Invoking the law in an abusive manner can aim to avoid the provisions of national law rather than illegitimate gains or wholly contrary to EU legislation. We know that if direct taxation jurisdiction of Member States, the European Court of Justice required that the exercise of those powers to be in conformity with Community law, in particular with the Treaty on freedom of movement.tax evasion, EU legislation, European Court of Justice

Alia Gabriela DUTA

English

Research Papers in Economics

218                                                                      Finances  - Challenges of the Future 
 
1. How is the freedom of movement 
defined? 
 
Free  movement  of  capital, 
persons,  services  and  freedom  of 
establishment  is  the  heart  of  the  EU 
single market and it is the pillar of EU.  
For citizens, these freedoms are 
able  to  perform  many  and  varied 
operations abroad such as:  
  opening bank accounts;  
  buying  shares  in  the 
European space or real estate;  
  investing  in  places  that  offer 
the best return.  
For  companies,  these  freedoms 
offer  the  opportunity  to  invest  in  other 
enterprises,  to  become  their  owners  to 
participate actively in their management.  
Before  1990,  there  was  free 
movement of capital in practice in some 
Member  States.  Moreover,  even  if  that 
freedom exists in theory, many financial 
transactions  with  other  Member  States 
claimed  prior  authorization  of  the 
national,  the  term  procedure  known  as 
"control  of  trade."  This  control  allowed 
national  authorities  to  prevent 
transactions that a citizen or a company 
wanted  to  achieve  in  another  Member 
State and show that financial integration 
in the single market was not yet real.  
Complete liberalization of capital 
in the EU was adopted in 1988 (Directive 
88/361/EEC) and has been applied since 
1990 in most Member States, while some 
specific transitional periods were agreed. 
Liberalization  of  capital  movements 
resulted in the development of EMU and 
was referred to provisions of the Treaty 
of  Maastricht  entered  into  force  in 
November 1993. Were thus prohibited all 
discrimination  and  all  the  obstacles 
created by national tax laws. 
 
2. Interpretations of the concept of tax 
evasion in the EU law 
 
Definition  of  tax  evasion  was 
done  by  several  judgments  of  the 
European Court of Justice and applies to 
all Member States.  
In narrower sense, tax evasion is 
to  avoid  or  reduce  taxes  by  moving 
assets  or  capital  from  one  country  to 
another (most often due to a tax haven or 
a  country  with  tax  privileges)  and  not 
declaring the income it generates.  
In  a  more  general  sense,  tax 
evasion  is  similar  to  tax  fraud  and  it 
refers to having a behavior with the sole 
purpose of reducing the tax burden to the 
taxpayer.  
General  definition  is  subject  to 
confusion  between  the  Member  States 
and the European Court of Justice on its 
interpretation.  
Indeed,  in  its  first  sense,  tax 
evasion, although it is similar to tax fraud, 
while  it  differs  in  that  it  is  legal.  In  this 
sense, tax evasion is taking behavior with 
the purpose of decreasing the tax burden 
to the taxpayer, without this behavior to 
break  the  law  and  therefore  can  be 
considered as tax fraud.  
The  second  meaning  refers  to 
"tax  fraud"  and  is  therefore  an  illegal 
behavior. The meaning of the Court this 
term  represents  the  behavior  of  a 
taxpayer  seeking  a  tax  advantage 
through purely artificial means.  
 
MEANS TO COMBAT TAX EVASION IN THE EUROPEAN 
UNION 
 
Lect. Alia Gabriela DUŢĂ, PhD 
University of Craiova 
 Year IX, No.11/2010                                                                                                   219 
It  is  Important  for  the  European 
Court  of  Justice  to  draw  correctly  the 
border  between  legitimate  search  of  a 
favorable  income  tax  (and  to  respect 
freedom  of  movement  among  EU)  and 
tax evasion in the strict sense of purely 
artificial means. The border between the 
abuse  of  law,  tax  evasion  and  fraud  is 
extremely  fragile,  hence  it  is  difficult  to 
address this problem. 
3. Assessments of pronounced 
sentences of the European Court of 
Justice 
 
• Case for Emsland-Starke 
  
  Litigation  
A  German  company  exporting 
agricultural products outside the EU was 
obliged to repay  the aid  granted by the 
European  Commission  on  grounds  that 
the  products  were  returned  to 
Switzerland  within  the  EU  the  same 
means  of  transport.  Emsland-Starke 
Society contest this decision.  
  The first stage  
We  mention  that  the  Emsland-
Starke  company  is  a  German  company 
exporting  agricultural  products  to 
companies  Fogo  and  Lukow  in 
Switzerland.  These  two  companies  are 
the  principal  Swiss  and  in  the  same 
person as the society-Emsland Starke.  
  Interest in this transaction  
Under  the  European  directive  on 
agriculture,  all  agricultural  products 
exported from the Union benefit from the 
"export refunds”. The objective is to allow 
the export of agricultural products outside 
the Union with a grant.  
Emsland-Starke  company  will 
receive a grant award from the European 
Commission and  will  be  exempted from 
VAT for export operation.  
  The second stage  
After  receiving  supplies  from 
Emsland-Starke  company,  two  Swiss 
companies  decide  to  resend  the  same 
transport merchandise to Lumaca Italian 
society,  the  Community,  according  to 
transit procedure.  
This  allows  the  suspension  of 
customs duties and applicable taxes until 
goods  reach  their  destination  in  the 
community.  Thus,  Swiss  companies  are 
transiting  goods  on  the  territory  of  the 
European customs without paying duty.  
The  decision  was  that  German 
customs  requested  the  return  of  export 
duties  obtained  from  Emsland-Starke 
company  in  Switzerland  because 
exported  goods  were  not  consumed  in 
that  country.  Business  was  subject  to 
complaints  of  European  justice  that 
characterized the operation as an abuse 
of rights.  
  Solution ECJ  
Court  states  that  the  goods  were 
exported  to  Italy  immediately,  with  the 
same  means  of  transport,  without 
download.  Thus,  the  real  objective 
pursued by the company Emsland-Starke 
was providing export subsidy.  
According  to  the  solution  of  the 
Court,  the  implemented  operation  didn’t 
allow the European directive to reach its 
goal  of  helping  European  companies  to 
export  goods  outside  the  Community, 
under  the  free  movement  of  capital. 
Moreover,  Lumaca  Italian  society  is 
forced  to  pay  VAT  on  imports,  creating 
an  imbalance  in  relation  to  German 
society  that  produced  only  advantages, 
causing competitive distortions within the 
EU.  
Judges show that the transaction is 
purely artificial legally and economically. 
Free  movement  has  only  been  used  to 
benefit  Emsland-Starke  society  and  not 
all  participating  parties,  thus  ECJ  says 
that the German tax authorities are right.  
 
• Case "Mark Spencer" 12/13/2005  
 
The  British  company  disputed  the 
dispositions  of  the  tax  system  "group 
relief". Therefore it notifies the European 
Court  of  Justice,  holding  that  certain 
provisions  of  law  are  in  conflict  to  the 
freedom of establishment.  
 
 220                                                                      Finances  - Challenges of the Future 
  Litigation  
M&S  society,  resident  in  Britain, 
had  branches  in  several  European 
countries  including  Germany,  Belgium 
and France by a Dutch holding company. 
Since  the  mid-1990s  these  subsidiaries 
began  to  make  losses,  so  that  the 
leadership group decided to close down 
activities in Belgium and Germany, while 
French  stores  were  sold  to  another 
company.  
Following  the  assignment  of 
activities, M & S decided to bring a claim 
for  compensation  of  losses  with  profits 
made  by  European  subsidiaries  of  UK 
parent company by applying the system 
of "group relief".  
  Regime of "group relief"  
Indeed, the British tax law allows a 
parent  group  to  operate  in  certain 
conditions, compensation between profits 
and  losses  incurred  by  various 
subsidiaries.  
This  regime  of  "group  relief" 
authorizes  a  company  of  the  group 
(called  the  ceding  company)  to  transfer 
its  losses  during  a  financial  year  to  a 
company of the group (called the accuser 
company),  so  that  the  latter  should  be 
able  to  deduct  the  so-called  loss  of 
taxable income, thereby paying less tax. 
This benefit is conditional on the fact that 
foreign affiliates exert some activity in the 
UK  with  an  agency  or  permanent 
establishment.  Therefore,  the 
subsidiaries  established  in  other  EU 
member  states  are  not  allowed  to 
transfer  their  losses  to  a  UK  resident 
company under current UK tax law. Thus, 
British  tax  administration  refused  to 
impute to the company M & S the losses 
of  certain  foreign  subsidiaries  from  the 
fiscal profit of the subsidiaries in the UK.  
  Position of the ECJ  
The case brought before the Court 
for M & S  was  whether the  English tax 
system  is  contrary  to  freedom  of 
establishment  enshrined  for  the  articles 
43 and 48 of the EC Treaty, taking into 
consideration  only  the  losses  made  by 
subsidiaries resident in Britain, not those 
made in other Member State.  
European Court of Justice ruled in 
favor of British Administration, giving the 
possibility  to  transfer  losses  to  a 
subsidiary  non-resident  company  to 
create the risk that the loss transfers to 
be  held  among  a  group  towards 
companies  established  in  the  Member 
State imposing the higher quota. 
 
4. Conclusions 
 
The  apparition  of  the  concept  of 
abuse of law is an instrument that allows 
Member  States  to  combat  tax  evasion 
and  aim  to  ensure  a  fair  tax  system 
between  resident  and  non-resident 
companies.  
ECJ  will  seek  to  respect  the 
Community  disposition  provided  for  in 
Article 43 of the EC Treaty on freedom of 
establishment. In this context, the Court 
noted that the concept of office "involves 
the  actual  exercise  of  economic  activity 
through  settlements  in  that  state  for  an 
indefinite  period"  or  in  other  words  "an 
actual implantation of a company in the 
host  Member  State  and  a  year  actual 
activities within its territory".  
Thus,  the  ECJ  prohibits  Member 
States  to  adopt  fiscal  measures  which 
have the effect of preventing a national to 
settle in another Member State and at the 
same  time  there  are  rejected  tax 
measures  that  create  obstacles  to 
establishing businesses in other Member 
States than that of residence. Freedom of 
establishment  should  work  both  ways, 
prohibiting  both  the  State  of  residence 
and the other state to take discriminatory 
measures.  
ECJ  also  stresses  that  a  Member 
State  can  not  prevent  a  company  from 
exercising  the  right  of  establishment  on 
its  territory  because  the  transaction  will 
result in a tax loss for it.  
Situated  at  the  junction  of  state, 
economy  and  society,  taxation  is 
essential  to  understanding  the  structure Year IX, No.11/2010                                                                                                   221 
of state and society and to analyze the 
phenomenon of globalization.  
Opening  the  borders  between 
Member  States  caused  taxpayers  to 
adjust to new rules of flexibility, with profit 
maximization  at  the  center  of  all 
concerns.  But  this  running  after  profits, 
even  if  encouraged  by  the  legislature, 
includes some skepticism towards a tax 
legislation  becoming  more  complex.  To 
adapt to this new reality, the law builds 
the force, enabling companies to evolve 
into  a  framework  that  fosters 
competitiveness.  
In  Europe,  case  law  on  direct 
taxation which will assist Member States 
to  justify  tax  obstacles  and  the  need  to 
fight  discrimination  against  tax  evasion. 
Indeed,  even  if  the  ECJ  continues  to 
challenge  the  establishment  and 
operation of foreign subsidiaries may be 
a  general  presumption  of  tax  fraud,  the 
company  allows  the  resident  to  prove 
sufficiently  effective  in  its  activities 
abroad.  
However,  this  finding  remains 
precarious, as long as there will be no tax 
harmonization on a European scale, the 
procedure  of  abuse  of  rights  in  its  fight 
against tax evasion will be limited. 
     
 
 
 
 
Cozian Maurice  Marile principii ale fiscalităţii întreprinderilor, Paris, Litec, Ed. a 4-a, 
1999; 
David Cyrille  Marile  hotărâri  ale  jurisprudenţei  fiscale,  Paris,  Dalloz,  Ed.  a  3-a, 
2000; 
Jean-Claude 
Martinez, Pierre di 
Malta 
Drept fiscal contemporan, Paris, Litec, 1999; 
Patrick Seerlooten  Drept fiscal al afacerilor, Paris, Dalloz, Ed. a 2-a, 2001. 
 
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