Timac Agro Deutschland GmbH v Finanzamt Sankt Augustin.
Date: 2015-12-17
14. The referring court states that although there are some similarities between the facts giving rise to the judgment in Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt  (C‑157/07, EU:C:2008:588) and the facts in the case brought before it, the issue under consideration in that judgment was the reincorporation of losses into the tax base of the non-resident permanent establishment to the extent of its profits. By contrast, in the main proceedings, the reincorporation of losses was triggered by the transfer of the non-resident permanent establishment and was not linked to any profits of that establishment.
15. In the event that the Court of Justice should find that the principles arising from that judgment are also intended to be applied in a case such as that in the main proceedings, the referring court enquires whether the principles relating to definitive losses laid down by the Court in paragraphs 55 and 56 of the judgment in Marks & Spencer  (C‑446/03, EU:C:2005:763) are intended to be applied to the losses relating to the tax years 1997 and 1998 which, having been reincorporated, are no longer taken into account in Germany.
17. The referring court also enquires whether, in the case before it, there are definitive losses for the purposes of the principles set out in paragraphs 55 and 56 of the judgment in Marks & Spencer  (C‑446/03, EU:C:2005:763). It points out that, as yet, it has been unable to identify the criteria to be applied in determining the situations in which those principles are to apply.
20. It should be noted 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 Union, the right to exercise their activity in the Member State concerned through a subsidiary, a branch or an agency (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 17 and the case-law cited).
21. Whilst the provisions of the FEU 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 a company incorporated under its legislation, in particular through a permanent establishment (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 18 and the case-law cited).
22. Freedom of establishment is hindered if, under a Member State’s tax regime, a resident company having a subsidiary or a permanent establishment in another Member State suffers a disadvantageous difference in treatment for tax purposes compared with a resident company having a permanent establishment or a subsidiary in the first Member State (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 19 and the case-law cited).
23. The Court has already held that the taking into account of losses incurred by a non-resident permanent establishment in calculating the profits and taxable income of the company to which that establishment belongs constitutes a tax advantage (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 20 and the case-law cited).
24. Furthermore, it follows from the case-law of the Court that reincorporation of such losses which applies only in the event of transfer of a non-resident permanent establishment means that a company having a permanent establishment in a Member State other than that in which the company has its seat is denied such an advantage compared with a company having a permanent establishment in the same Member State, and, therefore, constitutes disadvantageous treatment (see, to that effect, judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 21).
25. It also follows from that case-law that that disadvantageous treatment is liable to deter a resident company from carrying on its business through a permanent establishment situated in a Member State other than that in which it has its seat and therefore constitutes a restriction prohibited in principle by the provisions of the Treaty that relate to freedom of establishment (see, to that effect, judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 22).
26. Such a restriction is permissible only if it relates to situations which are not objectively comparable or if it is justified by an overriding reason in the public interest (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 23 and the case-law cited).
27. As regards comparability of the situations, it must be pointed out that, in principle, permanent establishments situated in a Member State other than the Member State concerned are not in a situation comparable to that of resident permanent establishments in relation to measures laid down by that Member State in order to prevent or mitigate the double taxation of a resident company’s profits (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 24).
28. However, by permitting the deduction of losses incurred by a permanent establishment situated in Austria, the Federal Republic of Germany granted a tax advantage to the resident company to which that permanent establishment belonged, in the same way as if that permanent establishment had been situated in Germany, and, therefore, equated it with a resident permanent establishment so far as concerns the deduction of losses (see, to that effect, judgments in Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt , C‑157/07, EU:C:2008:588, paragraph 35, and Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 24). In those circumstances, the situation of a resident company with a permanent establishment situated in Austria is accordingly comparable to that of a resident company with a permanent establishment situated in Germany.
29. The restriction can therefore be justified only by overriding reasons in the public interest. It is further necessary, in such a case, that the restriction be appropriate for ensuring the attainment of the objective that it pursues and not go beyond what is necessary to attain it (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 25 and the case-law cited).
34. As regards, first of all, the need to safeguard a balanced allocation of the power to impose taxes between the Member States, it should be recalled that this is a legitimate objective recognised by the Court, which may make it necessary to apply to the economic activities of companies established in one of those Member States only the tax rules of that State in respect of both profits and losses (judgment in K , C‑322/11, EU:C:2013:716, paragraph 50 and the case-law cited).
35. That objective, as the Court has already stated, is designed, inter alia, to safeguard the symmetry between the right to tax profits and the right to deduct losses, in particular in order to prevent taxpayers from choosing freely the Member State in which profits are to be taxed or losses are to be deducted (judgment in K , C‑322/11, EU:C:2013:716, paragraph 51 and the case-law cited).
37. However, the application of that Convention has meant that the Federal Republic of Germany has not exercised any tax powers in respect of that income. To deprive the Federal Republic of Germany of the possibility of reincorporating into the taxable profit of the resident company the losses deducted previously in respect of the permanent establishment situated in Austria in the event of transfer of that establishment would thus be tantamount to allowing that company to choose freely the Member State in which those losses could be deducted (see, to that effect, judgment in Lidl Belgium , C‑414/06, EU:C:2008:278, paragraph 34).
39. Next, as regards the justification based on the need to preserve the coherence of the national tax system, it must be borne in mind that this too is a legitimate objective recognised by the Court. In order for an argument based on that justification to succeed, a direct link must be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question (judgment in K , C‑322/11, EU:C:2013:716, paragraphs 65 and 66).
40. In the context of the reincorporation of losses of a non-resident permanent establishment which have previously been deducted, the Court has made clear that the reincorporation of those losses cannot be dissociated from their having earlier been taken into account. Thus, the Court has held that that reincorporation, in the case of a company with a permanent establishment in a Member State other than that in which it is established and in relation to which that company’s Member State of residence has no power of taxation reflects a logical symmetry. There was thus a direct, personal and material link between the two elements of that tax mechanism, the said reincorporation being the indissociable complement of the deduction previously granted (see, to that effect, judgment in Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt , C‑157/07, EU:C:2008:588, paragraph 42).
42. As regards, lastly, the objective relating to the prevention of tax avoidance, it must be noted that this is an objective capable of justifying a restriction on the freedom of establishment guaranteed by the Treaty. In accordance with the case-law of the Court, in order for an argument based on that justification to succeed, the specific objective of that restriction must be to prevent conduct consisting in the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities in the national territory (judgment in K , C‑322/11, EU:C:2013:716, paragraph 61 and the case-law cited).
47. It must, as a preliminary point, be noted that the requirements of the balanced allocation of powers of taxation and coherence of the tax system coincide (judgment in National Grid Indus , C‑371/10, EU:C:2011:785, paragraph 80). Furthermore, the objectives of safeguarding the balanced allocation of the power to impose taxes between Member States and the prevention of tax avoidance are linked (judgment in Oy AA , C‑231/05, EU:C:2007:439, paragraph 62 and the case-law cited).
48. As regards the proportionality of the tax regime at issue in the main proceedings, it should be recalled that the balanced allocation of the power to impose taxes has the objective of safeguarding the symmetry between the right to tax profits and the right to deduct losses. The need to safeguard that symmetry means that the losses deducted in respect of the permanent establishment must be capable of being offset by taxation of the profits made by it under the tax jurisdiction of the Member State in question, that is to say, both the profits made throughout the period when the permanent establishment belonged to the resident company and those made at the time of the permanent establishment’s transfer (judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraphs 32 and 33).
49. Such offsetting is, moreover, capable of ensuring fiscal coherence since that offsetting is the indissociable complement of the losses having previously been taken into account (see, to that effect, judgment in Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt , C‑157/07, EU:C:2008:588, paragraph 54).
52. Lastly, in order to answer the referring court’s query with regard to the principles relating to definitive losses set out in paragraphs 55 and 56 of the judgment in Marks & Spencer  (C‑446/03, EU:C:2005:763), it must be made clear that the finding as to the proportionality of the reincorporation at issue in the main proceedings does not mean that the Member State of residence of the transferring company is not required to observe the principles set out in those paragraphs, that reincorporation having no bearing on the characterisation of the loss concerned.
53. Where the transferring resident company demonstrates that the reincorporated losses are definitive losses for the purposes of paragraph 55 of the judgment in Marks & Spencer  (C‑446/03, EU:C:2005:763), it is contrary to Article 49 TFEU to preclude the possibility for that company of deducting from its taxable profits in the Member State of its residence the losses incurred by a non-resident establishment (judgment in Commission  v United Kingdom , C‑172/13, EU:C:2015:50, paragraph 27).
54. As regards the definitive nature of a loss, it will, first of all, be recalled that that loss cannot be characterised as definitive by dint of the fact that the Member State in which the permanent establishment is situated precludes all possibility of losses being carried forward (judgment in Commission  v United Kingdom , C‑172/13, EU:C:2015:50, paragraph 33 and the case-law cited).
55. Secondly, losses may be characterised as definitive only if that permanent establishment no longer has any income in the Member State in which it is situated, since, so long as it continues to be in receipt of even minimal income, there is a possibility that the losses sustained may yet be offset by future profits made in that Member State either by the establishment itself or by a third party (judgment in Commission  v United Kingdom , C‑172/13, EU:C:2015:50, paragraph 36 and the case-law cited).
62. In that regard, it should be borne in mind that, first, a tax regime which allows losses incurred by a permanent establishment situated in the territory of the Member State concerned to be taken into account in calculating the profits and taxable income of a resident company to which that establishment belongs constitutes a tax advantage, and, secondly, denial of that advantage where the losses are incurred by a permanent establishment situated in a Member State other than that in which that company is established is liable to deter a resident company from carrying on its business through a permanent establishment situated in another Member State, and, therefore, constitutes a restriction prohibited in principle by the provisions of the Treaty that relate to freedom of establishment (see, to that effect, judgment in Lidl Belgium , C‑414/06, EU:C:2008:278, paragraphs 23 to 26).
65. In the present case, it must be held that, since the Federal Republic of Germany does not exercise any tax powers over the profits of such a permanent establishment, the deduction of its losses no longer being permitted in Germany, the situation of a permanent establishment situated in Austria is not comparable to that of a permanent establishment situated in Germany in relation to measures laid down by the Federal Republic of Germany in order to prevent or mitigate the double taxation of a resident company’s profits (see, to that effect, judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 24 and the case-law cited).