Opinion of the Advocate General — ECLI:EU:C:2006:278
Date: 2006-05-02
Language of the case: English
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Right of establishment
Procedure: Reference for a preliminary ruling
Origin: United Kingdom

Summary of the Judgment 1. Freedom of movement for persons – Freedom of establishment (Arts 43 EC and 48 EC) 2. Freedom of movement for persons – Freedom of establishment – Tax legislation (Arts 43 EC and 48 EC) 1. The mere fact that a resident company establishes a secondary establishment, such as a subsidiary, in another Member State cannot set up a general presumption of tax evasion and justify a measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty. On the other hand, a national measure restricting freedom of establishment may be justified on the ground of prevention of abusive practices where it specifically relates to wholly artificial arrangements, which do not reflect economic reality, aimed at circumventing the application of the legislation of the Member State concerned, in particular with a view to escaping the tax normally due on the profits generated by activities carried out on national territory. (see paras 50-51, 55) 2. Articles 43 EC and 48 EC must be interpreted as precluding the inclusion in the tax base of a resident company established in a Member State of profits made by a controlled foreign company in another Member State, where those profits are subject in that State to a lower level of taxation than that applicable in the first State, unless such inclusion relates only to wholly artificial arrangements intended to escape the national tax normally payable. Accordingly, such a tax measure must not be applied where it is proven, on the basis of objective factors which are ascertainable by third parties, that despite the existence of tax motives that controlled company is actually established in the host Member State and carries on genuine economic activities there. (see para. 75, operative part)