UK Experts Warn Of Corporate Exodus Following ECJ Ruling

by Robin Pilgrim, LawAndTax-News.com, London

18 March 2003

According to a report from the Times yesterday, the UK government may be among the EU member states facing a corporate exodus after the European Court of Justice (ECJ) ruled on cross-border tax discrimination in the EU.

In the preliminary hearing of the Conseil d'Etat v de Lasteyrie du Saillant case, the ECJ's Advocate General decided that the French government had violated the freedom of establishment provisions contained within EU law by levying a punitive residential exit tax on an individual who wanted to transfer his tax residence out of France.

The Times report suggested that the ruling is likely to reignite fierce debate over the harmonisation of tax law, which has been strongly opposed by several EU member states. More worrying, however, are the potential implications of the ECJ ruling for companies wishing to relocate.

According to the Times report:

'Twelve of the EU's 15 member countries impose company emigration exit charges. They include the UK, France, Germany, Italy and Spain. The huge tax penalties act as a deterrent on companies wanting to relocate to other member states where running costs are less...Tax charges vary from country to country, but most countries, including the UK, levy a penalty of about 30% of the value of a company's capital assets. Individuals must often pay up to 40%.'

Speaking on Monday, PricewaterhouseCoopers tax partner, Peter Cussons confirmed that certain EU governments will likely be adversely affected by the case, telling the Times that:

'If the ECJ decision, which is expected in the summer, also rules in favour of the taxpayer - as I strongly believe it will - the de Lasteyrie du Saillant case will lay the ground for possible further significant taxation claims from EU businesses in relation to corporate emigration exit charges.'

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