Opinion of the Advocate General — ECLI:EU:C:2008:41
Date: 2008-01-24
Language of the case: French
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: France

Summary of the Judgment Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 (Council Directive 90/435, Art. 4(2)) The concept of ‘profits distributed by the subsidiary’, within the meaning of the last sentence of Article 4(2) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, is to be interpreted as not precluding legislation of a Member State which includes in those profits tax credits which have been granted in order to offset a withholding tax levied by the Member State of the subsidiary in the hands of the parent company. First, the wording of Article 4(2) of the directive does not preclude the inclusion of tax credits in the fixed amount of the management costs relating to the holding of the parent company in the subsidiary. The inclusion of tax credits in the fixed amount of the management costs relating to the holding, within the meaning of Article 4(2) of the directive, means that it is in fact the total amount of profit distributed, within the meaning of that provision, which is received by the parent company and to which the rate of 5% will be applied. Second, the credits are intended to avoid double taxation of profits distributed by a subsidiary to its parent company, from a juridical perspective. Consequently, taking into account tax credits granted to the parent company in calculating the proportion of costs and expenses relating to the holding in the subsidiary allows the amount of profits distributed by that subsidiary and the equivalent amount which is, in the end of the day, actually at the parent company’s disposal in respect of that distribution to be reflected, by neutralising the impact of the withholding tax levied in the hands of the parent company by the Member State of the subsidiary. Thus, the inclusion of tax credits in the fixed amount of the management costs relating to the holding, within the meaning of Article 4(2) of the directive, complies with the objective of neutrality, from the tax point of view, as regards the cross-border distribution of profits from a subsidiary to its parent company established in another Member State. Under the scheme laid down by the directive, where a parent company has a holding of at least 25% in the capital of a subsidiary established in another Member State, the imposition of a withholding tax in the latter State is generally prohibited by virtue of Article 5(1) of the directive. Certain Member States were permitted, during the transitional periods allowed to them, to levy such a withholding tax in accordance with Article 5(2) to (4) of the directive. The directive does not require a Member State to provide for the set‑off of such a withholding tax, where that Member State has, in accordance with Article 4(1) of the directive, opted for the exemption method. In that respect, a Member State which has opted for the exemption method cannot be criticised for offsetting the withholding tax charged in the Member State of the subsidiary by the grant of a tax credit, while at the same time limiting the right to set off the tax credit to cases where the recipient parent company redistributes the dividends received within five years to its own shareholders. Moreover, Article 4(2) of the directive allows a Member State to set the management costs which are not deductible at a fixed amount which may not exceed 5% of the profits distributed by the subsidiary, without distinguishing between a situation in which that Member State has opted for the exemption method and one in which it has opted for the credit method. It follows that, with respect to the concept of distributed profits, that provision makes no distinction between cases where the State is subject to the requirement to provide for the set‑off of the withholding tax charged in the Member State of the subsidiary and cases where it is not subject to such a requirement. Accordingly, where the Member State has chosen to follow the option provided for in Article 4(2) of the directive by including tax credits in the amount of the distributed profits to which the rate of 5% is to be applied, it cannot be criticised for not making any distinction between cases where tax credits capable of being set off against the tax payable are involved and cases where such tax credits are not involved. (see paras 36‑40, 42‑46, 50, operative part)