Keywords

Summary



Keywords

1. Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 – Prevention of double taxation

(Council Directive 90/435, Art. 4(1), first indent)

2. Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 – Prevention of double taxation

(Council Directive 90/435, Art. 4(1), first indent, and (2))

3. Preliminary rulings – Jurisdiction of the Court – Limits – Interpretation sought concerning the application to purely internal situations of the provisions of a directive transposed into national law

(Art. 234 EC)

4. Free movement of capital – Provisions of the Treaty

(Arts 56(1) EC, 57 EC and 58 EC)

5. Freedom of movement for persons – Freedom of establishment – Tax legislation – Corporation tax

(Art. 43 EC)

Summary

1. The first indent of Article 4(1) of Council Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States must be interpreted as precluding legislation of a Member State which, for the purposes of the exemption of dividends received by a parent company established in that State from a subsidiary established in another Member State, requires such dividends to be included in the parent company’s basis of assessment, in order subsequently to be deducted in the amount of 95%, in so far as the parent company has, for the tax period in question, a positive profit balance after deduction of other exempted profits, and as a result of which:

- if the parent company had no or insufficient taxable profits during the taxable period in which those distributions were made, it is to be taxed in respect of a later taxable period on the distributed profits received,

or

- the losses of that taxable period are to be offset against distributed profits and cannot be carried forward, up to the amount of those distributions, to a subsequent taxable period.

(see para. 44, operative part 1)

2. The first indent of Article 4(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, read in combination with Article 4(2) thereof, is to be interpreted as meaning that it does not oblige Member States necessarily to permit profits distributed to a parent company established in that State by its subsidiary established in another Member State to be deducted in full from the parent company’s profits in the taxable period and any resulting loss to be carried forward to a later taxable period. It is for the Member States to determine, in the light both of the requirements of their domestic legal system and the option provided for in Article 4(2), the detailed arrangements for ensuring that the result prescribed by the first indent of Article 4(1) is attained.

However, where a Member State has chosen the exemption system provided for in the first indent of Article 4(1) of Directive 90/435 and, in principle, the legislation of that Member State allows losses to be carried forward to subsequent taxable periods, that provision precludes legislation of a Member State which reduces, to the amount of the dividends received, the losses of the parent company which may be carried forward.

(see paras 53-54, operative part 2)

3. Where domestic legislation adopts for purely internal situations the same solutions as those adopted in Community law, it is for the national court alone, in the context of the division of judicial functions between national courts and the Court of Justice under Article 234 EC, to assess the precise scope of that reference to Community law, the consideration of the limits which the national legislature may have placed on the application of Community law to purely internal situations being a matter for the law of the Member State concerned and, consequently, falling within the exclusive jurisdiction of the courts of that Member State.

(see para. 60, operative part 3)

4. Where, by virtue of the national legislation of a Member State, dividends from a company established in a non-member State are treated less favourably than dividends from a company with its seat in that Member State, it is for the national court, taking account both of the purpose of the national legislation and of the facts of the case before it, to determine whether Article 56 EC is applicable and, if so, whether it precludes that different treatment.

In that regard, the extent to which the Member States are authorised to apply certain restrictive provisions on the movement of capital cannot be determined without taking account of the fact that movement of capital to or from third countries takes place in a different legal context from that which occurs within the European Community. Accordingly, because of the degree of legal integration that exists between Community Member States, in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities, such as Council Directive 77/799 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, the taxation by a Member State of economic activities having cross-border aspects which take place within the Community is not always comparable to that of economic activities involving relations between Member States and third countries. It may also be that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States.

(see paras 72-74 and operative part 4)

5. Article 43 EC does not preclude a Member State’s legislation which provides that a parent company established in a Member State which receives profits distributed by its subsidiary established in another Member State may deduct them from its taxable income only to the extent of its profits for the taxable period during which the profits were distributed, whereas the latter profits could be fully exempted if the parent company had set up a permanent establishment in that other Member State, provided that entities set up in another Member State are not treated in a manner that is discriminatory in comparison with the treatment of profits from comparable national entities.

Indeed, as regards the obligations of the Member State of origin, the fiscal autonomy enjoyed by the Member States means that they are at liberty to determine the conditions and the level of taxation for different types of establishments chosen by national companies or partnerships operating abroad, on condition that those companies or partnerships are not treated in a manner that is discriminatory in comparison with comparable national establishments.

(see paras 80, 82, operative part 5)