Société Papillon v Ministère du Budget, des Comptes publics et de la Fonction publique.
Date: 2008-11-27
6. Articles 223B, 223D and 223F of the CGI provide, inter alia, for the neutrality of intra-group transactions, such as provisions for doubtful claims or risks between the companies in the group, waivers of debt or intra-group payments, provisions for depreciation of shares held in other companies in the group, and the transfer of fixed assets within the group.
The dispute in the main proceedings and the questions referred
15. In that regard, it should be pointed out that freedom of establishment entails for companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the European Community, the right to exercise their activity in other Member States through a subsidiary, branch or agency (Case C-471/04 Keller Holding  [2006] ECR I-2107, paragraph 29, and Case C-414/06 Lidl Belgium  [2008] ECR I-0000, paragraph 18).
16. Even though, according to their wording, the provisions of the EC Treaty concerning freedom of establishment are directed to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also 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 (Case C-264/96 ICI  [1998] ECR I‑4695, paragraph 21; Case C-298/05 Columbus Container Services  [2007] ECR I‑10451, paragraph 33; and Lidl Belgium , paragraph 19).
17. It must be noted at the outset that the national court does not, in the main proceedings, ask whether the fact that it is impossible for the Netherlands subsidiary of Papillon to be included in the tax integration constitutes a restriction on the freedom of establishment. As the Advocate General observed in points 5 and 24 of her Opinion, the reference for a preliminary ruling asks whether a restriction on the freedom of establishment under Article 52 of the Treaty arises by virtue of the fact that a parent company established in one Member State cannot benefit from the tax integration regime as regards the group constituted by that company and its sub-subsidiaries, all of whom have their seat in the same State, where the intermediate subsidiary, which is established in another Member State, is not subject to corporation tax in the first State.
18. As the order for reference states, the tax integration regime reduces the tax liability of the parent company by allowing it to offset the profits and losses of all the companies in the fiscally-integrated group. That regime constitutes a tax advantage inasmuch, in particular, as the offsetting which is permitted allows a group to take the losses of certain of its members into account immediately.
19. Under Article 223A et seq. of the CGI, that tax advantage is, however, not available where a parent company established in France holds a sub-subsidiary which also has its registered office in France through a subsidiary which is established in another Member State and which does not carry on business in France.
20. As was noted in paragraphs 3 and 4 of this judgment, the parent company of the group can, if it is to benefit from the tax integration regime, have an indirect holding in another group company only if this is done through a company which is itself a member of the integrated group and is accordingly liable to corporation tax in France.
21. Thus, a parent company which has its registered office in France and which holds its French sub-subsidiaries through a subsidiary established in another Member State cannot benefit from the tax integration regime. By contrast, a French parent company is able to achieve tax integration with its French sub-subsidiaries where the intermediate subsidiary is established in France.
22. As the Advocate General stated at point 30 of her Opinion, the effect is that the provisions of the CGI at issue in the main proceedings create a difference in treatment since the ability to elect for the tax integration regime is dependent on whether the parent company holds its indirect shares through a subsidiary established in France or in another Member State.
23. The French Government contends, however, that that difference in treatment can be explained by the fact that those two situations are not objectively comparable.
24. In a situation such as that which arises in the main proceedings, a subsidiary which is established in a Member State other than the French Republic is, by virtue of that fact, not subject to corporation tax in France, unlike the position which arises when the subsidiary has its registered office in that State.
25. That argument cannot be accepted.
26. Acceptance of the proposition that the Member State may freely apply a different treatment solely by reason of the fact that a company’s registered office is situated in another Member State would deprive the rules relating to the freedom of establishment of all meaning (see, to that effect, Case 270/83 Commission  v France  [1986] ECR 273, paragraph 18, and Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others [2001] ECR I-1727, paragraph 42).
27. In order to establish whether discrimination exists, the comparability of a Community situation with one which is purely domestic must be examined by taking into account the objective pursued by the national provisions at issue (see, to that effect, Metallgesellschaft and Others , paragraph 60, and Case C-231/05 Oy AA  [2007] ECR I-6373, paragraph 38).
28. In the main proceedings, the provisions of the CGI at issue aim to treat, as far as possible, a group constituted by a parent company with its subsidiaries and its sub-subsidiaries in the same way as an undertaking with a number of permanent establishments, by allowing the results of each company to be consolidated.
29. That objective can be attained both in the situation of a parent company which is resident in a Member State and holds sub-subsidiaries also resident in that State through a subsidiary which is itself resident, and in the situation of a parent company which is resident in the same Member State and holds sub-subsidiaries also resident in that State, but through a subsidiary established in another Member State.
30. Having regard to the objectives of the CGI at issue in the main proceedings, those situations are thus objectively comparable.
32. Inasmuch as, from a taxation perspective, they put Community situations at a disadvantage compared with purely domestic situation s, the provisions of the CGI at issue in the main proceedings thus constitute a restriction which is, in principle, prohibited by the provisions of the Treaty relating to the freedom of establishment.
33. It is clear from the Court’s case-law that such a restriction of the freedom of establishment is permissible only if it is justified by overriding reasons of public interest. It is necessary in such a case, moreover, that its application be appropriate to ensuring the attainment of the objective in question and not go beyond what is necessary to attain it ( Lidl Belgium , paragraph 27 and the case-law cited).
39. In the main proceedings, the question as to whether the profits and losses of companies belonging to the group in question should be taken into account arises only in relation to companies which are resident in a single Member State. Accordingly, the question which is put relates to the taking into account of losses recorded in one and the same Member State, which also excludes, prima facie, a risk of tax avoidance.
40. Consequently, the restriction established in paragraphs 22 to 32 of this judgment cannot be justified by the allocation of the power to impose taxes between Member States.
43. In that regard, it must be pointed out that the Court has already acknowledged that the need to maintain the coherence of a tax system can justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty (Case C-204/90 Bachmann  [1992] ECR I-249, paragraph 28; Case C-319/02 Manninen  [2004] ECR I-7477, paragraph 42; and Keller Holding , paragraph 40).
44. For an argument based on such a justification to succeed, the Court requires, however, that a direct link be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy (Case C-484/93 Svensson and Gustavsson [1995] ECR I-3955, paragraph 18; ICI , paragraph 29; Manninen , paragraph 42; and Keller Holding , paragraph 40), with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question ( Manninen , paragraph 43, and Case C-293/06 Deutsche Shell  [2008] ECR I-0000, paragraph 39).
48. Nevertheless, 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. The internal transactions would not be neutralised because the non-resident subsidiary is not subject to the tax integration regime.
50. As a result, the direct link which exists under the tax integration regime between the tax advantages and the neutralisation of intra-group transactions would thus be eliminated, thereby affecting the coherence of that regime.
54. In this respect, it must first be pointed out that practical difficulties cannot of themselves justify the infringement of a freedom guaranteed by the Treaty (Case C-334/02 Commission  v France  [2004] ECR I-2229, paragraph 29; Case C‑386/04 Centro di Musicologia Walter Stauffer  [2006] ECR I-8203, paragraph 48; and Case C-446/04 Test Claimants in the FII Group Litigation  [2006] ECR I‑11753, paragraph 70).
56. Lastly, it must be added, as the Advocate General stated at point 66 of her Opinion, that the tax authorities concerned are entitled to demand from the parent company such documents as they consider necessary in order to determine whether the provisions made by that company for the losses in share values in the subsidiary can be explained indirectly by a loss of the sub-subsidiary through the provisions of that subsidiary (see, to that effect, Centro di Musicologia Walter Stauffer , paragraph 49; Case C-150/04 Commission  v Denmark [2007] ECR I‑1163, paragraph 54; Case C-347/04 Rewe Zentralfinanz [2007] ECR  I-2647, paragraph 57; and Case C-451/05 ELISA  [2007] ECR I-8251, paragraph 95).
57. In relations between Member States, information requested or provided by the tax authorities concerned is all the more likely to allow it to be ascertained whether the conditions laid down under national legislation are satisfied since Community harmonisation measures apply in the field of company accounts, with the result that it is possible to produce reliable and verifiable evidence relating to a company established in another Member State (see, to that effect, Case C-101/05 A [2007] ECR I-11531, paragraph 62).