Case C-524/04: Reference for a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court dated 21 December 2004, in the case of Test Claimants in the Thin Cap Group Litigation against Commissioners of Inland Revenue
Date: 2005-03-05
Institutions: Court of Justice
Subjects: borrowing, corporation tax, interest, interpretation of the law, multinational enterprise, tax rebate, tax relief, tax system

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C. Infringement of Article 52 of the Treaty

— Community airline companies in the Netherlands may
always be excluded from application of the agreement on
air traffic between the Kingdom of the Netherlands and the
United States, whereas that agreement
is automatically
applicable to Netherlands airline companies. Community
airline companies are thus discriminated against since, in
the host State, that is to say the Kingdom of the Nether-
lands, they are not accorded national treatment.

(1) OJ 1992 L 240, p. 15.
(2) OJ 1989 L 220, p. 1.
(3) OJ 1993 L 278, p. 1.

Reference for a preliminary ruling by the High Court of
Justice (England & Wales), Chancery Division, by order of
that court dated 21 December 2004, in the case of Test
Claimants in the Thin Cap Group Litigation against
Commissioners of Inland Revenue

(Case C-524/04)

(2005/C 57/35)

(Language of procedure: English)

Reference has been made to the Court of Justice of the Euro-
pean Communities by order of
Justice
(England & Wales), Chancery Division, dated 21 December
2004, which was received at
the Court Registry on 31
December 2004 for a preliminary ruling in the case of Test
Claimants in the Thin Cap Group Litigation and Commis-
sioners of Inland Revenue on the following questions:

the High Court of

1. Is it contrary to Article 43, 49 or 56 EC for a Member
State (‘the State of the borrowing company’) to keep in
force and apply provisions such as those in sections 209,
212 and schedule 28AA of the Income and Corporation
Taxes Act 1988 (‘the national provisions’) which impose
restrictions upon the ability of a company resident in that
Member State (‘the borrowing company’) to deduct for tax
purposes interest on loan finance granted by a direct or
indirect parent company resident in another Member State
in circumstances where the borrowing company would
not be subject to such restrictions if the parent company
had been resident in the State of the borrowing company?

2. What difference,
Question 1:

if any, does it make to the answer to

a) if

the loan finance is provided not by the parent
company of the borrowing company but by another
company (‘the lending company’) in the same company
group sharing a common direct or indirect parent
company with the borrowing company and both that
common parent and the lending company are resident
in Member States other than the State of the borrowing
company?

b) if the lending company is resident in a Member State
other than that of
the borrowing company but all
common direct or indirect parent companies of the
borrowing company and the lending company are resi-
dent in a third country?

c) if all the common direct or indirect parent companies
of the lending company and the borrowing company
are resident in third countries and the lending company
is resident in a Member State other than that of the
borrowing company, but advances the loan finance to
the borrowing company from a branch of the lending
company situated in a third country?

d) if the lending company and all the common direct or
indirect parent companies of the lending company and
the borrowing company are resident in third countries?

3. Would it make any difference to the answers to Questions
1 and 2 if it could be shown that the borrowing consti-
tuted an abuse of rights or was part of an artificial arrange-
ment designed to circumvent the tax law of the Member
State of the borrowing company? If so, what guidance
does the Court of Justice think it appropriate to provide as
to what constitutes such an abuse or artificial arrangement
in the context of cases such as the present?

4. If

there is a restriction on the movement of capital
between Member States and third countries within article
56 EC, did that restriction exist on 31 December 1993 for
the purposes of article 57 EC?

5. In the event that any of the matters referred to in questions
1 or 2 are contrary to Articles 43, 49 or 56 EC, then in
circumstances where the borrowing company, or other
companies in the borrowing company's group (‘the Clai-
mants’) make the following claims:

a) a claim for the repayment of the additional corporation
tax paid by the borrowing company as a result of the
disallowance, as a deduction against its profits charge-
able to corporation tax, of interest paid to the lending
company, where those interest payments would have
from the
been regarded as
borrowing company's profits if the lending company
had also been resident in the State of the borrowing
company;

allowable deductions

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C 57/21

b) a claim for repayment of the additional corporation tax
paid by the borrowing company where the full amount
of interest on the loan has actually been paid to the
the claim for a deduction in
lending company but
respect of that interest has been reduced because of the
national provisions or the tax authority's application of
them;

c) a claim for the repayment of the additional corporation
tax paid by the borrowing company where the amount
of interest on loans from the lending company, allow-
able as a deduction against the borrowing company's
profits, has been reduced because equity capital has
been subscribed rather than loan capital, or has been
the
substituted for existing loan capital, because of
national provisions or the tax authority's application of
them;

d) a claim for the repayment of the additional corporation
tax paid by the borrowing company where the interest
on loans from the lending company allowable as a
deduction against the borrowing company's profits has
been reduced by reducing the rate of interest chargeable
on the loan (or making the loan interest free) as a result
of the national provisions or the tax authority's applica-
tion of them;

e) a claim for restitution or compensation in respect of
losses, or other tax reliefs or credits, of the borrowing
company (or which were surrendered to the borrowing
company by other companies in the borrowing compa-
ny's group which were also resident in the State of the
borrowing company) used by the borrowing company
the additional corporation tax liabilities
to offset
referred to in paragraphs (a), (b) or (c) above, where
such losses, reliefs and credits would otherwise have
been available for alternative use or to be carried
forward;

f) a claim for repayment of un-utilised advance corpora-
tion tax paid by the borrowing company upon interest
payments to the lending company which were re-char-
acterised as distributions;

g) a claim for restitution or compensation in respect of
amounts of advance corporation tax paid in the circum-
stances referred to in paragraph (f) above but which
were subsequently set off against the borrowing compa-
ny's corporation tax liabilities;

h) a claim for compensation for costs and expenses
incurred by the Claimants in complying with the

national provisions and the Revenue authority's applica-
tion of them;

i) a claim for restitution or compensation for the loss of
return upon loan capital
equity (or
converted to equity) in the circumstances described in
(c); and

invested as

j) a claim for restitution or compensation for any tax
liability incurred by the lending company in its State of
residence upon the deemed or imputed receipt of
interest
from the borrowing company which was
recharacterised as a distribution under the national
provisions referred to in question 1

are such claims to be regarded, for the purposes of
Community law, as:

claims for restitution or repayment of sums unduly
levied which arise as a consequence of, and adjunct to,
the breach of the abovementioned Community provi-
sions; or

claims for compensation or damages; or

claims for payment of an amount representing a benefit
unduly denied?

6. In the event that the answer to any part of Question 5 is
that the claims are claims for payment of an amount repre-
senting a benefit unduly denied:

a) are such claims a consequence of, and an adjunct to,
the right conferred by the abovementioned Community
provisions; or

b) must all or some of the conditions for recovery laid
down in Joined Cases C-46/93 and C-48/93 Brasserie du
Pecheur and Factortame be satisfied; or

c) must some other conditions be met?

7. Does it make any difference whether as a matter of
domestic law the claims referred to in Question 6 are
brought as restitutionary claims or are brought or have to
be brought as claims for damages?

8. What guidance, if any, does the Court of Justice think it
appropriate to provide in the present cases as to which
circumstances the national court ought to take into consid-
eration when it comes to determine whether there is a
sufficiently serious breach within the meaning of the judg-
ment in Joined Cases C-46/93 and C-48/93 Brasserie du
Pecheur and Factortame, in particular as to whether, given
the state of the case law on the interpretation of the rele-
vant Community provisions, the breach was excusable?

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9. As a matter of principle, can there be a direct causal link
(within the meaning of the judgment in Joined Cases C-46/
93 and C-48/93 Brasserie du Pecheur and Factortame)
between any breach of Articles 43, 49 and 56 EC and
losses falling into the categories identified in Question
5(a)-(h)
that are claimed to flow from it? If so, what
guidance, if any, does the Court of Justice think it appro-
priate to provide as to the circumstances which the
national court should take into account in determining
whether such a direct causal link exists?

10. In determining the loss or damage for which reparation
may be granted, is it open to the national court to have
regard to the question of whether injured persons showed
reasonable diligence in order to avoid or limit their loss, in
particular by availing themselves of legal remedies which
could have established that the national provisions did not
(by reason of the application of double taxation conven-
tions) have the effect of imposing the restrictions set out in
Question 1? Is the answer to this question affected by the
beliefs of the parties at the relevant times as to the effect
of the double taxation conventions?

Reference for a preliminary ruling from the Utlännings-
nämnden by order of that court of 30 December 2004,
received at the Court Registry on 4 January 2005, in the
case of Yunying Jia against Migrationsverket

(Case C-1/05)

(2005/C 57/36)

(Language of the case: Swedish)

Reference has been made to the Court of Justice of the Euro-
pean Communities by order of the Utlänningsnämnden (Alien
Appeals Board) (Sweden) of 30 December 2004, received at the
Court Registry on 4 January 2005, for a preliminary ruling in
the case of Yunying Jia against Migrationsverket (Immigration
Board) on the following questions:

1 a. In the light of the judgment in Case C-109/01, is Article
10 of Regulation (EEC) No 1612/68 to be interpreted as
meaning that a national of a non-Member State related to
a worker as specified therein must be lawfully within the
Community in order to have the right permanently to
reside with the worker – and, in the same way, is Article
1 of Directive 73/148/EEC to be interpreted as meaning
that the right to permanent residence of a relative of a

citizen of the Union, who is a national of a non-Member
State, presupposes that the national of a non-Member
State is lawfully resident in the Community?

b. If Directive 73/148/EEC is to be interpreted as meaning
that lawful residence within the Community is a require-
ment in order for a relative of a citizen of the Union,
who is a national of a non-Member State, to be able to
claim the right to permanent residence under the direc-
tive, does that then imply that the relative is to hold a
current residence permit valid for or intended to lead to
permanent residence in one of the Member States? If
there is no permanent residence permit is a residence
permit granted on other grounds for a shorter or longer
stay sufficient, or is it, as in the case pending before the
Utlänningsnämnden, sufficient if the relative applying for
a residence permit holds a valid visa?

c. If a relative of a citizen of the Union, who is a national of
a non-Member State, cannot benefit from the right to
permanent residence under Directive 73/148/EEC because
he is not lawfully resident in the Community, does a
refusal to grant a relative a residence permit for perma-
nent residence thus restrict the right of the citizen of the
Union to freedom of establishment under Article 43 EC?

d. If a relative of a citizen of the Union, who is a national of
a non-Member State, cannot benefit from the right to
permanent residence under Directive 73/148/EEC because
he is not lawfully resident in the Community, is the right
of the citizen of the Union to freedom of establishment
under Article 43 EC restricted if
the
citizen of the Union are deported because an application
for a national residence permit cannot be accepted after
entry into Sweden?

the relatives of

2 a. Is Article 1(d) of Directive 73/148/EEC to be interpreted
as meaning that ‘dependence’ means that a relative of a
citizen of the Union is economically dependent on the
citizen of the Union to attain the lowest acceptable stand-
ard of living in his country of origin or country where he
is normally resident?

b. Is Article 6(b) of Directive 73/148/EEC to be interpreted
as meaning that the Member States may require a relative
of a citizen of the Union who claims to be dependent on
the citizen of the Union or his/her spouse to produce
documents, in addition to the undertaking given by the
citizen of the Union, which prove that there is a factual
situation of dependence?