The ECJ held that the standstill clause also applies if the scope of the domestic CFC legislation is extended after 31 December 1993 to shareholdings that do not involve direct investment. In addition, the Court stated that Member States cannot rely on the standstill clause if they change their legislation after 31 December 1993 and then later replace these changes by legislation essentially identical to that applicable on 31 December 1993 unless these changes were never applied due to their repeal with retroactive effect. Concerning the interpretation of article 63 of the TFEU, the ECJ adopted, in substance, its approach in Cadbury Schweppes (Case C-194/04) and held that the German CFC legislation does not infringe the free movement of capital unless the Member State of the shareholder is able to verify the accuracy of the information that the shareholding in the company is not the result of an artificial scheme.
The CFE Tax Advisers Europe note that the Court’s decision in X GmbH constitutes a continuation of the Court's prior case law regarding the meaning of the standstill clause. The CFE welcomes the clarification with regard to the question of whether a restriction already existed on 31 December 1993.
The Court further developed its Cadbury Schweppes (Case C-196/04) jurisprudence, illustrating how to interpret the phrase “wholly artificial arrangements” in relation to the free movement of capital. The Court held that this concept has to be interpreted in a broader way in relation to third countries. It would be helpful if the Court were to give further guidance in a future decision on the meaning of “artificial transfer of profits”.
X GmbH is also likely to be relevant in respect of domestic legislation implementing articles 7 and 8 of the EU Anti-Tax Avoidance Directive (2016/1164) (ATAD) [5.] in that Member States will also have to apply the “substance escape” to third countries with an exchange of information clause.
|Number of pages||157|
|Publication status||Published - 2020|