Spencer” ruling (Case C-446/03) on cross-border loss relief. In 2005, the Court ruled that a parent company should not be prevented from deducting the losses of its subsidiary established in another member state, if all other possibilities have been exhausted. Although the UK amended its legislation after the judgement, it continues to impose conditions on cross-border group loss relief which, in practice, make it very difficult to benefit from the relief. The Commission considers that this infringes the principle of non-discrimination and the freedom of establishment set down in the treaty.
The referral to the Court of Justice is the last step in the infringement procedure. (FG/transl.fl)