Keywords

Summary



Keywords

1. International agreements – European Economic Area Agreement – Freedom of establishment – Provisions of the Treaty – Scope

(Art. 43 EC; EEA Agreement, Art. 31)

2. International agreements – European Economic Area Agreement – Freedom of establishment – Tax legislation – Corporation tax

(EEA Agreement, Art. 31)

Summary

1. The provisions of the Treaty concerning freedom of establishment prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation; all measures which prohibit or impede the exercise of that freedom, or render it less attractive, must be regarded as such restrictions. Those considerations apply where a company established in a Member State carries on business in another Member State through a permanent establishment.

(see paras 29-31)

2. Article 31 of the Agreement on the European Economic Area (EEA) does not preclude a national tax system which, having allowed losses incurred by a permanent establishment situated in a State other than the one in which the company to which that establishment belongs is established to be taken into account for the purposes of calculating the tax on that company’s income, provides for tax reintegration of those losses at the time when the said permanent establishment makes profits, where the State where that permanent establishment is situated does not confer any right to carry forward losses incurred by a permanent establishment belonging to a company established in another State, and where, by virtue of an agreement between the two States concerned for the prevention of double taxation, the income of such an entity is exonerated from taxation in the State in which the company to which it belongs has its seat.

Such a tax system does constitute a restriction on the right set out in Article 31 of the EEA Agreement where the tax situation of a company which has its registered office in one Member State and has a permanent establishment in another Member State is less favourable than it would be if the latter were to be established in the first Member State. Where all the losses incurred by the permanent establishment in another Member State are, initially, deducted from the profits made by the principal company in the context of that company’s taxation in the first Member State, and, by so doing, that State grants a tax advantage in the same way as if that permanent establishment were situated in national territory, by subsequently proceeding to reintegrate losses by the said permanent establishment into the basis of assessment of the principal company when the latter has made profits, the national tax system withdraws the benefit of that tax advantage, thereby subjecting resident companies with permanent establishments in another Member State to less favourable treatment than that enjoyed by resident companies with permanent establishments situated in national territory. By reason of that difference in tax treatment, a resident company could be discouraged from carrying on its business through a permanent establishment situated in another Member State.

However, such a restriction is justified by the need to guarantee the coherence of the tax system. In that respect, the reintegration of losses provided for by the tax system at issue cannot be dissociated from their having earlier been taken into account. That reintegration, in the case of a company with a permanent establishment in another State in relation to which that company’s State of residence has no power of taxation, reflects a logical symmetry. There is thus a direct, personal and material link between the two elements of the tax mechanism at issue, the said reintegration being the logical complement of the deduction previously granted. Moreover, that restriction is appropriate to achieve such an objective, in that it operates in a perfectly symmetrical manner, only deducted losses being reintegrated. Furthermore, that restriction is entirely proportionate to the objective pursued, since the reintegrated losses are reintegrated only up to the amount of the profits made.

That assessment cannot be called into question by the combined effects of the said tax system and the tax legislation of the State in which the permanent establishment is situated. In the absence of any unifying or harmonising Community measures, Member States retain the power to define the criteria for taxing income and wealth with a view to eliminating double taxation, by means of conventions if necessary. That competence also implies that a Member State cannot be required to take account, for the purposes of applying its tax law, of the possible negative results arising from particularities of legislation of another Member State applicable to a permanent establishment situated in the territory of the said State which belongs to a company with a registered office in the first State. Even supposing that the combined effect of taxation in the State where the principal company of the permanent establishment concerned is situated and tax due in the State where that establishment is situated might lead to a restriction of the freedom of establishment, such a restriction is imputable only to the latter of those States, the said restriction arising not from the tax system at issue, but from the allocation of tax competences under the double taxation convention concluded between the two States concerned.

Nor can the assessment that the restriction arising from the said tax system is justified by the need to ensure the coherence of that system be called into question by the fact that the principal company disposed of its permanent establishment and that the profits and losses made by that establishment throughout its existence end with a negative result. The reintegration of the amount of the permanent establishment’s losses in the results of the principal company is the indissociable and logical complement of their having previously been taken into account.

(see paras 34-39, 42-46, 48-49, 51-55, operative part)