Opinion of the Advocate General — ECLI:EU:C:1999:110
Date: 1999-03-02
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Right of establishment
Procedure: Reference for a preliminary ruling
Origin: Germany

Summary of the Judgment 
Freedom of movement for persons — Freedom of establishment — Tax legislation — 
Corporation tax — Capital tax — Where a Member State refuses to grant to permanent 
establishments of non-resident companies certain tax concessions reserved for resident 
companies — Not permissible — Whether justifiable — No justification 
(EC Treaty, Arts 52 (now, after amendment, Art. 43 EC) and 58 (now Art. 48 EC)) 
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SUMMARY — CASE C-307/97 
Article 52 of the Treaty (now, after amend­
ment, Article 43 EC) and Article 58 thereof 
(now Article 48 EC) preclude the exclusion 
of a permanent establishment in Germany 
of a company limited by shares having its 
seat in another Member State from enjoy­
ment, on the same conditions as those 
applicable to companies limited by shares 
having their seat in Germany, of tax 
concessions taking the form of: 
— an exemption from corporation tax for 
dividends received from companies 
established in non-member countries 
(corporation tax relief for international 
groups), provided for by a treaty for 
the avoidance of double taxation con­
cluded with a non-member country, 
— the crediting, against German corpora­
tion tax, of the corporation tax levied 
in a State other than the Federal 
Republic of Germany on the profits of 
a subsidiary established there, provided 
for by German legislation, and 
— an exemption from capital tax for 
shareholdings in companies established 
in non-member countries (capital tax 
relief for international groups), also 
provided for by German legislation. 
The refusal to grant those tax conces­
sions — which primarily affects non-resi­
dent companies and is based on the criter­
ion of the company's corporate seat in 
determining the applicable tax rules — 
makes it less attractive for such companies 
to have intercorporate holdings through 
branches in the Member State concerned, 
which thus restricts the freedom to choose 
the most appropriate legal form for the 
pursuit of activities in another Member 
State, which the second sentence of the first 
paragraph of Article 52 of the Treaty 
expressly confers on economic operators. 
In view of the fact that, as regards liability 
to tax on dividend receipts in Germany 
from shares in foreign subsidiaries and sub-
subsidiaries and on the holding of those 
shares, companies not resident in Germany 
having a permanent establishment there 
and companies resident in Germany are in 
objectively comparable situations, the dif­
ference in treatment to which branches of 
non-resident companies are subject in com­
parison with resident companies must be 
regarded as constituting an infringement of 
Articles 52 and 58 of the Treaty. 
As regards, specifically, the refusal to grant 
to permanent establishments of non-resi­
dent companies the international group 
relief provided for by a bilateral agreement, 
concluded in order to prevent double 
taxation, finds no justification in the fact 
that the Member States are at liberty, in the 
framework of such agreements, to deter­
mine the connecting factors for the pur­
poses of allocating powers of taxation as 
between themselves. As far as the exercise 
of the power of taxation so allocated is 
concerned, the Member States nevertheless 
may not disregard Community rules, under 
which the national treatment principle 
requires a Member State which is party to 
the agreement to grant to permanent esta­
blishments of non-resident companies the 
advantages provided for thereunder on the 
same conditions as those which apply to 
resident companies. 
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