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The ECJ's Attorney General's opinion of the 8 September 2011 in the case National Grid Indus v. Inspecteur van de Belastingdienst Rijnmond (C-371/10) concerns Dutch exit taxes on unrealised capital gains. The AG is of the opinion that the imposition of an exit tax on unrealised gains on assets in the course of a relocation of Dutch entity to the UK may run counter to the freedom of establishment. Background
National Grid Indus (NGI) was set up in the Netherlands to provide financing and act as a group treasury company within its UK group. NGI transferred its place of effective management and its business activities to the UK. Pursuant to the UK-Netherlands treaty, NGI's tax residence shifted to the UK with the result that all its unrealised gains became taxable only in the UK. Under Dutch law, NGI was treated as having realised a gain on foreign exchange (resulting from the GBP denominated receivables) upon the transfer of residence and this event triggered exit tax in the Netherlands.
AG's opinion
Advocate General Kokott concluded that an exit tax in an intra-EU scenario is in breach of the freedom of establishment if a Member State imposes such tax where domestic companies are not subject to the tax and where the exit tax is imposed without the option to postpone the tax payment and to offset subsequent losses on the assets transferred.
The AG considered that in principle, exit taxes are tools for ensuring a proper allocation of taxing rights between Member States but at the same time, exit taxes must be in line with the principle of proportionality of taxation. In determining whether an exit tax is proportionate, the AG said that a distinction ought to be made between the determination and the collection of tax.
The AG's view is the immediate chargeability of an exit tax is proportionate to the extent that the assets (pertaining to the relocating entity) and any unrealised gains thereon could not be easily monitored by the host member state following the relocation. In such case, the resulting gain or loss could not be easily determined and therefore, the imposition of an exit tax at the time of migration or relocation is justified. On the other hand, in the case of assets that are easily monitored following migration of the entity concerned, the AG is of the view that an exit tax would be diproportionate and contrary to the freedom of establishment. In such case, the tax should be postponed until the realisation of the actual capital gain.
In the present case, the AG held that an immediate exit tax imposed by the Netherlands could be justified even though the assets could be easily tracked provided the Netherlands gave relief for any subsequent losses on the asset.
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