Opinion Statement ECJ-TF 1/2023 on the ECJ Decision of 16 February 2023 in Gallaher Limited (Case C-707/20), on the Taxation of Capital Gains in Intra-Group Transfers

In this CFE Opinion Statement, submitted to the EU Institutions in June 2023, the CFE ECJ Task Force comments on the ECJ decision in Gallaher Limited (Case C-707/20), which provides further clarity on the scope of the fundamental freedoms, the correct comparator in establishing discrimination and the proportionality of discriminatory taxation of capital gains. Gallaher concerns the compatibility of the United Kingdom’s group transfer rules with EU law. Under those rules, sales of assets between resident group members are treated as tax neutral, whereas sales to non-resident group members are taxed immediately. Following Advocate General Rantos’ Opinion of 8 September 2022,[2] the ECJ found the UK group transfer rules to be in line with EU law. In essence, the Court held (i) that only the freedom of establishment, under article 49 TFEU (and not also the freedom of capital movement under article 63 TFEU) is relevant in respect of national legislation that applies only to groups of companies; (ii) that no relevant restriction of the parent company’s freedom of establishment exists where a transfer is taxed irrespective of the residence of the parent; and (iii) that the immediate taxation of a realized gain in respect of a cross-border sale within the EU is justified and proportionate, even if a comparable domestic sale is treated as tax neutral.