Centro Equestre da Lezíria Grande Lda v Bundesamt für Finanzen.
Date: 2007-02-15
19. As a preliminary point, it is to be noted that, according to settled case-law, although direct taxation falls within their competence, Member States must none the less exercise that competence consistently with Community law (see, to that effect, in particular, Case C-250/95 Futura Participations and Singer  [1997] ECR I-2471, paragraph 19; Case C‑294/97 Eurowings Luftverkehr  [1999] ECR I-7447, paragraph 32; Case C‑55/98 Vestergaard  [1999] ECR I-7641, paragraph 15; Case C‑141/99 AMID [2000] ECR I-11619, paragraph 19; and Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 29).
20. It is also to be noted that, according to the Court’s case-law, Article 59 of the EC Treaty requires the abolition of any restriction on the freedom to provide services imposed on the ground that the person providing a service is established in a Member State other than that in which the service is provided (see, to that effect, in particular, Case 205/84 Commission  v Germany  [1986] ECR 3755, paragraph 25; Case C‑180/89 Commission  v Italy  [1991] ECR I‑709, paragraph 15; and Case C-290/04 FKP Scorpio Konzertproduktionen  [2006] ECR I-0000, paragraph 31).
The existence of a direct economic connection
22. It is clear from the Court’s case-law that a tax system under which, for the purposes of calculating the basis of assessment for non-resident taxpayers in a particular Member State, only profits and losses arising from their activities in that State are taken into account is consistent with the principle of territoriality enshrined in international tax law and recognised by Community law (see, to that effect, Futura Participations and Singer , paragraphs 21 and 22).
23. With regard to operating expenses which have a direct connection to the activity pursued by a non-resident in a Member State and which generated taxable income in that country, such expenses should, in principle, be taken into account in that State if residents are taxed on their net income after deduction of those expenses. In its judgment in Gerritse , the Court found that, for the purposes of taking such costs into account, residents and non-residents were placed in a comparable situation. Since the Member State granted residents the possibility of deducting the costs in question, it could not, in principle, preclude their being taken into account for non-residents (see, to that effect, Gerritse,  paragraph 27).
24. Thus, where powers of taxation are exercised by a State in the territory in which activity has generated taxable income, it must be possible for the costs directly connected to that activity to be taken into account in the taxation of non-residents. In that connection, Community law does not preclude a Member State from going further, by allowing costs that do not have such a connection to be taken into account (see, to that effect, FKP Scorpio Konzertproduktionen, paragraphs 50 to 52).
25. Operating expenses directly connected to the income received in the Member State in which the activity is pursued must be understood as being expenses which have a direct economic connection to the provision of services which gave rise to taxation in that State and which are therefore inextricably linked to those services, such as travel and accommodation costs. In that context, the place and time at which the costs were incurred are immaterial.
26. It is apparent from the documents before the Court that CELG, which is established in Portugal, received income in Germany from its artistic activities. CELG incurred a number of operating expenses in connection with its presentations, some of which were incurred beforehand in the organisation and planning of those presentations, and others in the course of giving those presentations, in respect of which it seeks a deduction in Germany. It is for the referring court, before which the dispute has been brought and which must assume responsibility for the subsequent judicial decision, to determine in the main proceedings which of the operating expenses claimed by CELG are directly connected to the provision of services which gave rise to taxation in that State and are therefore inextricably linked to those services.