160 TTPJ ULY/AUGUST 2003 the CFC income attribution(taxable under Sec. 7)on However, tax law provides that if assets are withdrawn other hand, the teleological reduction of Sec. I is relet from one business and are transferred to another domestic business, the so-called partial values(Teihvern) must be applied. The partial value equals the acquisition costs of 5 SEC. 1 AND EUROPEAN LAW an asset; it does not include a profit element, whereas the arm's length price as required by Sec. I generally includes However, there is more to the necessary modifications a profit component. Consequently, higher taxation might than recognizing the developments in German tax law be borne in cases where Sec. I applies. The Federal Tax described above. In addition to a purely domestic perspec- Court came to the conclusion that this different taxation tive, it is also important to consider the implications of might violate the taxpayers right of free movement of ser- European law. Although there is no tendency to fully har- vices(under Art. 43 of the EU Treaty ) as well as the free- tic tax laws must not violate binding European law. In this because comparable circumstances are subject to less tax context, it is in the countries' vital interest not to breach in a purely domestic transaction as compared to cross-bo the four fundamental freedoms provided by the treaty der transactions establishing the European Union. 5 A famous example in this respect could be the treatment of Sec. I The german Federal Tax Court 6 had to decide whethe the limited application of Sec. I of the Foreign Tax Code 15 scope of application of this provision is limited to cases establishrof free movem. where"business relationships extending to a foreign coun- 16. Decision of 21 June 2001,Deutsches Steuerrecht(2001),at1290See Note try"exist, i.e. the regulation is not applicable in purely 17 see Note 2 for further i domestic cases. In the Federal Tax Court case. it was criti 18. See also Secs. 4(1)and 6(1)of the Income Tax Code cal that Sec. I requires determining an arm's length price. 19. See Kroppen and Rasch, 10 Transfer Pricing Report(2 June 2002), at835 Continued from page 153 aro de juan Ledesma Mexico reme Court Rejects Request for Preliminary Ruling Ricardo Rendon and Oscar Campero from European Court of Justice Regarding Tax Maquiladora Extension of Transfer Pricing Rules and Consolidation Regir Tax Incentive DOCUMENTATION Profit Split Agreement between the Netherlands European Union and germany on the International Allocation of Taxable The EU Joint Transfer Pricing Forum Income of Netherlands Flower Salesmen .0 Issues for Debate 23 Harm van den broek Summary Record of the First Meeting of the EU Joint Bosal Holding and the Confusion Surrounding Transfer Pricing Forum held in Brussels on the Territoriality Principle 116 3 October 2002 Netherlands antilles Victor Matchekhir Ministerial Decision on Profit Tax Ruling Policy Transfer Pricing Rules, Practice and Potential 124 @2003 International Bureau of fiscal documentation[continued from page 153] Mexico Ricardo Rendón and Oscar Campero: Maquiladora Extension of Transfer Pricing Rules and Tax Incentives 18 Netherlands Rijkele Betten: Profit Split Agreement between the Netherlands and Germany on the International Allocation of Taxable Income of Netherlands Flower Salesmen 20 Harm van den Broek: Bosal Holding and the Confusion Surrounding the Territoriality Principle 116 Russia Victor Matchekhin: Transfer Pricing Rules, Practice and Potential Development 124 Spain Álvaro de Juan Ledesma: Supreme Court Rejects Request for Preliminary Ruling from European Court of Justice Regarding Tax Consolidation Regime 59 DOCUMENTATION European Union The EU Joint Transfer Pricing Forum Issues for Debate 23 Summary Record of the First Meeting of the EU Joint Transfer Pricing Forum held in Brussels on 3 October 2002 65 Netherlands Antilles Ministerial Decision on Profit Tax Ruling Policy 75 160 ITPJ JULY/AUGUST 2003 © 2003 International Bureau of Fiscal Documentation the CFC income attribution (taxable under Sec. 7) on the other hand, the teleological reduction of Sec. 1 is relevant. 5. SEC. 1 AND EUROPEAN LAW However, there is more to the necessary modifications than recognizing the developments in German tax law described above. In addition to a purely domestic perspec￾tive, it is also important to consider the implications of European law. Although there is no tendency to fully har￾monize the tax systems of the EU Member States, domes￾tic tax laws must not violate binding European law. In this context, it is in the countries’ vital interest not to breach the four fundamental freedoms provided by the treaty establishing the European Union.15 A famous example in this respect could be the treatment of Sec. 1. The German Federal Tax Court16 had to decide whether the limited application of Sec. 1 of the Foreign Tax Code met the requirements of prevailing European law.17 The scope of application of this provision is limited to cases where “business relationships extending to a foreign coun￾try” exist, i.e. the regulation is not applicable in purely domestic cases. In the Federal Tax Court case, it was criti￾cal that Sec. 1 requires determining an arm’s length price. However, tax law provides that if assets are withdrawn from one business and are transferred to another domestic business, the so-called partial value18 (Teilwert) must be applied. The partial value equals the acquisition costs of an asset; it does not include a profit element, whereas the arm’s length price as required by Sec. 1 generally includes a profit component. Consequently, higher taxation might be borne in cases where Sec. 1 applies. The Federal Tax Court came to the conclusion that this different taxation might violate the taxpayer’s right of free movement of ser￾vices (under Art. 43 of the EU Treaty), as well as the free￾dom of establishment (under Art. 37 of the EU Treaty) because comparable circumstances are subject to less tax in a purely domestic transaction as compared to cross-bor￾der transactions.19 15. Under the EU treaty, there are four so-called “fundamental freedoms”, i.e. the right of free movement of persons, services, and capital, and the freedom of establishment. 16. Decision of 21 June 2001, Deutsches Steuerrecht (2001), at 1290. See Note 2. 17. See Note 2 for further references. 18. See also Secs. 4(1) and 6(1) of the Income Tax Code. 19. See Kroppen and Rasch, 10 Transfer Pricing Report (2 June 2002), at 835