The Commissioners for Her Majesty’s Revenue & Customs v Philips Electronics UK Ltd.
Date: 2012-09-06
12. Freedom of establishment, which Article 43 EC grants to European Union nationals and which includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected, entails, in accordance with Article 48 EC, 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 Union, the right to exercise their activity in the Member State concerned through a subsidiary, a branch or an agency (Case C-307/97 Saint-Gobain ZN [1999] ECR I-6161, paragraph 35, and Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 30).
13. As the second sentence of the first paragraph of Article 43 EC expressly leaves traders free to choose the appropriate legal form in which to pursue their activities in another Member State, that freedom of choice must not be limited by discriminatory tax provisions (Case 270/83 Commission  v France [1986] ECR 273, paragraph 22).
14. The freedom to choose the appropriate legal form in which to pursue activities in another Member State serves, inter alia, to allow companies having their seat in a Member State to open a branch in another Member State in order to pursue their activities under the same conditions as those which apply to subsidiaries (Case C-253/03 CLT-UFA [2006] ECR I-1831, paragraph 15).
17. In order for such a difference in treatment to be compatible with the provisions of the EC Treaty on the freedom of establishment, it must relate to situations which are not objectively comparable or be justified by an overriding reason in the public interest (see, to that effect, Case C-446/04 Test Claimants in the FII Group Litigation  [2006] ECR I-11753, paragraph 167). The comparability of a Community situation with an internal situation must be examined having regard to the aim pursued by the national provisions at issue (Case C-337/08 X Holding [2010] ECR I-1215, paragraph 22).
20. Consequently, the answer to the first question is that Article 43 EC must be interpreted as meaning that where, under the national legislation of a Member State, the possibility of transferring, by means of group relief and to a resident company, losses sustained by the permanent establishment in that Member State of a non-resident company is subject to a condition that those losses cannot be used for the purposes of foreign taxation, and where the transfer of losses sustained in that Member State by a resident company is not subject to any equivalent condition, those provisions constitute a restriction on the freedom of a non-resident company to establish itself in another Member State.
The second question
22. In accordance with settled case-law, a restriction on freedom of establishment may be permissible if it is justified by overriding reasons in the public interest. It is further necessary, in such a case, that it is appropriate to ensuring the attainment of the objective at issue and does not go beyond what is necessary to attain it ( Marks & Spencer , paragraph 35).
23. It must be recalled, first, that preserving the allocation of powers of taxation between the Member States is a legitimate objective recognised by the Court (see, inter alia, Case C-371/10 National Grid Indus [2011] ECR I-12273, paragraph 45).
24. That objective, as observed by the Court, is designed, inter alia, to safeguard the symmetry between the right to tax profits and the right to deduct losses (see Case C-414/06 Lidl Belgium  [2008] ECR I-3601, paragraph 33).
25. However, in a situation such as that in the main proceedings, the power of the host Member State, on whose territory the economic activity giving rise to the losses of the permanent establishment is carried out, to impose taxes is not at all affected by the possibility of transferring, by group relief and to a resident company, the losses sustained by a permanent establishment situated in its territory.
26. That situation must be distinguished from that where the issue would be whether losses sustained in another Member State could be used and would be linked, for that reason, to that other Member State’s power to impose taxes, and where the symmetry between the right to tax profits and the right to deduct losses would not be safeguarded. In a situation such as that in the main proceedings, where the issue is that of transferring to a resident company the losses sustained by a permanent establishment situated in the territory of the same Member State, the power of that Member State to tax the profits (if any) arising from the activity, in its territory, of the permanent establishment is not affected.
38. It is settled case-law that any national court, hearing a case within its jurisdiction, has, as an organ of a Member State, the obligation, pursuant to the principle of cooperation set out in Article 10 EC, fully to apply the directly applicable European Union law and to protect the rights which the latter confers upon individuals, disapplying any provision of national law which may be to the contrary, whether the latter is prior to or subsequent to the rule of European Union law (see, to that effect, inter alia, Case 106/77 Simmenthal [1978] ECR 629, paragraphs 16 and 21, and Case C-213/89 Factortame and Others [1990] ECR I-2433, paragraph 19).
39. It is, in the present case, of no relevance in that regard that it is not the taxpayer, a company established in the United Kingdom, whose freedom of establishment has been unjustifiably restricted, but rather the non-resident company with a permanent establishment in the United Kingdom. In order to be effective, freedom of establishment must also entail, in a situation such as that in the main proceedings, the possibility that the taxpayer may have the benefit of the group relief set against its profits.