Lankhorst-Hohorst GmbH v Finanzamt Steinfurt.
Date: 2002-12-12
26.  It should be remembered 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 and, in particular, avoid any discrimination on grounds of nationality (Case C-80/94   Wielockx   [1995] ECR I-2493, paragraph 16, Case C-107/94   Asscher   [1996] ECR I-3089, paragraph 36,   Royal Bank of Scotland  , cited above, paragraph 19,   Baars  , cited above, paragraph 17, and Joined Cases C-397/98 and C-410/98   Metallgesellschaft and Others   [2001] ECR I-1727, paragraph 37).
The existence of an obstacle to freedom of establishment
32.  Such a difference in treatment between resident subsidiary companies according to the seat of their parent company constitutes an obstacle to the freedom of establishment which is, in principle, prohibited by Article 43 EC.  The tax measure in question in the main proceedings makes it less attractive for companies established in other Member States to exercise freedom of establishment and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the State which adopts that measure.
Justification for the obstacle to freedom of establishment
33.  It must still be established whether a national measure such as that in Paragraph 8a(1), Head 2, of the KStG pursues a legitimate aim which is compatible with the Treaty and is justified by pressing reasons of public interest.  In that event, it must also be such as to ensure achievement of the aim in question and not go beyond what is necessary for that purpose (see, in particular, Case C-250/95   Futura Participations and Singer   [1997] ECR I-2471, paragraph 26, and Case C-35/98   Verkooijen   [2000] ECR I-4071, paragraph 43).
36.  It is settled law that reduction in tax revenue does not constitute an overriding reason in the public interest which may justify a measure which is in principle contrary to a fundamental freedom (see Case C-264/96   ICI   [1998] ECR I-4695, paragraph 28;   Verkooijen  , cited above, paragraph 59;   Metallgesellschaft and Others  , cited above, paragraph 59, and Case C-307/97   Saint-Gobain ZN   [1999] ECR I-6161, paragraph 51).
37.  As regards more specifically the justification based on the risk of tax evasion, it is important to note that the legislation at issue here does not have the specific purpose of preventing wholly artificial arrangements, designed to circumvent German tax legislation, from attracting a tax benefit, but applies generally to any situation in which the parent company has its seat, for whatever reason, outside the Federal Republic of Germany.  Such a situation does not, of itself, entail a risk of tax evasion, since such a company will in any event be subject to the tax legislation of the State in which it is established (see, to that effect,   ICI  , cited above, paragraph 26).
42.  Although in   Bachmann   and   Commission   v   Belgium  , since the taxpayer was one and the same person, there was a direct link between deductibility of pension and life assurance contributions and taxation of the sums received under those insurance contracts and preservation of that link was necessary to safeguard the coherence of the relevant tax system, there is no such direct link where, as in the present case, the subsidiary of a non-resident parent company suffers less favourable tax treatment and the German Government has not pointed to any tax advantage to offset such treatment (see, to that effect,   Wielockx  , paragraph 24; Case C-484/93   Svensson and Gustavsson   [1995] ECR I- 3955, paragraph 18;   Eurowings Luftverkehr  , paragraph 42;   Verkooijen  , paragraphs 56 to 58, and   Baars  , paragraph 40).