Opinion of the Advocate General — ECLI:EU:C:2017:323
Date: 2017-04-27
Language of the case: Dutch
Subject matter: Taxation;Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: Belgium

Summary — Judgment of the Court (Fifth Chamber), 26 October 2017 1. Approximation of laws — Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States — Directive 90/435 — Deductibility from the taxable profits of the parent company — Option of Member States to provide for the non-deductibility of charges relating to the holding in a subsidiary and any losses resulting from the profits of that company — Limits — Possibility of refusing to allow the deduction of interest that is not linked to the acquisition of holdings on which tax-free dividends have been paid out — Precluded (Council Directive 90/435, Art. 4(1), first indent and (2)) 2. Approximation of laws — Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States — Directive 90/435 — Right of Member States to adopt the necessary provisions to prevent fraud or abuse — Limits — Observance of the principle of proportionality — National legislation providing for the non-deductibility of interest charged in respect of loans of parent companies up to an amount equal to the amount of dividends paid by its holdings in its subsidiaries in order to counteract abuse by parent companies resulting from a double tax deduction — Unlawful (Council Directive 90/435, Arts 1(2) and 4(2)) 1. Article 4(2) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States must be interpreted as precluding a provision of domestic law, such as Article 198(10) of the 1992 Income Tax Code, coordinated by the Royal Decree of 10 April 1992 and confirmed by the Law of 12 June 1992, pursuant to which interest paid by a parent company under a loan is not deductible from the taxable profits of that parent company up to an amount equal to that of the dividends, which already benefit from tax deductibility, that are received from the holdings of that parent company in the capital of its subsidiary companies that have been held for a period of less than one year, even if such interest does not relate to the financing of such holdings. The option granted to Member States by that provision seeks to prevent a parent company from benefiting from a double tax advantage arising, first, from profits that are tax-exempt pursuant to the first indent of Article 4(1) of Directive 90/435 and, second, from the tax reduction by means of the deduction by virtue of charges relating to holding losses resulting from the distribution of such profits (see, to that effect, judgment of 22 December 2008, Les Vergers du Vieux Tauves, C‑48/07, EU:C:2008:758, paragraph 42). From that point of view, Article 4(2) of Directive 90/435 must necessarily be interpreted as allowing Member States only to prevent a parent company from benefiting from the double tax advantage referred to in the preceding paragraph. Permitting Member States to refuse to allow parent companies to deduct interest that is not linked to the acquisition of holdings on which tax-free dividends have been paid out would manifestly go beyond what is necessary to achieve such an objective. (see paras 54, 55, 57, operative part 1) 2. Article 1(2) of Directive 90/435 must be interpreted as not authorising Member States to apply a domestic provision, such as Article 198(10) of the 1992 Income Tax Code, coordinated by the Royal Decree of 10 April 1992 and confirmed by the Law of 12 June 1992, to the extent that that provision goes beyond what is necessary for the prevention of fraud and abuse. As the Advocate General has observed in point 51 of her Opinion, Article 1(2) of Directive 90/435 reflects the general EU law principle that abuse of rights is prohibited (judgment of 5 July 2007, Kofoed, C‑321/05, EU:C:2007:408, paragraph 38), and that EU law therefore cannot be relied on for abusive or fraudulent ends (see, inter alia, to that effect, judgments of 21 February 2006, Halifax and Others, C‑255/02, EU:C:2006:121, paragraph 69, and of 28 July 2016, Kratzer, C‑423/15, EU:C:2016:604, paragraph 37). Nonetheless, it must be noted that, as the Advocate General also made clear in point 52 of her Opinion, Article 1(2) of Directive 90/435 is a provision of principle, the content of which is explained in detail in other provisions of that directive, inter alia in Article 4(2), in that it seeks in particular to counteract abuse by parent companies resulting from a double tax deduction (see, by analogy, judgment of 17 October 1996, Denkavit and Others, C‑283/94, C‑291/94 and C‑292/94, EU:C:1996:387, paragraph 31). It is apparent from the answer given to the first question that a provision of national law, such as Article 198(10) of the 1992 ITC, is contrary to Article 4(2) of Directive 90/435 in that it goes beyond the measures that the EU legislature held to be appropriate to avoid the abuse by parent companies resulting from the possibility of carrying out a double tax deduction. (see paras 60-63, operative part 2)