Exit Taxes: The Commission versus Denmark Case Analysed against the Background of the Fundamental Conflict in the EU: Territorial Taxes and an Internal Market without Barriers

Abstract

Exit taxes are the last resort for States to tax unrealized capital gains which accrued while its underlying assets were attributable to the respective territory and are transferred cross-border. From a high-level point of view, an exit tax, triggered upon the mere migration of an asset or person from one Member State to the other clearly violates the internal market principle. However, since the decision in national Grid Indus it is common accord that the exit tax as such, i.e., the right of the Member State to tax the unrealized capital gains, is not infringing the freedom of establishment principle. Rather, it is the timing when such an exit tax can be enforced and under which circumstances. The latest decision in a series of treaty infringement procedures against several Member States sheds more light into the questions (i) when can a realization of the capital gains be deemed, (ii) is there a right for requiring a bank guarantee and (iii) what about the charging of interests on the deferred taxes.