European Community (EC) Law

The freedoms of the EC Treaty prescribe only that the EU member states may not discriminate between foreign nationals and the member states' own citizens. The European Court of Justice (ECJ) enlarged form overt discrimination to covert or indirect discrimination and reiterated several times that discrimination arises not only from the application of different rules to comparable situations but also from the application of the same rule to different situations.

Prohibitions of restrictions are based on the freedoms of establishment, the freedom to provide cross-border services and the free movement of capital. The restriction concept is aimed at abolishing all border obstacles within the EU market.

The ECJ as well as the organs of the WTO will peruse a comparable philosophy if conflicts between fiscal sovereignty and international principles of law provoke their attention. The national legislator has to keep the coherence between their national legal system and discrepancies are improper for the benefit of the domestic economy.

EU Directives as a secondary law have a direct and indirect treaty impact. Adoptions of EU Directives and the case law of the European Court of Justice show the recent developments in tax neutrality. The Council of the European Union adopted the Council Directive on elimination of withholding taxes on payments of interest and royalties made between associated companies of different member states. Transactions between companies of different member states should not be subject to less favourable tax conditions than those applicable to the same transactions carried out between companies of one member state. The amended EC Parent-Subsidiary Directive now covers a larger range of companies as well as permanent establishments of EU companies, lowers the inter-company holding threshold required for the application of its tax benefits and improves the mechanism it provides for the prevention of double taxation.

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