Today, 15 July 2010, the tax chamber of the Amsterdam Court of Appeal requested preliminary rulings from the European Court of Justice on the legitimacy of a so-called exit tax.
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The case concerns the migration of X BV to the United Kingdom (UK). In the case of migration (i.e.: seat transfer), according to Dutch tax law, tax has to be levied on the ‘hidden’ (unrealised at that time) profit reserves of a company. At the time of migration X BV was owed a large amount in British pounds by a group company. As a result of – at that time –the rise in the British pound against the Dutch guilder, this receivable had increased in value by more than NLG 22 million. Until the time of migration, tax had not yet been levied on this amount. On the occasion of migration to the UK the Dutch tax inspector has taxed this ‘hidden’ capital gain on the receivable (the exit tax). The corporate income tax assessment in question has been based, inter alia, on the contention that X BV was guilty of evasion of the law on account of the way in which it has tried to avoid the exit tax.
In the first instance, the Haarlem District Court ruled that the law had been evaded and found in favour of the tax inspector.
In appeal, the Amsterdam Court of Appeal also ruled that the law had been evaded. For that reason, the capital gain on the British pound receivable is, in principle, subject to tax at the time of migration. However, at the Court of Appeal the question arises as to whether under EC law such tax may be levied on a company upon its migration. That is to say, the Court of Appeal has to determine whether this exit tax is compatible with the freedom of establishment provided for in article 43 of the EC Treaty. As the answer is not sufficiently clear, the Court of Appeal has decided to submit this question for a preliminary ruling to the European Court of Justice in Luxembourg.
