Comparative Income Taxation
For many years, most companies wishing to venture into other market segments have found it difficulty to do. This is because of the legal changes in many countries. Many countries have changed laws that govern business in the country. The ruling made by the EC court of justice and EC regulations has played a vital role in changing the legal environment. The ruling made by the EC court of justice ruling on freedom of establishment has impact on companies’ expansion through out the European community than other rulings that govern movement and expansion into other market segments. For instance, the ruling made by the EC changed the legal competition between member countries. The European Union has established laws to govern the internal market. The laws are aimed at preventing competition in the market and exploitation of companies. For instance, the European Union has established the principle of freedom of establishment to allow companies to establish any where in the member states. Most companies in different countries have been affected by the ECJ ruling on freedom of establishment. For instance, theÜberseering has been adversely affected by the ruling in the Überseering v Nordic Construction Company Baumangagement GmBH. The European court of justice has permitted countries to violate the ECJ laws by establishing restrictions to protect consumers, creditors and justify their actions etc. This paper analyzes the extent to which the ECJ has allowed member states to justify the derogation in the light of the freedom of establishment.
The European court of justice is considered the highest court in the European Union according to the European Union law. The European court of justice is aimed at interpreting the European Union law and ensuring the laws are applied equally across all the member countries. The European court of justice is part of the court of justice of the European Union institution. The European court of justice was established in 1952 and is located in Luxembourg. The European court of justice consists of one judge from each member country. Currently, the court has 27 judges. The European Union internal market is aimed to guaranteeing the free movement of goods, services and people in the 27 member countries. It is also aimed at facilitating the movement of vital in the 27 member states. The internal market allows the movement of factors of production freely. Like other markets, the internal market is subjected to competition specialization and economies of scale. The internal market is supposed to be resistant to competition, specialization and economies of scale. The ECJ plays an important role in regulating the internal market (Tridimas &Nebbia, 2004).
There are various laws that have been established to govern the movement of goods, services and capital across the member states (Dahlberg, 2005). For instance, freedom of established has its origin from article 49-55 of the Tet of the functioning of the European Union. Article 49 and article 54 form the basis of the freedom of establishment law (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). Article 49, allows a member country to establish in a territory of another member state .Most countries have established regulations to prevent other countries from establishing in the country. This is to prevent them from competition.
Article 54 allows people to establish business in other countries. The freedom of establishment is one of the important provisions of the European Union. The freedom of establishment gives countries various rights (Bekker, Dolzer &Waibel, 2010). First, the freedom of establishment gives countries the right to take up and pursue different activities in different countries as employed persons (Maisto, 2007). In addition, the freedom of establishment gives countries the right to set up companies in different countries. The companies should be set up according to the conditions established by the host country. The companies should adhere to the laws establishment by the host country when carrying out their activities (Ault &Arnold, 2010). Further, the freedom of establishment gives the nationals of any of the member countries a right to establish in the territory of any of the member countries. For instance, the nationals can establish branches, agencies and subsidiaries in the member states. So, the nationals should be restricted by any laws or regulations to establish companies and carry out activities in the member countries. The freedom of establishment principle has become a major issue in many countries (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). This is because the European court of justice encourages countries to violate the EU laws and justify their actions. The principle of freedom of establishment allows economic operator to carry out economic activities is one of the member state or more member state. The operator is allowed to carry activities in a stable country. The provisions provided by the principle of freedom of establishment have direct effect on the member countries and the citizens (Andenas &Roth, 2002).
The freedom of establishment is far reaching and this has forced the European Union to establish legislations so as to achieve the objective set. For instance, the EU has established directives to determine the qualifications achieved in other member states. For the last ten years, a number of directives have been established specifying the mutual recognition requirements (Guild, King’s college &Centre of European law, 1999). In 1970s and 1980, the directives affected certain professional. In 1989, the mutual recognition directive was established. The European court of justice has allowed member countries to apply the freedom of establishment wholly or differently. The principal of freedom of establishment is supposed to be applied fully so as to ensure fairness and maintain order in the internal market. The European court of justice has given countries an opportunity to apply the law partially or in a different manner. This is evidenced by the rulings made in different cases like the Überseering BV vs Nordic Construction Company Baumangagement case (Ehlers, 2007).
Überseering was a Dutch company existed under the Dutch laws and owned a piece land in Germany. In 1992, Überseering signed a contract with Baumangagement Nordic Construction Company to renovate a garage and a motel (Staab, 2008). After the completion of the contract Überseering complained that the paint work was not done correctly (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). This forced Überseering to seek compensation for the damages caused from the Nordic construction company, but it was not successful. In 1994, the shares in the company were acquired by two German nationals Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). In 1996, the company brought a case before the German court seeking to get compensations. The case was dismissed by the regional court and the high court also dismissed the case later. The high court argued that the company had transferred its center of administration from the country to Germany as the company’s shares had been acquired by the Germany nationals. Hence, the company did not have a right to sue the Nordic construction company. This is because the Germany laws require companies to have a center of administration in the country. In this case, the company did not have either of the two and it was considered illegal (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003).
The real seat theory plays an important role in the restriction of freedom of establishment. This is in contrast with the community law Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). If a country transfers its center of administration from one country to another, it looses its existence in the host country. The host country does not recognize the company as legal. The real seat theory is applicable in Europe. In Europe a company looses its status if it transfers its center of administration from one country to another. This is according to laws governing border transfers (Eroglu, 2008).
During the Uberseering case the European court of justice confirmed that the real seat theory restricts the application of freedom of establishment. This is because it affects the freedom of establishment established by article 49 and 54 (Diaconu, 2010).The Überseering BV is a limited company that is incorporated under the Dutch laws. The company transferred its administration centers from Netherlands to Germany. In Germany, the company wanted to bring legal proceedings to protect the rights under a contract. The German court dismissed the claim (Maisto, 2009). The court used the real seat theory to rule the case. The judges argued that a company that is incorporated under the Dutch law and has its center of administration in Germany has no legal capacity in Germany and hence the company cannot bring any legal proceeding in the country (Nugent, 2006). This is in contrast to the freedom of establishment principle that allows countries to establish other branches in the host country. The companies are allowed to adhere to the regulations that govern other companies in the country. According to the case, the European court of justice allows some countries to implement the freedom of establishment principle differently or partly Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). This is because the countries establish laws that conflict with the principle of freedom of establishment. For instance, Germany does not allow any company that is based in another country and has its center of administration in the country to bring legal proceedings (Bermann &PIstor, 2004).
Moreover, during the case, the European court of justice argued that companies that are formed under the law of member countries and having registered office, central administration within the community are allowed to carry out activities in the host countries using the laws established by the member country (Graziadei, Ugo Mattei, &Smith, 2005). The important condition for the exercise of freedom of establishment by a firm is the existence of the company (Arnull, 1999). The existence of a firm cannot be separated from its status as stated under the laws of incorporation. This is because a company exists through the national legislations that determine its incorporation and functioning. In addition, the freedom of establishment requires the member countries to recognize a firm as a foreign company in any country they want to establish business. On the other hand, the German government argued that the decision was aimed at protecting the creditors, minority and shareholders and that it was applied without discrimination (Weatherill, 2007).Though, the European court rejected the application of real seat theory, the company existed in Germany and it had its center of administration in Germany. Only the company’s shares had been transferred to Germany (Geens, 2010).
Further, the European court of justice allows member countries to impose restrictions in certain circumstances (Wooldridge, Andenas &Andenes, 2009). For instance, the European court of justice allows countries to apply restrictions so as to prevent companies from abusing the general public (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). In addition, the European court of justice allows the countries to restrict certain companies from operating in the country incase of fraud. Also, member countries are allowed to protect the interest of creditors and minority share holders (Campbell &Netzer, 2009). Also, they are allowed to protect the employees and tax authorities in the country from being harmed by foreign firms. This is evidenced by most companies in the energy industry. The ECJ, EFTA and EU/EEA laws allow energy companies to establish in member states. They also allow the companies to transfer goods and services from the member states. This is according to the Principle of freedom of establishment (Rammeloo &Stephan, 2001). However, the ECJ, EFTA, EU/EEA support the implementation of restrictions on foreign firms if they violate the ECJ laws and other laws in the country (Kaczorowska, 2010). This is because foreign companies are allowed to adhere to the laws established in the member country and host country. Most companies find it difficulty to adhere to the rules developed in the host country as they a discriminatory. This is in turn affects foreign companies in the host countries as they find it hard to establish in the host country. In this case ECJ has allowed member countries to use any means to prevent negative impact caused by foreign countries. Though, the decision made by European court of justice is ethical, it has negative effects on other member countries as it affects the freedom of establishment (Papadopoulos, 2010).
In the Überseering BV vs Nordic Construction Company Baumangagement case, the court wanted to protect the interest of the creditors, employees and the shareholders in the two companies. The court ruling could have affected the shareholders, the creditors and employees in the companies’ neativery Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). For instance, the Überseering Company could have been forced to transfer its shares from Germany to another member state (Barnard, 2007). This would have led to looses and even collapse of the company. In addition, the company could have affected the employees in the country. So, the European court of justice allows countries to impose restrictions so as to protect the interest of the general public (Kaldellis, 2001). However, such decisions are not supposed to affect the legal capacity and establishment of companies as guaranteed by the ECJ laws. In addition, the objectives can not deny a company to be part of a legal proceeding in a member state. Hence, EU Company’s are allowed to be part of a legal proceeding in other countries. The decision made by the court was not ethical as it was not inline with the European court of justice rulings. The decision made was against the rights granted in article 43 and 48 of the EC laws. The courts ruling were also supported by the German government. The government argued was not discriminatory as it was aimed at protecting the general interest (Barnard, 2007).
In addition to the Überseering BV vs Nordic Construction Company Baumangagement case, the European court of justice allowed a Dutch gambling company to impose restrictions to prevent fraud in the country (Du Plessis, Großfeld, Lutterman &.Sandrock, 2007). The European court of justice argued that member countries can prevent internet gambling companies from operating in the country if the national courts in the country see the restrictions important to prevent fraud and crime in the country. In another case, Britain Ladbrokes and Betfair challenged De lotto, a Netherlands gambling firm. Ladbrokes wanted Netherlands to recognize the British license as it prevent fraud and gambling addiction (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). They also argued that the European Union laws allow companies to offer services in different member states. The ECJ supports the implementation of the restrictions in Netherlands as long as they are aimed at preventing fraud. The European court of justice ruled in favor of the De lotto company (Campbell, 2009). The judges argued that though the Ladbrokes companies offered services lawfully, it was difficulty for the member state to assume that the consumers in the country were protected (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). Additionally, the judges argued that it was easy for the company to affect the consumers as it does not offer services directly. The judges claimed that it is easy for the company to be involved in fraud. Hence, the member state should not allow the company to operate in the country. The court further stated that offering gambling services through the internet is more risky than offering gambling services using traditional means. Hence, the European court of justice allows member states to justify their actions (Magnus &Mankowski, 2007).
Moreover, the ECJ has allowed countries to impose regulations that lead competition in the member countries. The regulatory competition allow law maker to compete with other laws offered so as to attract businesses Regulatory competition depends on the capability of companies, employees and other people to move between two legal systems. At first, regulation competition was common in United States, but now it is common in many countries (Cahn &Donald, 2010). In Europe, the regulatory competition has been prevented by the real seat doctrine that has prevailed in private international law and EU and EEA member countries for many years (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). The regulatory competition requires companies to be incorporated where their central administration is located. The European court of justice encourages incorporation of companies where they have their central administration. The European court of justice allows member countries to recognize companies that are registered in other countries. The recognition of foreign company in the member countries is likely to lead to competition. This is because most companies will be able to establish business in the member countries (Reich, 2005).
This is evidenced in a series of cases that were heard between 1999 and 2003.For example, the ECJ decision is evidenced in the Überseering BV v Nordic Construction Company Baumangagement GmbH(Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003). In this case, the European court of justice allowed member countries to recognize companies that are established according to the laws in the member state. Also, member states are allowed to recognize foreign companies as evidenced by the Centros ltd verses Erhvervs-og Selskabsstyrelsen. The Überseering BV v Nordic Construction Company Baumangagement GmbH showed that companies from various member states have the right to choose which laws suit their needs before establishing. This is against the European court of justice laws and the EU treaty. The freedom of establishment laws companies to establish in any member country regardless of the laws. The regulation competition allows countries to develop laws that are inline with their interests. For example, the countries develop good laws so as to attract companies or investors. Studies have shown that the laws lead to competition as each member state tries to establish the right laws (Kiikeri & Finland. Kauppa- ja teollisuusministeriö, 2003).It is clearly that the European court of justice has permitted member states to justify their actions. The negative effects caused by the provisions have forced member states to modify their national laws that affect the freedom of establishment so as to make the laws compatible with the principle of freedom of establishment. The commission ensures the laws listed under article 49 and 56 are applied correctly by preventing an infringements on the law (Fibbe, 2009).
The freedom of establishment allows different firms to establish in the member states. The companies are supposed to adhere to the regulations set in the home country and the host country. Though the European court of justice is aimed at helping eliminate competition and discrimination in the internal market, it has more harm to the member states. This is evidenced by the Überseering BV vs Nordic Construction Company Baumangagement case and other cases. The European court of justice has allowed member states to implement the freedom of establishment principle differently. Most of the member states have been able to violate the freedom of establishment principle and have not faced any action. This is because the European court of justice has supported the actions taken by various countries to prevent fraud, protect consumers, creditors and shareholders. For example, the European court of justice has allowed countries to establish restrictions to prevent fraud and protect the interest of the general public.
In the Überseering BV vs Nordic Construction Company Baumangagement case, the European court argued that any company that its center of administration in another member state has the right to be recognized by the member state. During the case, Germany failed to recognize the Überseering as the company center of administration was not based in the country. The company had only its share holders in Germany. The Germany government argued that it could not recognize the company and dismissed the case. In addition, the government claimed that it was protecting the creditors, shareholders and the consumers as outlined in the law. Apart from the Ü Überseering BV vs Nordic Construction Company Baumangagement case, the ECJ has also allowed other countries like Dutch and Germany to impose restrictions on gambling companies. This is aimed at protecting the consumers from fraud and exploitation. Hence, the ECJ allowed countries to violate the ECJ laws. Moreover, the ECJ allowed companies to choose the right country to establish their business. This has in turn led to competition in the country.
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