Issue No. 461 Report No. 331, November 16, 19,7 IN THIS ISSUE page CoIIlIIlunity: Amendment of Tax Arbitration Proposal? ••.•• ! Brussels Welcomes EC Court's Metro Decision .••••••.••• 2 France: Paris Moves to Stall Food Price Increases •••.• 3 Italy: Employers Push for 'Corporate Statute' ••••.•..• 4 Switzerland: Bern to Make Another VAT Attempt •.••.•••• 5 'Chiasso' Bank Faces High Tax, Interest Claims •••.•••• 5 Germany: More Recycling Averts Packaging Curbs •.•••••• 6 Portugal: Steep Tax Increases in Draft Budget ••••••••• 7 Euro Company Scene ... ,, ............ ,,,,,,, ... ,,,,.,,,, 8 Community: Now that both the European Parliament (EP) and the Economic •Amendment of and Social Committee (ESC) have submitted their comments on Tax Arbitration the European Commission's proposal for an arbitration pro- Proposal? cedure to eliminate double taxation, Commission tax experts are studying the reports with a view toward perhaps amend­ ing the measure. The objective of the draft directive is to offer a way of avoiding the double taxation of profits transferred "artificially" between associated enterprises established in different member states. It is believed that multinational companies in particular have been using this device of disguised and artificial profit transfers in numerous ways (for example, by demanding excessive patent fees). Under present circumstances, a member state's tax au­ thorities may slap a higher tax on a parent company that has in effect reduced its tax liability by transferring profits to a subsidiary in another state. Yet, tax author­ ities in the latter state may not necessarily lower their assessment accordingly. The draft proposes that in such a case a special arbitration commission, composed of national tax officials and independent persons, would work out a so­ lution in order to eliminate double taxation (Common Market Reports, Par. 9897). The measure ties in with another on ---------This isBUe Is In two parts, eoD&istlnir of 71 pagM. Thie is Pa.rt I.--------- COMMON MARKET REPORTS, Issue No. 461, November 16, 1977. Published weekly by Commerce Clearing House, Inc., 4025 W. Peterson Ave., Chicago, Illinois 60646. Subscription rate $525 per year. Second­ s postage paid at Chicago, Illinois. Printed in U. S. A. All rights reserved. EUROMARKET NEWS - p. 2 • Arbitration mutual assistance of national tax authorities (Common Mar­ (contd.) ket Reports, Par. 9832). Both the EP and the ESC welcome the proposal, but they nevertheless believe that it does not really approach the problem of artificial profit transfers. The ESC thinks the measure should offer some guidance on intragroup transfer pricing, and the EP regrets that the proposal does not set out to prevent artificial transfers of profits effected through manipulation of intercompany pricing. The European Parliament fears that the proposal would not guarantee elimination of double taxation in every case and thus might be a source of new competition distortion among enterprises, particularly if the national law of one or both states prevents the tax authorities from deviating from tax court judgments. In this case, the two companies concerned would have to choose between approaching the ar­ bitration commission or appealing to the court. The EP also expresses misgivings about the means of calculating tax adjustments. Article 1(2) of the draft di­ rective stipulates that tax adjustments to end double taxa­ tion may be made either by reducing the profits of the en­ terprise concerned or by adjusting the amount of tax pay­ able (the method deployed in the U.K. and Ireland). The E. points out that adjusting the amount of tax payable does not always produce the same results, especially when the tax rate of the member state doing the adjusting is lower than that of the other state. It therefore recommends that the option of adjusting the tax p~yable should be elimi­ nated after an adequate period of transition. Brussels Hails The Commission has welcomed the European Court of Justice's EC Court's decision giving the Community's antitrust agency the power Metro Decision to exempt from the Treaty ban on cartels the selective dis­ tribution systems of Common Market-based manufacturers of branded goods. In March 1976 Metro SB-Grossmarkte of Dilsseldorf, Ger­ many, had brought action against the Commission's decision approving a system of selective distribution introduced by SABA GmbH, a German manufacturer of TV sets, radios, and tape recorders and a subsidiary of General Telephone & Electronics, Inc., Stamford, Conn. (Common Market Reports, Par. 9802). The system included a series of agreements be­ tween SABA and wholesalers and specialty stores in West Germany and between SABA and sole distributors in other member states whereby SABA undertook to sell its products only to dealers of its choice. In turn, the dealers com­ mitted themselves to certain minimum sales and to provide the services that are typical of selective distribution systems. The first basic issue was procedural: was Metro's ac- •EUROMARKET NEWS - p. 3 Metro tion admissible? SABA attorneys had argued that the self­ (contd.) service enterprise, catering to the internal supply needs of businesses and institutional buyers, was not concerned individually but as only one of many supermarkets and re­ tailers. Advocate-General Gerhard Reischl said that the Treaty rules giving the right to appeal Commission deci­ sions only to those who are directly and individually con­ cerned should not be interpreted restrictively, so any person excluded from an approved distribution system is en­ titled to bring suit. The Court accepted this and added that, for the sake of comprehensive legal protection, indi­ viduals and entities that under Article 3(2)(b) of Regula­ tion 17 are entitled to complain to the Corrnnission to as­ certain whether an enterprise is violating Treaty Articles 85 and 86 should have a right to sue the Corrnnission if it rejects the complaint. (The Corrnnission conceded the admis­ sibility of the action against its December 1975 decision but not against its January 1976 letter in which Brussels had rejected Metro's earlier complaint.) Turning to the substantive issues, the Court stated that a selective distribution system establishing certain qualitative criteria on the dealer's part (for example, af­ ter-sale service and carrying the manufacturer's complete range of products) does not violate the competition rules of .the EEC Treaty so long as competition is not restrained in a substantial part of the Corrnnon Market. The Court also confirmed that a manufacturer that does not have a market­ dominating position (SABA's market share is around 7%) may • impose certain minimum requirements on wholesalers and re­ tailers who want to sell its products. The Court also stressed, however, that whenever consumer durables are in­ volved, the manufacturer may enjoin his wholesalers from supplying large institutional buyers such as the armed forces, hospitals, schools, and public agencies. A manu­ facturer may even insist on a special agreement with those wholesalers, subject to the Corrnnission's approval, the Court said. France: The news late last month that the French consumer price in­ Paris Moves dex had risen by 0.9% in September for a 12-month average to Stall High of 9.7% came as a severe disappointment to the government Food Prices and triggered speculation on the action the Barre adminis­ tration planned to take. The official statistics showed that industrial prices had climbed by 0.8% for the month and by 7.6% for the year and those of services by 0.7% and 8.7%, respectively. The highest jump, however, was regis­ tered for food prices - a full 1% in September and 14.1% over a 12-month period. Anxious to placate the consumer and to avoid further damage to his government's stability efforts, Prime Minis- • EUROMARKET NEWS - p. 4 Food Prices ter Raymond Barre went on television on Nov. 3 to plead for (contd.) a "collect'ive" war on inflation and to announce specific measures designed to bring down food prices. Barre said that France will open its borders to apple and citrus fruit imports from other EEC countries, permit the sale of cheap­ er surplus butter next month, reduce profit margins on the sale of veal and fish (similar to existing curbs on beef), lower the price of chicken by 5%, and impose price stops and ceilings on pastries such as the traditional breakfast croissants. Restaurant sales of beverages such as wine, beer, and mineral water also will be subject to these con­ trols. In addition, the government plans the reorganiza­ tion of the Rungis wholesale market, which serves Greater Paris (4,000 wholesalers), and the easing of licensing pro­ cedures, which would permit the construction of more super­ markets, particularly in the French capital. Observers were quick to point out that the pressure had been on the government to do something tangible for the consumers who are still waiting for Barre's previous aus­ terity measures to take hold. On the other hand, five months before the next national elections, the measures are certain to alienate three powerful groups of voters - the farmers, the retailers and, to a lesser extent, the whole­ salers. In any case, the government apparently no longer entertains any illusions of holding the inflation rate thi. year to 9%, which in itself was a revised target after it became obvious that the original goal of 6.5% was out of reach. Italy: The leadership of Italy's Confindustria industrial federa­ Employers Push tion believes that the time has come for the country's pri­ for 'Corporate vate enterprise system to fight for its inherent rights Statute' after years of yielding on numerous issues to both the gov­ ernment and the labor unions. The federation has now pre­ sented the draft of a "corporate statute" on the basis of which Italian businesses would again be enabled to operate "creatively and efficiently." The corporate bill of rights would be conceived as a counterpart to the "labor statute" of 1960 which had promulgated certain basic rights and safeguards for employees.