The article discusses the development of the European Court of Justice approach to exit tax and the perspective adopted by ATAD (Anti-Tax Avoidance Directive) exit tax provisions.
Following a first European Court of Justice (ECJ) orientation according to which Member States were allowed to tax corporations on latent capital gains at the time of the transfer of the place of effective management to another Member State, but deferring the collection until the actual realization of the assets to five yearly instalments, the more recent ECJ approach allows an exit tax imposed upon the transfer regardless of the actual realization, payable over a five-year period.
On the lines of the second ECJ approach, ATAD provides a mandatory harmonized exit tax imposed at the moment of the exit, allowing a deferral over five yearly instalments. It represents the first form of income taxation provided by a EU Directive, which does not take into account if some EU Member State did not have any exit tax.
The ECJ shifting and the restrictive ATAD approach on exit tax may determine a wider rethinking of the movement of companies within the EU having the ATAD exit tax provision partially emptied the content of the freedom of establishment principle.EC Tax Review