Mutual recognition in investment fund taxation? A reflection based on recent ECJ case law

Published date01 April 2023
DOIhttp://doi.org/10.1177/1023263X231189684
AuthorMoritz Scherleitner
Date01 April 2023
Mutual recognition in
investment fund taxation? A
ref‌lection based on recent ECJ
case law
Moritz Scherleitner *
Abstract
Recent ECJ case law regarding the taxation of investment funds seems to include elements of
mutual recognition, which is a rare phenomenon in the Courts doctrine on direct taxation.
Expanding on the rather clear positions of the Court in E, Veronsaajien oikeudenvalvontayksikkö
(Case C-480/19) and A SCPI (Case C-342/20), this two-part article strives towards taking a com-
prehensive and more systematic examination of the issue. Embedded into a broader dogmatic ana-
lysis, it will, with certain qualif‌iers, conclude that mutual recognition elements can be of relevance
to the Court when testing national fund taxation systems under the fundamental freedoms.
Keywords
EU tax law, investment fund taxation, mutual recognition, EU direct taxation, fundamental
freedoms
1. Introduction mutual recognition in fund taxation; two recent
examples
This article forms the f‌inal part of a series of papers that the author has written on the taxation of
income paid to and received by investment funds under EU law.
1
The commencement of the
*
Department of Accounting and Business Law, Aalto University School of Business, Aalto University, Aalto, Finland
Corresponding author:
Moritz Scherleitner, Department of Accounting and Business Law, Aalto University School of Business, Aalto University,
PO Box 21220, FI-00076 Aalto, Finland.
Email: Moritz.scherleitner@aalto.f‌i
1. Some parts of the present article are inevitably based on prior research. This is particularly true for section 3, which
is a framework chapter included in other articles as well as descriptions of the cases and references to literature analysed
in prior research. The novelty provided by this paper lies in the more detailed, broader and more systematic analysis of
Article
Maastricht Journal of European and
Comparative Law
2023, Vol. 30(2) 132169
© The Author(s) 2023
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DOI: 10.1177/1023263X231189684
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research interest was formed by two recent Finnish investment fund cases, specif‌ically, E
v. Verosaajien oikeudenvalvontayksikkö
2
involving individual taxation of an individual receiving
dividends from a non-resident fund and A SCPI involving the taxation of Finnish source income
paid to non-resident funds.
3
The analysis of these latter cases indicates that the ECJ is taking a
new perspective in the comparability analysis which, given the in part harsh critique on the
Courts approach to comparability, seems very notable.
4
The author suspected this to be some
sort of shift towards mutual recognition.
5
Yet, considering the inherent incompatibility of mutual
recognition and direct tax law, the author is hesitant to make this claim without comprehensively
examining the situation in a more detailed and systematic manner. This article subsequently aims
to respond to this and will, with various qualif‌ications, suggest that mutual recognition elements
have, indeed, been the fundament of the mentioned Finnish cases and, when searching for it,
may also be included in other case law on investment fund tax regimes.
The article will be published in two parts and will proceed as follows. Section 2 will introduce
readers to the essence of mutual recognition (section 2.A), the essence of the ECJs doctrine in
direct taxation (section 2.B), and will explain why these concepts hardly f‌it together (section
2.C). Thereupon, the author will brief‌ly elaborate on the key elements of fund taxation regimes
(section 3) after which the relevant case law is discussed from the perspective of mutual recognition.
Section 5 will summarize the factual and normative, takeaways provided in section 4 and aims to set
an agenda for future research. Section 6 will conclude.
2. The (diff‌icult) relationship between tax law and mutual recognition
A. The essentials of mutual recognition
The principle of mutual recognition is of immense relevance in EU law and is not only but espe-
cially, a key concept in the development of the Internal Market.
6
In its very essence, it sets out a
the topic of mutual recognition in fund cases something that was not proper to discuss in the prior papers. This article
also discusses further case law. For the earlier parts of the research project, see: M. Scherleitner, E, Veronsaajien
Oikeudenvalvontayksikkö C-480/19: A Remarkable Case,50Intertax (2022a); M. Scherleitner, The ECJs
Decision in A SCPI (C-342/20) A Missing Piece of One Puzzle and a New Piece of Another?62 European
Taxation (2022); M. Scherleitner, The Fundamental Freedoms and the Taxation of Dividends Received by
Non-Resident Investment Funds: Some Thoughts on Non-Discrimination With a Special Focus on Recent ECJ Case
Law,50Intertax (2022b).
2. Case C-480/19 E, Veronsaajien oikeudenvalvontayksikkö, EU:C:2021:334; M. Scherleitner, 50 Intertax (2022a),
p. 367.
3. Case C-342/20 A SCPI v. Veronsaajien oikeudenvalvontayksikkö, EU:C:2022:276; M. Scherleitner, 62 European
Taxation (2022), p. 443.
4. More broadly on the comparability analysis on which the Court relies in investment fund cases, including the critical
account of scholarship on the Courts approach, see M. Scherleitner, 50 Intertax (2022b), p. 484.
5. M. Scherleitner, 50 Intertax (2022a), p. 374375; M. Scherleitner, European Taxation (2022), p. 449450.
6. Instead of many, with further references and in more detail, W. Roth, Mutual Recognition, in P. Koutrakos and
J. Snell (eds.), Research Handbook on the Law of the EUs Internal Market (Edward Elgar, 2017), p. 427;
M. Möstl, Preconditions and Limits of Mutual Recognition,2Common Market Law Review (2010); C. Janssens,
The Principle of Mutual Recognition in EU Law (Oxford University Press, 2013); the contributions in F. Schioppa
(ed.), The Principle of Mutual Recognition in the European Integration Process (Palgrave Macmillan, 2005);
J. Ghosh, Tax Law and the Internal Market: A Critique of the Principle of Mutual Recognition,16Cambridge
Yearbook of European Legal Studies (2014); and see C. Barnard, The Substantive Law of the EU The Four
Freedoms (Oxford University Press, 2019), p. 88 et seq.
Scherleitner 133
mode of cooperation between national legal systems.
7
Its genesis goes back to the case law up to
and including Cassis de Dijon,
8
in which the Court held that goods that have lawfully been pro-
duced and marketed in one Member State may also be lawfully marketed in other Member
States
9
unless the host Member State can bring forward a mandatory requirement, for which achiev-
ing the measure is necessary.
10
The element of necessity expressed in Cassis de Dijon then created
the essential foundation for later case law declaring the application of national rules to be dispro-
portionate insofar as the rules of the home state effectively address the public interest pursued by
the host state.
11
In this context, mutual recognition is, in essence, a question of equivalence. If
the goal that the national rule seeks to protect is already safeguarded by an equivalent norm in
the other Member State, mutual recognition must prevail.
12
Although it took the Court until 2009 to explicitly refer to a principle of mutual recognition,
13
the
concept has gained primary status for all of the fundamental freedoms.
14
Sensu stricto, mutual rec-
ognition is a matter of proportionality.
15
The refusal to recognize a good, person, or service because
of non-compliance with national requirements that are already equivalently fulf‌illed in another
7. More generally speaking, mutual recognition is relevant far beyond internal market law. On the one hand, mutual rec-
ognition plays a role in the EU criminal justice area. See on that in detail and instead of many, e.g. C. Janssens, The
Principle of Mutual Recognition in EU Law, p. 131 et seq.; K. Lenaerts, The Principle of Mutual Recognition in the
Area of Freedom, Security and Justice,3Il Diritto dellUnione Europea (2015); on the other hand, it is encountered in
the sphere of international trade law. See, including further references, W. Roth, in P. Koutrakos and J. Snell (eds),
Research Handbook on the Law of the EUs Internal Market, p. 429, who also refers to the possibility that Member
States may unilaterally recognise foreign acts which has a long-standing tradition with respect to judgments of
foreign courts.
8. Case C-120/78 Rewe-Zentral AG v. Bundesmonopolverwaltung für Branntwein (Cassis de Dijon), EU:C:1979:42. See,
on the genesis of the principle in the case law up to Case C-120/78 Rewe-Zentral AG v. Bundesmonopolverwaltung für
Branntwein (Cassis de Dijon) in more detail, e.g. C. Janssens, The Principle of Mutual Recognition in EU Law. For a
critical account on the actual role of mutual recognition in Case C-120/78 Rewe-Zentral AG
v. Bundesmonopolverwaltung für Branntwein (Cassis de Dijon), see J. Ghosh, 16 Cambridge Yearbook of
European Legal Studies (2014).
9. Case C-120/78 Rewe-Zentral AG v. Bundesmonopolverwaltung für Branntwein (Cassis de Dijon), para. 14.
10. Ibid., para. 8. See further Case C-261/81 Walter Rau Lebensmittelwerke v. De Smedt PVBA, EU:C:1982:382.
11. W. Roth, in P. Koutrakos and J. Snell (eds), Research Handbook on the Law of the EUs Internal Market, p. 436.
12. Case 251/78 Denkavit, EU:C:1979:252, para. 22; Case 272/80 Biologische Producten BV, EU:C:1981:312, para. 14
15; see further on equivalence, including abundant references to case law, C. Janssens, The Principle of Mutual
Recognition in EU Law, p. 31 et seq.
13. Case C-110/05 Commission of the European Communities v. Italian Republic, EU:C:2009:66, para. 34; earlier, Case
C-184/96 Commission of the European Communities v. French Republic, EU:C:1998:495, para. 1, mutual recognition
was mentioned but, as stressed in literature, not in its capacity of a judicially developed principle. See C. Janssens, The
Principle of Mutual Recognition in EU Law, p. 12.
14. See, in more detail and with further references, e.g. C. Janssens, The Principle of Mutual Recognition in EU Law,p.14
24; W. Roth, in P. Koutrakos and J. Snell (eds), Research Handbook on the Law of the EUs Internal Market; with
respect to the free movement of workers see Case C-76/90 Säger, EU:C:1991:331, para. 12; Case C-288/89 Gouda,
EU:C:1991:323, para. 11, et seq. See C. Janssens, The Principle of Mutual Recognition in EU Law,p.1415 for
that and an analysis of cautious moves by the court into this direction in Case 16/78 Choquet, EU:C:1978:210;
Cases 110 and 111/78 Wesemael, EU:C:1979:8; Case C-340/89 Vlassopoulou, EU:C:1991:193; Case C-104/91
Aguirre Borrell, EU:C:1992:202; Case C-313/01 Morgenbesser, EU:C:2003:612, para. 61; Case C-55/94 Gebhard,
EU:C:1995:411; Case C-210/06 Cartesio, EU:C:2008:723; Case C-212/97 Centros, EU:C:1999:126; Case C-208/00
Überseering BV v. Nordic Construction Company Baumanagement GmbH (NCC), EU:C:2002:632; Case C-167/01
Inspire Art, EU:C:2003:512; with respect to the free movement of capital, see, e.g. Case C-279/00 Commission
v. Italy, EU:C:2009:66.
15. C. Janssens, The Principle of Mutual Recognition in EU Law.
134 Maastricht Journal of European and Comparative Law 30(2)

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