OPINION OF ADVOCATE GENERAL

MENGOZZI

delivered on 21 March 2013 ( 1 )

Case C‑322/11

K

(Request for a preliminary ruling from the Korkein hallinto-oikeus (Finland))

‛Articles 56 EC and 58 EC — Free movement of capital — Tax legislation which does not allow a person with unlimited tax liability to deduct the loss on the sale of immoveable property situated in another Member State from the profit on the transfer of moveable property in the Member State of taxation — Allocation of the power to tax — Double taxation convention — Proportionality’

I – Introduction

1. This reference for a preliminary ruling from the Korkein hallinto-oikeus (Supreme Administrative Court) (Finland) was made in the context of a dispute between K, who is fully liable to tax in Finland, and the Finnish tax authorities, concerning the latter’s refusal to allow K to deduct losses incurred on the transfer in 2004 of immoveable property situated in France from income from capital charged to tax in Finland.

2. That refusal was based on the combined application of the provisions of the Convention between the Government of the French Republic and the Government of the Republic of Finland seeking to avoid double taxation and prevent tax evasion in regard to tax on income and assets, signed in Helsinki on 11 September 1970 (‘the Franco-Finnish double taxation convention’), provisions of the Finnish law on income tax (Tuloverolaki), in the version applicable for the 2004 tax year, and provisions of the law to prevent international double taxation (Kansainvällisen kaksinkertaisen verotuksen poistamisesta annettu laki).

3. Under the Finnish law on income tax, the surplus obtained on the transfer of an asset, including real property, is taxable capital income and the loss incurred on the transfer of such an asset may be deducted from the gain made on the transfer of another asset during the tax year in which the gain is realised and the three following tax years. The flat rate of tax applied in 2004 to income from capital was 29%.

4. However, in the case of immoveable property situated in France, under the Franco-Finnish double taxation convention and the provisions of the law to prevent international double taxation, income deriving from such assets is taxable only in the Contracting State in which those assets are situated. That also means that, pursuant to the principle of symmetry, losses, including interest, arising from the transfer of immoveable property situated in France are not deductible in Finland.

5. Taking the view that the tax advantage sought, that is to say, the deduction of the loss incurred on the transfer of immoveable property situated in France from the gain realised on the transfer of moveable assets in Finland, is a specific exercise of the freedom of movement of capital, K brought proceedings before the Turku administrative court against the refusal of the Finnish tax authority.

6. That action having been dismissed, K brought an appeal before the referring court.

7. Before the referring court K argued that if his action were not upheld the non-deductibility of the loss incurred would become definitive since he has full liability to tax in Finland and does not have other income or assets in France. That situation would in particular be contrary to Article 56 EC and could not be justified by the allocation between the Member States of the power to tax.

8. The referring court notes that a person with full tax liability in Finland may deduct there a loss incurred on the transfer of immoveable property situated in Finland in accordance with the detailed rules laid down by the law on income tax, but cannot deduct there a loss incurred on the transfer of immoveable property situated in France. The referring court states that, in a case analogous to that at issue in the main proceedings, it previously declined to allow losses on the sale of a property situated in another Member State to be deducted from income taxable in Finland but that that case was decided before delivery of the judgments in Lidl Belgium ( 2 ) and Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt. ( 3 )

9. The referring court considers that the present case may none the less be distinguished from the two abovementioned judgments by the fact that the loss suffered by K which he seeks to deduct in Finland does not stem from a professional or trade activity carried on through a permanent establishment in France. It notes in that connection that, where such activity is carried on, it is natural to presume that the permanent establishment will subsequently generate an income from which the loss may be deducted, the definitive nature of the loss is not certain and there is a risk of double deduction of losses. Conversely, where a taxpayer has no source of income in another State from which the loss could be deducted, the situation is different as regards the finality of the loss, even if the French tax system were also to afford a possibility of deducting the loss arising out of the transfer of property from the income of subsequent years.

10. In those circumstances, the Korkein hallinto-oikeus decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling: ‘Must Articles [56 EC] and [58 EC] be interpreted as precluding national legislation under which a person with full liability to tax in Finland cannot deduct a loss incurred on the transfer of immovable property situated in France from gains, taxable in Finland, made on the transfer of shares, whereas a person with full liability to tax in Finland may on certain conditions deduct a loss on the transfer of equivalent immoveable property situated in Finland from gains on transfer?’

11. Before the Court written observations were submitted by the Governments of Finland, Germany, Sweden, and the United Kingdom of Great Britain and Northern Ireland and by the European Commission.

12. By way of measures of organisation of procedure, the Court posed a question for a written reply to the interested parties which participated in the written procedure relating to the relevance to this case of the judgments in de Groot, ( 4 )Lakebrink and Peters-Lakebrink ( 5 ) and Renneberg ( 6 ) on the taking into account of the taxable capacity of tax payers. The parties replied to that question within the prescribed time-limits.

13. Those parties presented oral argument at the hearing on 10 January 2013, with the exception of the United Kingdom Government which was not represented at it.

II – Analysis

14. The measures prohibited by Article 56(1) EC as restrictions on movements of capital specifically include those of such a nature as to deter residents of one Member State from making investments in other Member States. ( 7 )

15. In the present case it undeniably follows from the combined application of Finnish legislation and the Franco-Finnish double taxation convention that the losses incurred by K on the transfer of his immoveable property situated in France — in respect of which the refusal by the Finnish tax authorities to allow the losses to be deducted in connection with the taxation of gains realised on the sale by K of moveable assets in Finland gave rise to the dispute in the main proceedings — would have been deducted from the tax payable in Finland on those gains from moveable assets if the immoveable property had been situation in Finland.

16. The application of those national tax provisions in conjunction with the provisions of the double taxation convention establishes a distinction between taxpayers depending on where their capital is invested in the European Union, and is liable to deter Finnish residents from acquiring immoveable property in a Member State other than the Republic of Finland. It therefore constitutes a restriction on the free movement of capital, prohibited in principle by Article 56(1) EC.

17. It follows from the case-law that the tax legislation of a Member State constituting such a restriction on movements of capital may none the less be deemed compatible with the EC Treaty provisions on the free movement of capital where the difference of treatment it entails concerns situations that are not objectively comparable under Article 58(1) EC, or where that difference of treatment is justified by an overriding reason in the public interest. ( 8 )

18. K considers that those conditions are not satisfied in the case in the main proceedings and that it would be unacceptable for losses that he incurred on the sale of his immoveable property in France not to be deductible either in France or in Finland.

19. All the other parties are of the opposite view.

20. More particularly, the Finnish, German and Swedish Governments and the Commission consider principally that the difference in treatment stems from an objective difference in situations. Like the Government of the United Kingdom, those parties are also of the view in the alternative that such difference in treatment is justified by an overriding reason in the public interest, that is to say, the balanced allocation among the Member States of the power to tax, as provided for under the Franco-Finnish double taxation convention. The German and Swedish Governments also maintain that that restriction is justified by the need to prevent double deduction of losses.

21. I essentially agree with the arguments of those interested parties.

22. It is common ground that under Article 58(1)(a) EC any distinction between taxable persons on the basis of the Member State in which they invest their capital is not automatically compatible with the EC Treaty. ( 9 ) Only differences of tax treatment based on an objective difference in situation are therefore permissible in this respect.

23. In the present case the refusal by the Finnish tax authorities to deduct losses incurred on the transfer of the immoveable property of which he was the owner in France from the gains on moveable assets realised by K in Finland is based on the criterion of the geographical location of the immoveable property.

24. In order to ascertain whether this criterion of differentiation is objective, it is essential to discern its origin and the objective underlying its adoption, namely the allocation, by agreement, of tax competences between the Member States in question. In fact the refusal by the Finnish tax authorities to exercise their tax competence in the case in the main proceedings can only be understood by reference to the provisions of the Franco-Finnish double taxation convention.

25. This examination overlaps with that carried out in the context of the justification of restrictions on free movement of capital on the ground of the existence of an overriding reason in the public interest.

26. I suggest therefore that priority should be given to examining from that perspective the compatibility of Finnish tax authorities’ refusal with the free movement of capital.

27. In that regard it should be borne in mind that in the current state of the case-law the balanced allocation among the Member States of the power to tax may legitimately and in an autonomous manner neutralise restrictions on the exercise of freedom of movement provided for in the EC Treaty. ( 10 )

28. Apart, moreover, from certain cases not relevant to the present proceedings, EU law, as it currently stands, does not lay down ( 11 ) the criteria for allocating among the Member States the power to tax in order, specifically, to eliminate double taxation. The latter therefore retain competence in the absence of unificatory or harmonising measures at Union level to define such criteria, in particular by way of agreement. ( 12 )

29. In this case concerning the taxation of income on immoveable property, Article 6(1) of the Franco-Finnish double taxation convention provides that it is the Contracting State on whose territory the property is situated which is competent.

30. It is common ground that if the sale of K’s property situated in France had yielded a gain, that gain would have been taxed in France under the Franco-Finnish double taxation convention in accordance with the basis and rate of taxation applicable in France at the time of the transaction.

31. It is also apparent from the file and the observations submitted to the Court that, in those circumstances, under Finnish tax legislation, the Republic of Finland would have totally exempted such a gain in the context of the taxation of K’s income in Finland; nor would it have been taken into consideration for any other purpose.

32. Since K suffered a depreciation or a loss on the sale of his immoveable property situated in France and that loss is final in France — owing either to the circumstances set out by the referring court or, more generally, to the fact that, as the Commission indicated, losses on immoveable property incurred in France on an immoveable property situated in that Member State can never be deducted either from overall income or from a gain realised on the sale of another asset ( 13 ) — K is requesting from the Finnish authorities in the case in the main proceedings the deduction of such a loss from a gain on moveable assets realised in Finland.

33. It is true that, as K maintained at the hearing before the Court, Article 6(1) of the Franco-Finnish double taxation convention does not expressly cover the situation of losses on immoveable property transactions.

34. Nor, it should be noted, does that provision refer, unlike other provisions of that agreement, to ‘profits’ but confers competence generally to tax ‘income’ from immoveable property on the Member State where the property is situated. Such income may be either positive (profits or gains) or negative (losses or depreciation).

35. Moreover, as the Court has acknowledged with regard to taxation of companies, in order to preserve the allocation of the power to tax between the Member States it may be necessary to apply the tax legislation of one only of those States in respect of both profits and losses. ( 14 )

36. In fact, as the Court has also stated, to give companies the option of having their losses taken into account in the Member State in which they are established or in another Member State would significantly jeopardise the objective of ensuring a balanced allocation of the power to impose taxes between the Member States, as the tax base would be increased in the first State and reduced in the second to the extent of the losses transferred. ( 15 )

37. The balanced allocation between the Member States of the power to impose taxes, which may be reflected in the provisions of a double taxation convention, therefore has the objective of safeguarding the symmetry between the right to tax profits and the right to deduct losses. ( 16 )

38. That fundamental approach, adopted in regard to companies, is also valid in my view in relation to natural taxable persons since, first, it is based on a demarcation of the tax competences between the Member States and, secondly, there is, in principle, no objective reason justifying distinguishing between taxpayers depending on whether they are natural or legal persons.

39. Applied to the situation of a taxpayer such as K, that approach means that the refusal by the Finnish tax authorities to grant the deduction of the losses on immoveable property at issue, which is based essentially on the application of the Franco-Finnish double taxation convention is in conformity with Articles 56 EC and 58 EC.

40. In fact this refusal is based on safeguarding the principle of symmetry in Finland, constituted by the combined application of the Franco-Finnish double taxation convention and the Finnish tax legislation, between the exemption of gains realised and the non-deductibility of losses incurred by a Finnish taxpayer on an immoveable property situated in France or, conversely, between the right of the French Republic to charge to tax the gains arising from the sale of immoveable property situated on its territory and the competence accorded to it to allow the deduction of losses incurred on such a sale of immoveable property.

41. In other words, when, pursuant to the Franco-Finnish double taxation convention, the Republic of Finland exercises no tax competence over the income from the transfer of immoveable property situated in France, it cannot, in principle, be expected to disregard that bilateral allocation of tax competences so as to agree solely to take into account losses incurred by one of its taxpayers on the sale of such property in France.

42. That solution is not precluded by the solution adopted in Renneberg.

43. In that case Mr Renneberg, who lived in Belgium but received the entirety of his professional income (civil service emoluments) in the Netherlands, was challenging the refusal by the Netherlands tax authorities to take into account, in determining the basis applicable to the taxation of his income in the Netherlands, losses arising from the letting of a property which he owned in Belgium. In order to explain that restriction on one of the freedoms of movement provided for by the EC Treaty, in that case the freedom of movement for workers, the Netherlands Government relied on the provisions of the double taxation convention between it and the Kingdom of Belgium granting the latter competence to tax income from immoveable property situated in its territory whilst conferring on the Netherlands the power to tax the remuneration of an official of the Netherlands civil service.

44. In regard to the allocation as between those two Member States of the power to tax, on which the Netherlands Government relied, the Court found in the circumstances of Renneberg that the use by the parties to the double taxation convention of their liberty to determine the connecting factors for the determination of their fiscal jurisdiction did not mean that the Kingdom of the Netherlands had no power whatsoever to take into account negative income relating to immoveable property in Belgium for the purpose of determining the basis of assessment of the income tax of a non-resident tax payer who obtains the major part or all of his taxable income in the Netherlands. ( 17 )

45. In fact, in light of the information provided by the referring court and the replies by the Netherlands Government to the Court’s written questions it appeared, as the Court noted following my Opinion, that the negative income arising in connection with an immoveable property in Belgium was taken into account by the Netherlands tax authorities in determining the taxable income of resident taxpayers, ( 18 ) with the result that the refusal to take into account the negative income of taxpayers such as Mr Renneberg was not based on the connecting factor chosen by the parties to the double taxation convention, namely the Member State on whose territory the property was situated, but was in fact dependent upon the fact that the taxpayers were not resident in the Netherlands. ( 19 )

46. In other words, unlike the situation in the present case, the refusal to allow deduction of losses in Mr Renneberg’s case was based not on the criterion of the geographical location of the immoveable property, which was determined by agreement between the parties to the double taxation convention, but on the place of residence of the taxpayer, the criterion adopted unilaterally by the Netherlands authorities.

47. At this stage of the reasoning it remains to be examined whether the refusal by the Finnish tax authorities in regard to K is proportionate to the aim pursued ( 20 ) since, as highlighted by the referring court, the losses incurred by K on the sale of his immoveable property situated in France would become final if they were not deducted from the gain on the sale of moveable assets in Finland. That examination also ties in with the question whether extending the approach outlined to a situation such as that in the main proceedings is consistent with the case-law concerning the taking into account of the taxable capacity of taxpayers who are natural persons.

48. There is no need to dwell on the doubts expressed by certain of the interested parties as to the definitive nature of the losses suffered by K on the sale of his property in France. In fact, those doubts, it seems to me, must be dispelled on the ground that, as already mentioned, the losses incurred in France in connection with immoveable property situated there can never be deducted either from total income or from a gain realised on the sale of another asset. ( 21 ) In any event, it is for the referring court to assess the definitive nature of those losses.

49. On the basis that the losses in question are definitive in nature, there is assuredly no risk, contrary to what certain of the interested parties have claimed, of those losses being used twice, even were the Republic of Finland to agree to take them into account.

50. None the less, so far as the justificatory ground under consideration here is concerned, the view contended for by K is tantamount to requiring the Republic of Finland to disregard, or even breach, the allocation under the double taxation convention of the tax competences which it has agreed with the French Republic, at least as regards the deduction of losses incurred by one of its taxpayers on the occasion of the sale of his immoveable property situated in France.

51. Should the Member State in which a taxpayer such as K resides allow deduction of those losses in connection with immoveable property inasmuch as the Member State on whose territory the immoveable property is situated does not so allow?

52. I do not think so.

53. It is true that the Court has already held in its judgments in de Groot and Renneberg, concerning the interpretation of Article 39 EC, that ‘the mechanisms used to eliminate double taxation or the national tax systems which have the effect of eliminating or alleviating double taxation must permit the taxpayers in the Member States concerned to be certain that, as the end result, all their personal and family circumstances will be duly taken into account, irrespective of how those Member States have allocated that obligation amongst themselves, in order not to give rise to inequality of treatment which is incompatible with the Treaty provisions on the freedom of movement for workers and in no way results from the disparities between the national tax laws’, ( 22 ) considerations which apply equally to ‘the taking into account of workers’ overall ability to pay tax’. ( 23 )

54. Irrespective of the connection of the situation at issue in the main proceedings with the ‘personal and family circumstances’ of the taxpayers or with ‘their overall ability to pay tax’, the dicta in the preceding point must, it seems to me, be placed in the context of each of those cases, respectively.

55. In this regard the most salient common feature of those two cases is this: the Member State from which the deductions at issue were sought (deductions of a personal and family kind on employment income in the de Groot case and deduction of negative income in connection with letting in determining the income tax basis in Renneberg ( 24 )), that is to say, the Member State of residence in the de Groot case and the Member State of employment in the Renneberg case, exercised, albeit in a limited way, its tax competence on that income without, however, granting to those taxpayers the tax advantages from which taxpayers in an analogous situation (resident taxpayers in both cases) benefited.

56. In those circumstances, extending the tax treatment accorded to resident taxpayers within a purely domestic situation so as to favour, first, resident taxpayers receiving employment income from other Member States (situation in the de Groot case) and, secondly, taxpayers who are non-resident but receive the entirety of their employment income in the Member State of their employment (situation in Renneberg), calls in question only the manner in which the tax competence of the Member State applied to is exercised.

57. Consequently, the two situations that have been examined ( 25 ) may be distinguished from this case in which a taxpayer requests the Member State of his residence to grant him a deduction in respect of a specific category of income, namely income arising out of the sale of an immoveable property situated in another Member State over which it exercises no tax competence.

58. In regard also to the proportionality of the refusal by the Finnish tax authorities, it must be ascertained whether the situation at issue in the main proceedings comes within what several interested parties have termed ‘the Marks & Spencer exception’. ( 26 )

59. I would recall that in the case giving rise to the judgment in Marks & Spencer the Court had before it, in essence, the question whether freedom of establishment precluded national tax legislation disallowing the deduction by a parent company of losses incurred in another Member State by a subsidiary established in the territory of that other Member State where such a possibility was granted in respect of losses incurred by a ‘resident’ subsidiary (group relief).

60. Although the Court quickly found that the tax legislation at issue constituted a restriction on freedom of establishment, it considered that that restriction was capable of being justified on the three grounds, taken together, which had been advanced by the Member States in the proceedings before the Court, namely the safeguarding of the allocation between the Member States of the power to tax, the risk of losses being used twice and the risk of tax avoidance.

61. It none the less found, at paragraph 55 of the judgment in Marks & Spencer, that: ‘the restrictive measure [at issue] goes beyond what is necessary in order to attain the essential part of the objectives pursued where: — the non-resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods, if necessary by transferring those losses to a third party or by offsetting the losses against the profits made by the subsidiary in previous periods, and — there is no possibility for the foreign subsidiary’s losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.’

62. Without further explanation the Court deduced therefrom that where, in one Member State, the resident parent company demonstrates to the national tax authorities that those conditions are fulfilled, it is contrary to freedom of establishment to preclude the possibility for the parent company to deduct from its taxable profits in that Member State the losses incurred by its non-resident subsidiary. ( 27 )

63. Subsequently, by increasingly treating the justificatory ground based on the allocation between the Member States of the power to tax as self-standing, the Court has appeared to veer towards abandoning ‘the Marks & Spencer exception’ in its more recent judgments relating to the taking into account of cross-border losses.

64. Thus in Lidl Belgium, which concerned the tax treatment of losses incurred by a permanent establishment of that company situated in Luxembourg, the Court held that the tax legislation at issue in that case was proportionate. Not only had the company, it ruled, not demonstrated that the conditions for the application of that exemption were satisfied ( 28 ) but, the Court added more generally, ‘where a double taxation convention has given the Member State in which the permanent establishment is situated the power to tax the profits of that establishment, to give the principal company the right to elect to have the losses of that permanent establishment taken into account in the Member State in which it has its seat or in another Member State would seriously undermine a balanced allocation of the power to impose taxes between the Member States concerned’. ( 29 )

65. More recently, as Advocate General Kokott ( 30 ) has noted, the Court in X Holding, which was decided on the ground relating to safeguarding the allocation of the power to tax, did not mention ‘the Marks & Spencer exception’ when examining in detail the proportionality of the tax legislation of a Member State precluding a parent company from constituting a single tax entity with its non-resident subsidiary (allowing it freely to choose the tax regime applicable to the losses of that subsidiary) where the profits of that subsidiary were not subject to the tax law of that Member State.

66. That approach is perfectly understandable. To require a Member State that does not have tax competence to take into consideration losses arising under the competence of another Member State where those losses cannot or can no longer be taken into account in the latter Member State, would be to disregard the objective of the balanced allocation of the power to tax. In fact, in such a case that objective is no longer attained at all. ( 31 )

67. Thus, in the light of most recent trends in the case-law, Advocate General Kokott considered that ‘the Marks & Spencer exception’, the obscure and unexplained origins of which she noted, ( 32 ) would no longer apply where the justification relied on concerned solely the allocation of the power to tax as between the Member States. ( 33 )

68. The case in which she made that statement concerned the refusal by the Finnish tax authorities to allow a Finnish company to deduct the losses incurred by its Swedish subsidiary which had ceased business and with which it intended to merge. Advocate General Kokott suggested that the Court should declare that that refusal was justified by the objective of safeguarding the allocation of tax competences without it being necessary to decide whether the Swedish subsidiary still had the possibility of having its accumulated losses taken into account in the Member State of its establishment. ( 34 )

69. In its judgment of 21 February 2013 in A, ( 35 ) the Court did not follow this proposal but substantially reproduced the analysis to be found in the Marks & Spencer judgment.

70. The Court assessed the Finnish restrictive measure against the yardstick of the three justificatory grounds put forward in the Marks & Spencer case. ( 36 ) It then went on to verify the proportionality of the measure in the light of the ‘essential part of those objectives’. ( 37 ) For that criterion to be satisfied it was important to enable the parent company to demonstrate that the Swedish subsidiary had exhausted the possibilities of having the losses taken into account in the Member State of its residence and that there was no possibility of those losses being taken into account in that Member State in respect of subsequent financial years. ( 38 )

71. In the light of the clear direction proposed by Advocate General Kokott in her Opinion, it could not have been fortuitous that ‘the Marks & Spencer exception’ was so explicitly revived.

72. However, the judgment in A provides no explanation of the grounds on which that exception is applied. Such explanations would have been all the more useful since that judgment comes after a line of decisions which, as I have already said, gave reason to believe that ‘the Marks & Spencer exception’ had either been abandoned or, at the least, had been on the verge of being abandoned.

73. If, as the judgment in A attests, that is not the case, the Court provides no elucidation concerning the criteria enabling determination of the situations in which that exception applies and those in which it does not.

74. One interpretative approach which could be envisaged but which, it seems to me, ought not to be used concerns the number and nature of the justificatory grounds advanced.

75. The fact that the Court examined, as in Marks & Spencer, the three justificatory grounds relied on in A — including, I may add, the allocation of the power to tax as between the Member States — should not, to my mind, entail a different consequence, from the point of view of the proportionality of the tax measure in question, than would follow if the Court had examined that last justificatory ground as a self-standing ground.

76. If, as already said, allocation of the power to tax between the Member States may as a matter of logic by itself render otiose examination of whether the possibilities of taking into account losses incurred by a non-resident subsidiary in the Member State of establishment have been exhausted, it is hard to discern how the neutralising of such examination could be affected by the fact that other justificatory grounds pursued by national tax law co-exist alongside such a general interest objective.

77. Another explanation, and to my mind a more persuasive one, is whether the objective pursued by the Member State and by the restrictive measure adopted for attaining it is bilateral or unilateral in origin.

78. Thus, where the tax measure stems directly from the allocation under a convention of tax competences between the Member States, there is no need to ask whether the possibilities of taking into account the losses in the competent Member State have been exhausted because the restriction is attributable directly to the allocation under the taxation convention and not to the operation of a single tax regime.

79. That was, moreover, the solution adopted by the Court at paragraphs 47 to 52 of the judgment in Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt, and mentioned by the referring court; it already appeared in outline in Lidl Belgium.

80. Where the objective and the restrictive measure intended to achieve it fall squarely within a single tax regime (adopted unilaterally), it will, however, be possible to envisage the application of ‘the Marks & Spencer exception’.

81. If one were to opt for such an approach in the present case, the refusal of K’s claim based on the provisions of the Franco-Finnish double taxation convention would be proportionate to the objective of preserving the allocation between the Member States of the power to tax: there would then be no need to examine the question whether the losses arising in connection with immoveable property in France have been definitively incurred by K.

82. However, that interpretation of ‘the Marks & Spencer exception’ is not without certain difficulties.

83. First, it is strongly dependent on procedural contingencies such as the applicability, in the context of a reference for preliminary ruling, of the provisions of a double taxation convention. ( 39 )

84. Secondly, and more fundamentally, it does not accord with the current state of the case-law.

85. Thus, in the X Holding case the restriction at issue (inability of a parent company to constitute a single economic entity with a non-resident subsidiary) originated in a unilateral Netherlands measure. Yet the Court concluded that it was proportionate with the objective of the allocation of the power to tax since the profits of the non-resident subsidiary were not subject to Netherlands tax law; no prior examination was made as to the applicability of ‘the Marks & Spencer exception’.

86. Conversely, the Court in Lidl Belgium pointed out that the criteria for applying ‘the Marks & Spencer exception’ were not met in the case in the main proceedings; thus, it held that freedom of establishment did not preclude a situation where a company established in one Member State was unable to deduct from its taxable base the losses relating to a permanent establishment belonging to it in another Member State even though the restriction at issue stemmed from a double taxation convention entered into between the two Member States concerned. ( 40 )

87. In the final analysis, the situations in which the Court applies ‘the Marks & Spencer exception’ remain obscure, as Advocate General Kokott rightly points out in her Opinion in A.

88. For the reasons set out above and on grounds of legal certainty the Court could take this opportunity to clarify the application of such an exception and to elucidate the rationale for it.

89. If it does not do that and, failing the outright abandonment of that exception where the ground justifying tax restrictions is the safeguarding of the balanced allocation between the Member States of the power to tax, the Court could at least initially limit the application of that exception to situations in which the restrictions at issue stem solely from unilateral measures adopted by the Member States. Support for this proposition may be found in the reasoning on which the judgment in Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt, is based.

90. In any event, to require the Republic of Finland to disregard — even on account of compliance with the principle of proportionality — the allocation of tax competences under the Franco-Finnish double taxation convention would call into question the Court’s case-law concerning Member States’ reserved competences. It does not seem to me possible to commend such an approach to the Court.

91. On those grounds I suggest that the answer to the question referred should be that Articles 56 EC and 58 EC do not preclude a Member State from refusing, under a double taxation convention, to allow a taxpayer with full liability to tax in that Member State to deduct the loss that he has incurred on the sale of an immoveable property situated in another Member State from taxable gains received by the taxpayer in the first Member State on the disposal of shares, whereas a taxpayer with full liability to tax in that same Member State may, on certain conditions, deduct from his capital gains losses incurred on the sale of an equivalent immoveable property situated in that Member State.

III – Conclusion

92. On the basis of the foregoing considerations, I therefore propose that the Court should reply as follows to the question referred to it by the Korkein hallinto-oikeus: Articles 56 EC and 58 EC do not preclude a Member State from refusing, under a double taxation convention, to allow a taxpayer with full liability to tax in that Member State to deduct the loss that he has incurred on the sale of an immoveable property situated in another Member State from taxable gains received by the taxpayer in the first Member State on the disposal of shares, whereas a taxpayer with full liability to tax in that same Member State may, on certain conditions, deduct from his capital gains losses incurred on the sale of an equivalent immoveable property situated in that Member State.

( 1 ) Original language: French.

( 2 ) Case C-414/06 [2008] ECR I-3601.

( 3 ) Case C-157/07 [2008] ECR I-8061.

( 4 ) Case C-385/00 [2002] ECR I-11819.

( 5 ) Case C-182/06 [2007] ECR I-6705.

( 6 ) Case C-527/06 [2008] ECR I-7735.

( 7 ) See on this, inter alia, Case C-101/05 A [2007] ECR I-11531, paragraph 40, and Joined Cases C-436/08 and C-437/08 Haribo Lakritzen Hans Riegel and Österreichische Salinen [2011] ECR I-305, paragraph 50.

( 8 ) See, in particular, to this effect, Joined Cases C‑338/11 to C‑347/11 Santander Asset Management SGIIC and Others [2012] ECR, paragraph 23 and the case-law cited.

( 9 ) See in particular, to this effect, Case C-256/06 Jäger [2008] ECR I-123, paragraph 40, and Case C-510/08 Mattner [2010] ECR I-3553, paragraph 32.

( 10 ) See, with regard to the free movement of capital, Haribo Lakritzen Hans Riegel and Österreichische Salinen, paragraph 121, and, to this effect, FIM Santander Top 25 Euro Fi and Others, paragraph 47. See also, with regard to the freedom of establishment, Case C-337/08 X Holding [2010] ECR I-1215, paragraphs 27 to 33; Case C-371/10 National Grid Indus [2011] ECR I-12273, paragraph 45; and Case C‑18/11 Philips Electronics UK [2012] ECR, paragraph 23.

( 11 ) See 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 (OJ 1990 L 225, p. 6) and Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments (OJ 2003 L 157, p. 38).

( 12 ) See to this effect, in particular, Case C-128/08 Damseaux [2009] ECR I-6823, paragraphs 29 and 30 and the case-law cited, and Case C-284/09 Commission v Germany [2011] ECR I-9879, paragraph 46 and the case-law cited.

( 13 ) See also the official information from the French authorities on the taxation of immoveable gains available on the following site: http://vosdroits.service-public.fr/F10864.xhtml

( 14 ) See in particular Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 45, Lidl Belgium, paragraph 31, and X Holding, paragraph 28.

( 15 ) See in particular Lidl Belgium, paragraph 32, and X Holding, paragraph 29.

( 16 ) See to this effect Lidl Belgium, paragraph 33. See also Philips Electronics UK, paragraph 24.

( 17 ) Renneberg, paragraph 52.

( 18 ) Ibid., paragraphs 53 to 56.

( 19 ) Ibid., paragraphs 57 and 58. See also my Opinion in that case at point 82.

( 20 ) Under the case-law, restrictions on the free movement of capital must not only be such as to guarantee the attainment of the public-interest objective in view but may also not exceed that which is necessary for their attainment: see, for example, Case C‑370/05 Festersen [2007] I‑1129, paragraph 26 and the case-law cited.

( 21 ) See point 32 above

( 22 ) de Groot, paragraph 101, and Renneberg, paragraph 70 (my italics).

( 23 ) Renneberg, paragraph 70.

( 24 ) See also, with regard to a request for personal and family deductions from income on capital received abroad by German taxpayers in relation to the free movement of capital, Case C‑168/11 Beker [2013] ECR.

( 25 ) Like that giving rise to the judgment in Beker, which, as the Court noted inter alia in paragraph 45 of that judgment, is close to the situation which is at the origin of de Groot.

( 26 ) Marks & Spencer, paragraphs 55 and 56.

( 27 ) Marks & Spencer, paragraph 56.

( 28 ) Lidl Belgium, paragraph 51.

( 29 ) Ibid., paragraph 52. The Court refers in this connection to paragraph 55 of its judgment in Case C-231/05 Oy AA [2007] ECR I-6373, which related to intra-group financial transfers.

( 30 ) Point 53 of the Opinion in Case C‑123/11 A [2013] ECR.

( 31 ) See, inter alia, point 51 of the Opinion of Advocate General Kokott in A. See also Case C-293/06 Deutsche Shell [2008] ECR I-1129, paragraph 42 in which it is stated that ‘[t]hat competence also implies that a Member State cannot be required to take account, for the purposes of applying its tax law, of the negative results of a permanent establishment situated in another Member State which belongs to a company with a registered office in the first State solely because those negative results are not capable of being taken into account for tax purposes in the Member State where the permanent establishment is situated’, and Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt, paragraph 49.

( 32 ) See points 2 and 3 of her Opinion in A.

( 33 ) Ibid., point 52.

( 34 ) Ibid., point 54.

( 35 ) Case C‑123/11.

( 36 ) Ibid., paragraphs 40 to 46.

( 37 ) Ibid., paragraph 49.

( 38 ) Ibid, paragraph 56 and point 1 of the operative part.

( 39 ) See, as regards the Court not taking into account such a convention owing to the omission by the referring court of the legal background in the main proceedings, Case C-379/05 Amurta [2007] ECR I-9569, paragraphs 81 to 83.

( 40 ) See, inter alia, the legal background set out by the Court at paragraphs 3 to 7 and at paragraphs 28 and 52 and the operative part of the judgment in Lidl Belgium.