Abuse of rights in EU Law - Conclusions from L. Cerioni

 Highlights from the article. Please note that the Court of Justice in its jurisprudence usually refers to intra-EU operations (company in one Member State A moving to another Member State B). Because the internal market is the general principle, the test that national legislation must pass is strict.

The ECJ has never ruled, to the best of my knowledge, on abuse of rights (freedom of establishment) or abuse of EU law by a non-EU company from outside the EU/EEA. In my view, the test that national legislation would have to pass in order to prevent abuse of rights is not as high if there is no genuine economic activity within the European territory and the purpose of the national legislation is non-economic but rather the protection of the public interest.

 

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The case-law from the ECJ (ruling Cadbury Swcheppes) shows that:

 A genuine economic activity is required in order to benefit from the freedom of establishment. The objective factors which must be demonstrated
relate to the existence of the subsidiary in terms of premises, staff and equipment. 

The ECJ clearly specified that “letter-box” or “front” subsidiaries are not covered by the Treaty provisions on the right of establishment. Its importance from the tax law viewpoint lies in the circumstance that – by making reference to this case of  subsidiaries not carrying on genuine economic activities – the ECJ explained the meaning of the expression “wholly artificial arrangements”, that it had already used in several previous tax law rulings.

Cadbury Schweppes thus showed the application of the same test (including the subjective and the objective elements) for identifying the abusive practices from one area of EU law to another, and clarified that, in the field of tax law, wholly artificial arrangements – such as the setting up in other Member States of subsidiaries not carrying on genuine economic activities - are synonymous of abuse. 

As the purpose of the freedom of establishment is to make it possible a genuine economic interpenetration within the internal market, a wholly artificial arrangement which does not lead to this integration cannot benefit from the freedom of establishment.

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From this viewpoint, it might well be submitted that, when the exercise of fundamental freedoms is at stake, there is simply an application of the “rule of reason test” which has been elaborated by the ECJ case-law in the landmark Cassis de Dijon ruling in the area of free movement of goods:
specifically, this tests consists of recognising that there are overriding reasons of public interest which can justify restricting the use of fundamental freedoms, and a “rule of reason” test would be used, for this purpose, to protect the financial interest of Member States  in cases of wholly artificial arrangements, by regarding these arrangements as abusive.                                

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In the present work, it has therefore been stressed that the existence of the
prejudice (to either Member States' financial interests or the general public interest or to specific interests)  makes it possible to find a unitary notion from both the perspective of the types of conduct involved and the perspective of the different areas, and that this aspect is bound to be the ultimate outcome in cases of artificial conduct (i.e., of creation of the formal conditions for obtaining benefits without the underlying required economic substance or resort to freedoms without genuine economic integration). 

   
As a result, taking the concept of abuse of rights developed by the ECJ case-law, and capable of being regarded as a general principle (with a sui generis aspect), which has been here analysed with particular regard to the areas of company law and tax law, together with the concept embodied in Art. 54 of the Charter of Fundamental Rights,  a conclusion seems to be inevitable. 

Specifically, it can be concluded that the two concepts – due to the fact that they differ from each other not in the substance, but only from the viewpoint of the scope of rights embraced and from the viewpoint of the actors of the conduct under consideration – are complementary to one other in ensuring that, within the framework of the EU legal order on its whole, rights of whatever nature can be abused by neither public bodies nor right holders.   

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http://bura.brunel.ac.uk/handle/2438/4141

Title:	The “abuse of right” in EU company law and EU tax law: A re-reading of the ECJ case-law and the quest for a unitary notion
Authors:	Cerioni, L
Keywords:	EU company law EU tax law
Issue Date:	26-Feb-2010
Abstract:	This article discusses whether, in light of the developments of the ECJ case-law in different areas, and in particular in the areas of EU company law and EU tax law, it is possible to identify a unitary concept of “abuse of rights” in EU law, and whether the prohibition of abuse of right based on such concept has reached the status of “general principle” of EU law. Through a re-reading of the ECJ case-law, it is argued that it is possible to identify a unitary concept of abuse of rights, and that the prohibition of abuse of rights could be described in terms of a “general principle with a sui generis aspect”, which general principle, in the author’s view, should be seen as complementary to the prohibition of abuse of rights spelt out in Art. 54 of the Charter of Fundamental Rights for consistency of the (post-Lisbon Treaty) EU legal order.
URI:	http://bura.brunel.ac.uk/handle/2438/4141
Appears in Collections:	Brunel Law School Research Papers Law