Lexel AB v Skatteverket.
Date: 2021-01-20
Furthermore, the referring court observes that the Court has in several judgments held that it is compatible with the freedom of establishment to exclude affiliates of a group established outside the Member State in question from the scope of provisions on intra-group profit-spreading. However, in the case which gave rise to the judgment of 22 February 2018, X and X (C‑398/16 and C‑399/16, EU:C:2018:110, paragraphs 39 to 42), concerning the Netherlands rules on the deduction of interest, the Court held that the affiliates of a group established outside the Member State concerned could not be excluded from tax benefits which are not specifically linked to such profit-spreading systems and found that the difference in treatment caused by those rules amounted to an unjustifiable restriction on the freedom of establishment.
As a preliminary remark, it should be borne in mind that Article 49 TFEU requires the elimination of restrictions on freedom of establishment of nationals of a Member State on the territory of another Member State. That freedom includes, for companies established in accordance with the legislation 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 other Member States through a subsidiary, branch or agency (see, to that effect, judgments of 21 May 2015, Verder LabTec, C‑657/13, EU:C:2015:331, paragraph 32; of 2 September 2015, Groupe Steria, C‑386/14, EU:C:2015:524, paragraph 14; and of 22 February 2018, X and X, C‑398/16 and C‑399/16, EU:C:2018:110, paragraph 18).
However, a difference in treatment stemming from a Member State’s legislation to the detriment of companies exercising their freedom of establishment does not constitute an obstacle to that freedom if it relates to situations which are not objectively comparable or if it is justified by an overriding reason in the public interest and proportionate to that objective (judgments of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 167; of 25 February 2010; X Holding, C‑337/08, EU:C:2010:89, paragraph 20; and of 22 February 2018, X and X, C‑398/16 and C‑399/16, EU:C:2018:110, paragraph 20).
Whether the cross-border and national situations are comparable is a matter which must be examined having regard to the purpose and content of the national provisions in question (judgment of 22 February 2018, X and X, C‑398/16 and C‑399/16, EU:C:2018:110, paragraph 33 and the case-law cited).
It is settled case-law that a restriction on the freedom of establishment is permissible only if it is justified by overriding reasons in the public interest. It is further necessary, in such a case, that its application be appropriate to ensuring the attainment of the objectives in question and not go beyond what is necessary to attain those objectives (see, inter alia, judgments of 13 December 2005, Marks & Spencer, C‑446/03, EU:C:2005:763, paragraph 35; of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 47; and of 13 March 2007, Test Claimants in the Thin Cap Group Litigation, C‑524/04, EU:C:2007:161, paragraph 64).
In order for a restriction on the freedom of establishment provided for under Article 49 TFEU to be justified by those grounds, the specific objective of such a restriction must be to prevent conduct involving 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 carried out on national territory (see, to that effect, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 55, and of 22 February 2018, X and X, C‑398/16 and C‑399/16, EU:C:2018:110, paragraph 46).
Furthermore, first, in order to determine whether a transaction represents a purely artificial arrangement entered into for tax reasons alone, the taxpayer must be given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that arrangement (judgment of 13 March 2007, Test Claimants in the Thin Cap Group Litigation, C‑524/04, EU:C:2007:161, paragraph 82).
Secondly, where the consideration of those elements leads to the conclusion that the transaction in question represents a purely artificial arrangement without any underlying commercial justification, the principle of proportionality requires that the refusal of the right to a deduction should be limited to the proportion of that interest which exceeds what would have been agreed had the relationship between the parties been one at arm’s length (judgment of 13 March 2007, Test Claimants in the Thin Cap Group Litigation, C‑524/04, EU:C:2007:161, paragraph 83).
As the Court has repeatedly held, the justification based on the need to maintain the balanced allocation of the power to impose taxes between the Member States can be accepted where the system in question is designed to prevent conduct which is liable to jeopardise the right of a Member State to exercise its power to tax in relation to activities carried out in its territory (see, inter alia, judgments of 13 December 2005, Marks & Spencer, C‑446/03, EU:C:2005:763, paragraph 46, and of 31 May 2018, Hornbach-Baumarkt, C‑382/16, EU:C:2018:366, paragraph 43 and the case-law cited).
The preservation of the balanced allocation of the power to impose taxes between Member States may make it necessary to apply to the economic activities of companies established in one of those States only the tax rules of that State in respect of both profits and losses (judgments of 15 May 2008, Lidl Belgium, C‑414/06, EU:C:2008:278, paragraph 31, and of 21 January 2010, SGI, C‑311/08, EU:C:2010:26, paragraph 61).
The justification based on the preservation of the balanced allocation of the power to impose taxes between Member States has inter alia been allowed by the Court where a condition of residence is required in order to benefit from a particular tax scheme in order to avoid the taxable subject having the free choice of deciding in which State a profit is taxed or a loss is taken into account and the possibility of freely moving the taxable base between Member States (see, to that effect, judgments of 18 July 2007, Oy AA, C‑231/05, EU:C:2007:439, paragraph 56; of 21 January 2010, SGI, C‑311/08, EU:C:2010:26, paragraph 62 and the case-law cited; and of 25 February 2010, X Holding, C‑337/08, EU:C:2010:89, paragraphs 29 to 33).
For those reasons, the Court has held that the consolidation at the level of the parent company of the profits and losses of the companies forming a single tax entity constitutes an advantage which may justifiably be reserved to resident companies in view of the need to preserve the allocation of the power to impose taxes between the Member States (see, to that effect, judgment of 25 February 2010, X Holding, C‑337/08, EU:C:2010:89, paragraphs 29 to 33).
However, as regards tax advantages other than the transfer of profits or losses within a tax-integrated group, a separate assessment must be made as to whether a Member State may reserve those advantages to companies belonging to such a group and consequently exclude them in cross-border situations (see, to that effect, judgment of 2 September 2015, Groupe Steria, C‑386/14, EU:C:2015:524, paragraphs 27 and 28).
Pursuant to that case-law, the Court held, in its judgment of 22 February 2018, X and X (C‑398/16 and C‑399/16, EU:C:2018:110, paragraphs 40 and 41), to which, indeed, the national court refers, that the Netherlands rules on the deduction of interest could not be justified by the need to preserve a balanced allocation of the power to impose taxes. That  was the case in particular because, unlike the situation of the general offsetting of costs and gains specific to a single tax entity, the case which gave rise to that judgment involved an advantage without any specific link to the tax scheme applicable to such entities.
It must be borne in mind that the reduction in tax revenue cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is in principle contrary to a fundamental freedom (see, inter alia, judgment of 13 December 2005, Marks & Spencer, C‑446/03, EU:C:2005:763, paragraph 44 and the case-law cited). A finding to the contrary would amount to allowing the Member States to restrict, on the basis of that ground, the freedom of establishment.
It is true that the Court has already ruled that national legislation which is not specifically designed to exclude from the tax advantage which it confers purely artificial arrangements, devoid of economic reality and created with the purpose of escaping the tax normally due on the profits generated by activities carried out on national territory, may nevertheless be regarded as justified by the objective of preventing tax avoidance, taken in conjunction with the objective of preserving the balanced allocation of the power to impose taxes between the Member States (see, to that effect, judgment of 21 January 2010, SGI, C‑311/08, EU:C:2010:26, paragraph 66 and the case-law cited).
However, it must be pointed out that the taking into consideration of those grounds of justification together has been accepted by the Court in very specific situations, namely where the fight against tax avoidance constitutes a particular aspect of the public interest linked to the need to preserve a balanced allocation of the power to impose taxes between the Member States (see, to that effect, judgments of 18 July 2007, Oy AA, C‑231/05, EU:C:2007:439, paragraphs 58 and 59, and of 21 January 2010, SGI, C‑311/08, EU:C:2010:26, paragraph 67).
As the Court has noted, the objectives of safeguarding the balanced allocation of the power to impose taxes between Member States and the prevention of tax avoidance are linked. Conduct involving 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 carried out on national territory, is such as to undermine the right of the Member States to exercise their tax jurisdiction in relation to those activities and to jeopardise a balanced allocation between Member States of the power to impose taxes (judgment of 18 July 2007, Oy AA, C‑231/05, EU:C:2007:439, paragraph 62).
On that basis, the Court has been able to hold that, given in particular the need to preserve the balanced allocation of the power to impose taxes between Member States, despite the fact that the measures at issue do not specifically target purely artificial arrangements, devoid of economic reality and created with the aim of escaping the tax normally due on the profits generated by activities carried out on national territory, such measures may nevertheless be justified (judgments of 18 July 2007, Oy AA, C‑231/05, EU:C:2007:439, paragraph 63, and of 21 January 2010, SGI, C‑311/08, EU:C:2010:26, paragraph 66).