On March 15, 2023 Fugro lodged an action with the General Court of the EU to partially annul the Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (Case T-143/23).
Parties
Applicant: VF
Defendant: Council of the European Union
Form of order sought
The applicant claims that the Court should:
- annul the Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union, in so far as
- Article 17 excludes from its scope income from a shipping activity covered by Member States’ tonnage tax regime authorized under State aid rules, other than “international shipping income” and “qualified ancillary international shipping income”;
- Article 17 applies only if “the constituent entity demonstrates that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where the constituent entity is located”;
- the Directive does not lay down transitional measures for taxpayers that made substantial investments relying on a national tonnage tax regime;
- order the Council of the European Union to pay the costs of this procedure.
Legal context
Article 17 (International shipping income exclusion) of Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union reads as follows:
“1. For the purposes of this Article, the following definitions apply:
(a) ‘international shipping income’ means net income obtained by a constituent entity from the following activities, provided that the transportation is not carried out via inland waterways within the same jurisdiction:
(i) transportation of passengers or cargo by ship in international traffic, whether the ship is owned, leased or otherwise at the disposal of the constituent entity;
(ii) transportation of passengers or cargo by ship in international traffic under slot-chartering arrangements;
(iii) leasing of a ship to be used for the transportation of passengers or cargo in international traffic on charter fully equipped, crewed and supplied;
(iv) leasing of a ship used for the transportation of passengers or cargo in international traffic, on a bareboat charter basis, to another constituent entity;
(v) participation in a pool, a joint business or an international operating agency for the transportation of passengers or cargo by ship in international traffic; and
(vi) sale of a ship used for the transportation of passengers or cargo in international traffic, provided that the ship has been held for use by the constituent entity for a minimum of one year;
(b) ‘qualified ancillary international shipping income’ means net income obtained by a constituent entity from the following activities, provided that such activities are performed primarily in connection with the transportation of passengers or cargo by ships in international traffic:
(i) leasing of a ship, on a bareboat charter basis, to another shipping enterprise that is not a constituent entity, provided that the duration of the charter does not exceed three years;
(ii) sale of tickets issued by other shipping enterprises for the domestic leg of an international voyage;
(iii) leasing and short-term storage of containers or detention charges for the late return of containers;
(iv) provision of services to other shipping enterprises by engineers, maintenance staff, cargo handlers, catering staff and customer services personnel; and
(v) investment income, where the investment that generates the income is made as an integral part of the carrying on of the business of operating ships in international traffic.
2. The international shipping income and the qualified ancillary international shipping income of a constituent entity shall be excluded from the computation of its qualifying income or loss, provided that the constituent entity demonstrates that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where the constituent entity is located.
3. Where the computation of a constituent entity’s international shipping income and qualified ancillary international shipping income results in a loss, such loss shall be excluded from the computation of the constituent entity’s qualifying income or loss.
4. The aggregated qualified ancillary international shipping income of all constituent entities located in a jurisdiction shall not exceed 50 % of those constituent entities’ international shipping income.
5. The costs incurred by a constituent entity that are directly attributable to its international shipping activities listed in paragraph 1, point (a), and qualified ancillary international shipping activities listed in paragraph 1, point (b), shall be allocated to such activities for the purpose of computing the net international shipping income and the net qualified ancillary international shipping income of the constituent entity.
The costs incurred by a constituent entity that indirectly result from its international shipping activities and qualified ancillary international shipping activities shall be deducted from the constituent entity’s revenues from such activities to compute the international shipping income and qualified ancillary international shipping income of the constituent entity on the basis of its revenues from such activities in proportion to its total revenues.
6. All direct and indirect costs attributed to a constituent entity’s international shipping income and qualified ancillary international shipping income in accordance with paragraph 5 shall be excluded from the computation of its qualifying income or loss.”
Pleas in law and main arguments
In support of the action, the applicant relies on five pleas in law.
- First plea in law, alleging that the Directive infringes the general principle of equal treatment of comparable enterprises.
- Second plea in law, alleging that the Directive infringes the general principle of proportionality because its effects exceed what is necessary to achieve its purpose.
- Third plea in law, alleging that the application of the Directive rules to purely domestic situations infringes the principle of proportionality.
- Fourth plea in law, alleging the infringement of the principle of protection of legitimate expectations and legal certainty.
- Fifth plea alleging an infringement of Articles 115 and 107 TFEU.
Another party that also lodged an action to partially annul the Directive is Boskalis. Unfortunately the Boskalis case was thrown out of court because it was lodged with the Court on March 16, 2023 and therewith one day too late. Our article on the Boskalis case can be found here.
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