Removing Tax Barriers from the Clearing and Settlement of Cross-Border Capital Market Transactions

Abstract

Where the institutions of the retention at source of taxes and the prevention of foreign financial intermediaries from assuming in the source country the liability to file tax information and arrange for the payment of tax in fair conditions comparable to their domestic counterparts are to be assessed in the light of the relevant Community law as communicated by the ECJ, it is crucial while concluding whether national legal practices of withholding taxation are consistent with Community law to apply the proportionality principle in specific cases. Where the application of the proportionality principle dictates us in a specific case respect of the effectiveness principle in enforcing rights both on the side of the tax authorities and taxpayers, an avenue may open up for progressively removing barriers from the clearing and settlement of securities transactions across the border. This paper is to discuss how the EC principles of effectiveness and proportionality are to be enforced by the European Court of Justice with regard to removing barriers from the free movement of services and capital upon withholding taxation.