Keywords

Summary



Keywords

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

(Art. 52 of the EC Treaty (now, after amendment, Art. 43 EC))

Summary

Article 52 of the Treaty (now, after amendment, Article 43 EC) is to be interpreted as meaning that it precludes legislation of a Member State by virtue of which a group tax regime is made available to a parent company which is resident in that Member State and holds subsidiaries and sub-subsidiaries which are also resident in that State, but is unavailable to such a parent company if its resident sub-subsidiaries are held through a subsidiary which is resident in another Member State.

Such legislation gives rise to unequal treatment based on the place of the registered office of the subsidiary through which the resident parent company holds its resident sub-subsidiaries. Inasmuch as, from a taxation perspective, it puts Community situations at a disadvantage compared with purely domestic situations which are objectively comparable having regard to the objective pursued by that legislation, the legislation in question thus constitutes a restriction which is, in principle, prohibited by the provisions of the Treaty relating to the freedom of establishment.

That restriction cannot be justified by the allocation of the power to impose taxes between Member States, since the question whether the profits and losses of companies belonging to the group should be taken into account arises only in relation to companies which are resident in a single Member State. That also excludes, prima facie, a risk of tax avoidance.

Nor can that legislation be justified by the need to ensure the coherence of the tax system. It is true that, in refusing to extend the benefit of the tax integration regime to a resident parent company wishing to include its resident sub-subsidiaries in that regime where it holds those sub-subsidiaries through a non-resident subsidiary, the legislation in question has the effect of ensuring the coherence of that regime. Should the subsidiary be a non-resident company, the losses recorded by the sub-subsidiary would be taken into account twice, first, in the form of the direct losses of that sub-subsidiary and, secondly, in the form of a provision made by the parent company for the depreciation of its holding in that subsidiary. That is because internal transactions would not be neutralised since the non-resident subsidiary is not subject to the tax integration regime. In such circumstances, resident companies would enjoy the advantages of the tax integration regime, as regards the consolidation of results and the immediate taking into account of the losses of all the companies subject to that tax regime, without the losses of the sub-subsidiary and the provisions made by the parent company being capable of being neutralised. Accordingly, the direct link which exists between the tax advantages and the neutralisation of intra-group transactions, which avoids, inter alia, the use of losses twice at the level of resident companies falling under the tax integration regime, would thus be eliminated, thereby affecting the coherence of that regime.

However, where measures which are less restrictive of the freedom of establishment exist for the purposes of attaining the objective of ensuring the coherence of the tax system, such legislation goes beyond what is necessary in order to attain that objective. First, practical difficulties, such as the difficulty in ascertaining whether a risk exists that losses may be used twice where a non‑resident subsidiary is interposed between the parent company and its sub‑subsidiaries, cannot of themselves justify the infringement of a freedom guaranteed by the Treaty. Next, the Member States may request from the competent authorities of the other Member States all information which may be relevant in assessing, inter alia, the corporation tax payable. Lastly, where parent companies which are resident in a Member State wish to benefit from the tax integration regime together with sub-subsidiaries held through subsidiaries resident in another Member State, the tax authorities of the first State may request those subsidiaries to provide the evidence the authorities consider necessary in order for the transparency of the provisions made by the subsidiaries to be fully guaranteed. The legislation in question prevents, in every case, those resident companies from proving that there is no risk of losses being used twice under the tax integration regime.

(see paras 30-32, 39-40, 46, 48-51, 53-55, 58, 60-63, operative part)