Opinion of the Advocate General — ECLI:EU:C:2007:660
Date: 2007-11-08
Language of the case: German
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 – Taxation of companies – Deduction of losses (EC Treaty, Art. 52 (now, after amendment, Art. 43 EC) and Art. 58 (now Art. 48 EC)) It is contrary to Article 52 of the EC Treaty (now, after amendment, Article 43 EC) in conjunction with Article 58 of the EC Treaty (now Article 48 EC) for a Member State, when determining the national basis of assessment, to exclude a currency loss suffered by a company with a registered office in that State upon the repatriation of start-up capital granted to its permanent establishment in another Member State. It is also contrary to those provisions for a Member State to allow a currency loss to be deducted as operating expenditure in respect of an undertaking with a registered office in a Member State only in so far as its permanent establishment in another Member State does not make any tax-free profits. Such a tax system increases the economic risks incurred by a company established in one Member State wishing to set up a body in another Member State where the currency used is different from that of the State of origin and thereby constitutes an obstacle to the freedom of establishment. It is not justified by the need to maintain the cohesion of the tax system since there is no direct relationship between the currency losses, on one hand, and currency gains, on the other. Furthermore, that obstacle cannot be justified by the existence of a double taxation convention. It is true that freedom of establishment cannot be understood as meaning that a Member State is required to draw up its tax rules on the basis of those in another Member State in order to ensure, in all circumstances, taxation which removes any disparities arising from national tax rules, given that the decisions made by a company as to the establishment of commercial structures abroad may be to the company’s advantage or not, according to circumstances. However, the tax disadvantage concerned relates to a specific operational factor which is capable of being taken into consideration only by the tax authorities of the principal undertaking. A limit on the setting-off of currency losses suffered by that permanent establishment according to its results cannot be justified by the argument that the undertaking which owns that establishment would be likely to benefit from a double advantage from the currency loss. A Member State which has waived its tax powers by concluding a double taxation convention cannot rely on the lack of tax powers with respect to the results of a permanent establishment which belongs to a company established in the territory of that State in order to justify the refusal to deduct expenditure incurred by that company which, by its nature, cannot be taken into account in the Member State where that establishment is situated. (see paras 30, 32, 40, 43-45, 47, 50-51, 53, operative part 1-2)