Provisional text

OPINION OF ADVOCATE GENERAL

RANTOS

delivered on 28 April 2022 ( )

Case C‑295/21

Allianz Benelux SA

v

État belge, SPF Finances

(Request for a preliminary ruling from the cour d’appel de Bruxelles (Court of Appeal, Brussels, Belgium))

(Reference for a preliminary ruling – Directive 90/435/EEC – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Article 4 – Prohibition on taxing profits received – Carry-forward of surplus definitively taxed income to subsequent financial years – Absorption of the company which has received the profits by another company – National legislation limiting the transfer of those surpluses to the absorbing company)





I. Introduction

1. By this request for a preliminary ruling, the cour d’appel de Bruxelles (Court of Appeal, Brussels, Belgium) asks the Court to rule on the conformity with Article 4 of Directive 90/435/EEC, ( ) read in conjunction with Directive 78/855/EEC, ( ) and with Directive 82/891/EC ( ) of the Belgian practice of limiting the amount of the surplus definitively taxed income (‘DTI’) transferred from the absorbed company to the absorbing company when the companies are merged.

2. This request been made in the course of proceedings between the insurance company Allianz Benelux SA, established in Belgium, and the Service public fédéral des Finances (Federal Public Service for Finance, Belgium) concerning the determination of the taxable profits of that company for the purposes of corporation tax for the tax years 2004 to 2007.

3. The Court has considered the Belgian corporate income tax system on several previous occasions, with particular regard to the DTI system, which allows the profits concerned to be deducted from a company’s tax base, when certain specific conditions are met. ( ) Although the present request for a preliminary ruling is a continuation of the cases previously brought before the Court, which concerned the transfer of surplus DTI between companies belonging to the same group, it is, however, characterised by a different factual context, given that it relates to the transfer of surplus DTI, admittedly between companies in the same group, but coming from companies which were previously independent. The question therefore arises whether the principles established by the Court’s case-law may be transposed in the context of a dispute, the principal aim of which is to determine the conformity with EU law of the restriction on the carry-forward of a tax deduction when it is transferred in the context of a merger.

4. For the reasons set out in this Opinion, I consider that the question referred should be answered in the negative.

II. Legal framework

A. European Union law

1. Directive 90/435

5. It should be pointed out that the referring court does not state which version of Directive 90/435 is applicable in this case. Since the financial years at issue relate to the years 2004 to 2007, both the original version and the amended version of that directive ( ) are applicable. However, the amendments made to Article 4 of Directive 90/435 by Directive 2003/123 do not affect the present case.

6. Under the third recital of Directive 90/435:

‘Whereas the existing tax provisions which govern the relations between parent companies and subsidiaries of different Member States vary appreciably from one Member State to another and are generally less advantageous than those applicable to parent companies and subsidiaries of the same Member State; whereas cooperation between companies of different Member States is thereby disadvantaged in comparison with cooperation between companies of the same Member State; whereas it is necessary to eliminate this disadvantage by the introduction of a common system in order to facilitate the grouping together of companies.’

7. Article 1(1) of that directive read as follows:

‘Each Member State shall apply this Directive:

– to distributions of profits received by companies of that State which come from their subsidiaries of other Member States,

– to distributions of profits by companies of that State to companies of other Member States of which they are subsidiaries,

…’

8. Article 4 of that directive provided:

‘1. Where a parent company or its permanent establishment, by virtue of the association of the parent company with its subsidiary, receives distributed profits, the State of the parent company and the State of its permanent establishment shall, except when the subsidiary is liquidated, either:

– refrain from taxing such profits, or

– tax such profits while authorising the parent company and the permanent establishment to deduct from the amount of tax due that fraction of the corporation tax related to those profits and paid by the subsidiary and any low-tier subsidiary, subject to the condition that at each tier a company and its lower-tier subsidiary meets the requirements provided for in Articles 2 and 3, up to the limit of the amount of the corresponding tax due.

– …

2. However, each Member State shall retain the option of providing that any charges relating to the holding and any losses resulting from the distribution of the profits of the subsidiary may not be deducted from the taxable profits of the parent company. Where the management costs relating to the holding in such a case are fixed as a flat rate, the fixed amount may not exceed 5% of the profits distributed by the subsidiary.

…’

9. Directive 90/435 was repealed by Directive 2011/96/EU, ( ) which came into force on 18 January 2012. Nevertheless, in view of the date of the facts of the dispute in the main proceedings, Directive 90/435 is applicable to them ratione temporis.

2. Directive 78/855

10. Article 19(1) of Directive 78/855 states:

‘1. A merger shall have the following consequences ipso jure and simultaneously:

(a) the transfer, both as between the company being acquired and the acquiring company and as regards third parties, to the acquiring company of all the assets and liabilities of the company being acquired;

…’

B. Belgian law

11. Article 202 of the Income Tax Code 1992, in the version in force at the time of the facts in the main proceedings (‘the ITC 1992’), provides, with regard to the DTI scheme:

‘1. The following shall also be deducted from the profits for the tax period, to the extent to which they are included:

1° Dividends, with the exception of income which is received on the transfer to a company of its own listed or unlisted shares or during the complete or partial distribution of the assets of a company;

…’

12. Under the first paragraph of Article 204 of the ITC 1992:

‘The deductible income under Article 202(1)(1), (3) and (4) is deemed to be found in the profits for the tax period up to 95% of the amount collected or received, which may be increased by real or notional equalisation tax …’

13. Article 205(2) of the ITC 1992 is worded as follows:

‘The deduction provided for under Article 202 shall be limited to the amount of profit remaining in the relevant taxable period after the application of Article 199 …’

14. Article 206(1) of the ITC 1992, relating to the deduction of previous losses, provides:

‘Business losses sustained in previous tax years shall be successively deducted from the business income for each of the following tax periods.’

15. Under the second subparagraph of Article 206(2) of the ITC 1992:

‘In the event of a merger pursuant to Article 211(1), the business losses made by an absorbed company prior to that merger are to remain deductible in the hands of the absorbing company in proportion to the share represented by the net tax assets, prior to the merger, of the absorbed parts of the absorbed company in the pre-merger total of the net tax assets of the absorbing company and of the net tax value of the absorbed parts …’

III. The dispute in the main proceedings, the question referred for a preliminary ruling and the procedure before the Court

16. During 1995, the insurance company AGF L’Escaut SA absorbed two Belgian insurance companies. In 1999, another insurance company, Assubel-Vie SA, absorbed AGF L’Escaut and five other insurance companies.

17. The companies absorbed by AGF L’Escaut and by Assubel-Vie, now grouped together under the company name Allianz Benelux, had surplus DTI, which could be carried forward to subsequent financial years. They had therefore received, before those mergers, dividends on their holdings in other companies, while sustaining losses.

18. Allianz Benelux had carried forward that surplus DTI in full during the financial years from 2004 to 2007. The tax authority refused to allow that carry-forward in full.

19. Following a claim by Allianz Benelux against that refusal, the regional director of the tax authority, by decision of 19 December 2012, allowed the transfer of the surplus DTI to the absorbing company, but only in the proportion laid down in respect of losses recoverable by that company in the context of a merger. ( ) The partial refusal to allow the carry-forward of the surplus DTI meant an increase in that company’s basis of assessment of a total amount of approximately EUR 13 581 536.03 for the years 2004 to 2007.

20. Allianz Benelux lodged an appeal against that judgment before the tribunal de première instance francophone de Bruxelles (Brussels Court of First Instance (French-speaking), Belgium). By judgment of 20 May 2016, that court dismissed the application for the carry-forward in full of the surplus DTI.

21. Allianz Benelux lodged an appeal against that judgment with the referring court. That company claimed that the lack of a carry-forward in full in the hands of an absorbing company of the DTI of an absorbed company which could be carried forward resulted, first, in taxation of that income, second, in infringement of Article 4(1) of Directive 90/435 and, third, in infringement of the principle of fiscal neutrality.

22. In those circumstances, the cour d’appel de Bruxelles (Court of Appeal, Brussels) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Is Article 4(1) of Directive [90/435], whether or not read in conjunction with the provisions of Directives [78/855] and [82/891] to be interpreted as precluding national legislation which provides that the distributed benefits covered by the first directive are included in the basis of assessment of the company receiving the dividends before 95% of their total is deducted from that basis and, as the case may be, carried forward to subsequent tax years but which, in the absence of a specific provision stating, in the case of an operation involving the reorganisation of companies, that the deductions thus carried forward in the hand of the transferring company are transferred in full to the receiving company, has the effect that the profits covered are indirectly taxed at the time of that operation on account of the application of a provision which limits the transfer of those deductions in proportion to the share represented by the net tax assets before the operation involving the absorbed parts of the transferring company in the total, once again before the operation, of the net tax assets of the absorbing company and of the net tax value of the absorbed parts?’

23. Written observations were submitted by the Belgian Government and by the European Commission. Those parties and Allianz Benelux also expressed their views at the hearing held on 3 February 2022.

IV. Analysis

A. The admissibility of the reference for a preliminary ruling

24. I would point out first of all, that, in its question for a preliminary ruling, the national court refers to Article 4(1) of Directive 90/435, but also to Directives 78/855 and 82/891 without, however, indicating the specific provisions thereof or stating the reasons why it refers to those directives.

25. As regards, first, Directive 82/91, it should be noted that it governs only company law in relation to divisions of public limited liability companies and therefore cannot apply in the present case, which concerns a merger.

26. With regard, second, to Directive 78/855, this relates only to those aspects of private law specific to mergers but does not contain provisions of fiscal significance which are applicable to the dispute in the main proceedings. ( ) That is confirmed, moreover, by the fact that the tax aspects of mergers within the European Union were governed, at the time of the facts in the main proceedings, by Directive 90/434/EEC. ( )

27. With regard to Directive 90/435, it should be pointed out that its aim is to eliminate the double taxation of the profits distributed by a subsidiary company situated in one Member State to the parent company established in another Member State, in order to facilitate the grouping together of companies. ( ) For that purpose, Article 4(1) of that directive provides that, where a parent company resident in one Member State receives distributed profits from a subsidiary resident in another Member State, the State of the parent company must either refrain from taxing such profits (exemption system), or authorise the parent company to deduct from the amount of tax due that fraction of the tax paid by the subsidiary which relates to those profits (imputation system).

28. As regards the applicability of Directive 90/435 to the dispute in the main proceedings, it is important to make the following points.

29. First, as mentioned in point 27 of this Opinion, Directive 90/435 seeks to eliminate the double taxation of profits distributed between companies belonging to the same group situated in different Member States. Accordingly, no provision of that directive expressly provides for its application in connection with merger operations between (previously independent) companies. Although it is true that the objectives pursued by that directive include ‘[facilitating] the grouping together of companies’, the fact remains that the grouping together to which that directive refers must be understood as being mainly ‘internal’ and not concerning companies belonging to the same group.

30. Second, Article 1 of Directive 90/435 relates to distributions of profits received by companies of one Member State from their subsidiaries with registered offices in other Member States. It is apparent, moreover, from the Court’s case-law that, in principle, the first indent of Article 4(1) of that directive does not govern situations in which the dividend-distributing company has its seat in the same Member State as the recipient company. ( )

31. In view of the fact that the origin of the dividends received by the absorbed companies is not clear from the request for a preliminary ruling, it is impossible to determine whether transactions such as those at issue in the main proceedings are governed by Directive 90/435 and, in particular, whether they do not constitute a purely internal situation involving only Belgian companies.

32. I note, nevertheless, that, according to settled case-law, questions referred for a preliminary ruling on the interpretation of EU law enjoy a presumption of relevance. ( ) Also, the Court has already recognised the existence of a reference by Belgian law, in connection with the DTI scheme, to Directive 90/435 and, therefore, the admissibility of requests for a preliminary ruling under that reference, holding that the scope of the reference made by national law to EU law is an issue governed exclusively by national law, which therefore entails, in principle, the power to refer to those provisions of EU law for national situations which are not covered, ratione materiae, by the EU legislation referred to. ( )

33. In the present case, it is apparent from the request for a preliminary ruling that the Belgian tax authority expressly based its decision on the Court’s case-law relating to DTI.

34. In the light of the foregoing, I consider that the question referred is admissible, but that it should be assessed only in the light of Directive 90/435.

B. Substance

1. The amendment of the Belgian DTI system in accordance with the case-law of the Court of Justice

35. I would point out first of all that the Court has had the opportunity on several occasions to examine the compatibility of the Belgian DTI system with Directive 90/435.

36. Thus, in the judgment in Cobelfret, the Court considered that the Belgian DTI deduction system applicable at the time of the facts was not compatible with Article 4(1) of Directive 90/435 since its grant in full depended on a condition which was not provided for in that directive, namely that the tax year during which the dividends are received had to end with a positive or zero balance sheet. According to the Court, where that condition was not satisfied, there was indirect taxation of the dividends received during subsequent tax years owing to the reduction of the carry-forward of losses which was the consequence of the prior inclusion of the dividends received in the basis of assessment. ( )

37. It is clear from that case-law that, if the taxable profit of the financial year at issue is not sufficient to ensure DTI deduction in full, the non-deductible surplus must immediately be carried forward to the following financial years with no time limit.

38. It should also be pointed out that, in that judgment, the Court acknowledged that Article 4(1) of Directive 90/435 had direct effect.

39. Following the order in KBC which confirmed the judgment in Cobelfret, the Belgian DTI system was amended by introducing the carry-forward to subsequent tax years, with no time limit, of the deduction of DTI which could not be allocated immediately owing to insufficient profits.

40. The Belgian DTI system was again the subject of an examination by the Court, a few years later, in the judgment in Brussels Securities, which concerned the method of carrying forward the DTI deduction and – more specifically – the order in which corporation tax deductions were to be applied as provided by the Belgian law at that time. In that judgment, the Court found that the priority application of the carry-forward of the DTI deduction might result in the loss of the benefit of other types of carry-forward of deductions which were subject to time limits. ( ) Therefore, since the parent company’s tax burden might be affected, the Court considered that it was indirectly taxed on the dividends received from its subsidiary in infringement of Article 4(1) of Directive 90/435. ( )

2. Does limiting the carry-forward of surplus DTI in the context of a merger constitute indirect taxation?

41. I note that, in the present case, the tax authority applied, by analogy to the transfer of surplus DTI from the absorbed companies to the absorbing company, Article 206(2) of the ITC 1992, which concerns the transfer to the absorbing company of the losses which the absorbed company sustained before the merger. It must therefore be determined whether that reduction of the surplus DTI constitutes direct or indirect taxation of dividends exempted under the first indent of Article 4(1) of Directive 90/435. ( )

42. Like the Commission and the Belgian Government, I take the view that the reply to the question referred for a preliminary ruling should be in the negative.

43. In the first place, I would point out that the Court’s case-law regarding the compatibility of the Belgian DTI system with the first indent of Article 4(1) of Directive 90/435 – and described in points 36 to 40 of this Opinion – was established in a different factual and legal context.

44. Thus, in the aforementioned cases, the Court examined the compatibility of the Belgian DTI system applicable at the time of the facts with EU law in a factual context which fell wholly within the scope of that provision, in the sense that what was at issue in those cases were payments between a ‘daughter’ company and a ‘mother’ company within the same group. However, the present case relates to a specific situation in which the surplus DTI are not directly transferred from the daughter company to the mother company, but in which the absorbed company transmits surplus DTI, which it has owing to its (previous) holding in other companies, to the (mother) company which has subsequently absorbed it.

45. The question therefore arises whether that case-law may be transposed to the present case, which concerns not a carry-forward of surplus DTI between companies belonging to the same group, but a ‘transfer’ of surplus DTI from a previously independent company to another company following a merger.

46. However, it must be stated that Article 4(1) of Directive 90/435 does not provide for the possibility of accepting an unconditional carry-forward of surplus DTI from the absorbed company to the absorbing company, and that the Court’s case-law – and particularly the judgment in Cobelfret – cannot be interpreted to that effect, as Allianz Benelux wrongly maintains. ( ) I therefore consider that there is nothing that can lead us to extend the scope of Article 4(1) of Directive 90/435 or the scope of the Court’s aforementioned case-law to the present case.

47. It should be noted, in the second place, that no other provision of EU law appears to enshrine the right to an unconditional carry-forward of surplus DTI from the absorbed company to the absorbing company, as claimed by Allianz Benelux. I note, in that regard, that Directive 90/434, even though it relates to the tax aspects of mergers, also does not contain provisions permitting the carry-forward of losses or surplus DTI (or other tax advantages) in the context of mergers. The interpretation of that directive by the Court in cases having common features with the case in the main proceedings and concerning the carry-forward of losses (and other tax advantages) in the context of mergers does not allow, moreover, the interpretation advocated by Allianz Benelux. ( )

48. In the third place, it is necessary to examine whether the DTI system at issue in the context of the present case involves direct or indirect taxation incompatible with the first indent of Article 4(1) of Directive 90/435.

49. I note that the Belgian State opted for the exemption system prescribed in the first indent of Article 4(1) of that directive for the purposes of transposing that measure into its national law.

50. Accordingly, under the provisions of Belgian law transposing Directive 90/435, a parent company may deduct from its results 95% of the dividends received from its subsidiaries as DTI. The DTI system provides that, first, the dividends distributed by the subsidiary are included in the basis of assessment of the parent company. Second, those dividends are deducted from that basis of assessment in so far as, for the tax period in question, the parent company has taxable profits after deduction of other exempted profits.

51. In the present case, the absorbed companies had, at the time of the merger by absorption, surplus DTI and losses. As regards losses, the applicable Belgian legislation provided that an amount of the losses transfer and deductible in the hands of the absorbing company is limited on a pro rata basis. ( )

52. It is therefore necessary to determine whether that reduction of the surplus DTI constitutes direct or indirect taxation of the dividends exempted under the first indent of Article 4(1) of Directive 90/435.

53. It is clear from the foregoing that the DTI system does not result in direct taxation for the absorbing company in view of the (almost) full deduction it obtains.

54. So far as concerns indirect taxation, it is necessary to determine whether the obligation to refrain from taxation laid down in the first indent of Article 4(1) of Directive 90/435 is of such scope that that provision precludes the tax effects on the basis of assessment of the company which obtains dividends resulting from a limitation on the transfer of carry-forward of surplus DTI in the course of a merger by absorption.

55. In that regard, I note that, in the judgment in Brussels Securities, in order to determine whether there was indirect taxation, the Court compared the situation at issue in that case, in which the parent company, when deducting tax, had to comply with the priorities of surplus deduction in relation to another tax deduction, with the situation which would prevail if the Belgian State applied an exemption system consisting of purely and simply excluding the dividends from the basis of assessment. ( )

56. I consider, like the Commission and the Belgian Government, that the Court’s reasoning in the aforementioned case may also be applied in the present case. It follows that indirect taxation may occur only in a situation in which the beneficiary company is in a less favourable position owing to the application of the national legislation than if the dividends received by the parent company were purely and simply excluded from the calculation of the basis of assessment.

57. However, it is apparent from that comparison that the situation in which the limitation on a pro rata basis applies both to the carry-forward of the surplus DTI and to the carry-forward of the losses in the event of a merger does not seem to lead to heavier taxation than if the dividends had been excluded from the basis of assessment of the beneficiary company. ( ) Fiscal neutrality seems to be observed in both situations.

58. However, as the Commission rightly points out, if the surplus DTI is transferred in full to the absorbing company although a limitation on a pro rata basis such as that provided for by the national legislation applies to the transfer of losses, that company would be in a more favourable duration than if the Belgian State had provided for a simple exemption.

59. I would point out, in that regard, that neither the referring court nor Allianz Benelux has provided an example to illustrate indirect taxation of the exempted dividends.

60. In the fourth and last place, I take the view that, even though the issue of the justification for the Belgian measure in question is not raised in the present case, the limitation introduced by Belgian law with regard to the scope and extent of the possibility of deducting the amounts corresponding to the DTI (in merger transactions) seems, prima facie, to be justified in the light of the legitimate objective of combating abuse and tax fraud ( ) provided, of course, that the national measure is necessary and observes the principle of proportionality. ( )

61. It is necessary, nevertheless, to point out that the issue of justification would arise only if an infringement of the first indent of Article 4(1) of Directive 90/435 had been found, which is not the situation in the present case. Moreover, that issue was not raised either by the referring court or by the parties to the proceedings. I therefore consider that there is no need to examine this point any further.

62. In the light of the foregoing, I propose that the reply to the question referred for a preliminary ruling should be that Article 4(1) of Directive 90/435 is to be interpreted as not precluding the legislation of a Member State which provides that the dividends received by a company are included in its basis of assessment before 95% of their total is deducted from that basis and which allows, as the case may be, that deduction to be carried forward to subsequent tax years, but which, however, if that company is absorbed in a merger, limits the carry-forward of that deduction to the absorbing company in proportion to the share represented by the net tax assets of the absorbed company in the total of the net tax assets of the absorbing company and of the absorbed company.

V. Conclusion

63. In the light of the foregoing considerations, I propose that the Court reply to the question referred for a preliminary ruling by the cour d’appel de Bruxelles (Court of Appeal, Brussels, Belgium) as follows:

Article 4(1) of 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 is to be interpreted as not precluding the legislation of a Member State which provides that the dividends received by a company are included in its basis of assessment before 95% of their total is deducted from that basis and which allows, as the case may be, that deduction to be carried forward to subsequent tax years, but which, however, if that company is absorbed in a merger, limits the carry-forward of that deduction to the absorbing company in proportion to the share represented by the net tax assets of the absorbed company in the total of the net tax assets of the absorbing company and of the absorbed company.