ECJ Tax Cases 2008 Index

Article 8(1) and (2) of Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States precludes legislation of a Member State under which, in consequence of an exchange of shares, the shareholders of the acquired company are taxed on the capital gains arising from the transfer and the capital gain is deemed to correspond to the difference between the initial cost of acquiring the shares transferred and their market value, unless the acquiring company carries over the historical book value of the shares transferred in its own tax balance sheet.

The concept of ‘profits distributed by the subsidiary’, within the meaning of the last sentence of Article 4(2) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, is to be interpreted as not precluding legislation of a Member State which includes in those profits tax credits which have been granted in order to offset a withholding tax levied by the Member State of the subsidiary in the hands of the parent company.

It is contrary to Article 52 of the EC Treaty (now, after amendment Article 43 EC) in conjunction with Article 58 of the EC Treaty (now Article 48 EC) for a Member State, when determining the national basis of assessment, to exclude a currency loss suffered by a company with a registered office in that State upon the repatriation of start-up capital granted to its permanent establishment in another Member State.

It is also contrary to Article 52 of the EC Treaty (now, after amendment, Article 43 EC) in conjunction with Article 58 of the EC Treaty (now Article 48 EC) for a Member State to allow a currency loss to be deducted as operating expenditure in respect of an undertaking with a registered office in a Member State only in so far as its permanent establishment in another Member State does not make any tax-free profits.

The concept of a holding in the capital of a company of another Member State, within the meaning of Article 3 of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, does not include the holding of shares in usufruct.

However, in compliance with the freedoms of movement guaranteed by the EC Treaty, applicable to cross-border situations, when a Member State, in order to avoid double taxation of received dividends, exempts from tax both the dividends which a resident company receives from another resident company in which it holds shares with full title and those which a resident company receives from another resident company in which it holds shares in usufruct, that Member State must apply, for the purpose of exempting received dividends, the same treatment to dividends received from a company established in another Member State by a resident company holding shares with full title as that which it applies to such dividends received by a resident company which holds shares in usufruct.

Articles 52 of the EC Treaty (now, following amendment, Article 43 EC), 58 of the EC Treaty (now Article 48 EC), 73b of the EC Treaty and 73d of the Treaty (now Articles 56 EC and 58 EC respectively) must be interpreted as not precluding tax legislation of a Member State, such as that at issue in the main proceedings, which provides for the retention of tax at source on interest paid by a company resident in that Member State to a recipient company resident in another Member State, while exempting from that retention interest paid to a recipient company resident in the first Member State, the income of which is taxed in that Member State by way of corporation tax.

Part 2: Pending Cases

Article 31 of the Agreement on the European Economic Area of 2 May 1992 does not preclude a national tax system which, after having allowed the taking into account of losses incurred by a permanent establishment situated in a State other than the one in which its principal company is situated, for the purposes of calculating the tax on that company’s income, provides for a tax reintegration of those losses at the time when that permanent establishment makes profits, where the State where that same permanent establishment is situated does not confer any right to carry forward losses incurred by a permanent establishment belonging to a company established in another State, and where, under a convention for the prevention of double taxation between the two States concerned, the income of such an entity is exonerated from taxation in the State in which the principal company has its seat.

1. A provision of national law which, in relation to cases where profits are distributed by a subsidiary to its parent company, provides for the taxation of income and asset increases of the subsidiary which would not have been taxed if they had remained with the subsidiary and had not been distributed to the parent company does not constitute withholding tax within the meaning of Article 5(1) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

2. Article 52 of the Treaty (now, after amendment, Article 43 EC) must be interpreted as not precluding the application of a national measure, such as Paragraph 28(4) of the Law on Corporation Tax 1996 (Körperschaftsteuergesetz 1996), in the version applicable to the facts of the main proceedings, under which the taxation of profits distributed by a subsidiary resident in a Member State to its parent company is subject to the same corrective mechanism regardless of whether the parent company is resident in the same Member State or in another Member State even though – unlike a resident parent company – a non-resident parent company is not granted a tax credit by the Member State in which the subsidiary is resident.

In the absence of valid justification, Articles 52 of the EEC Treaty (subsequently Article 52 of the EC Treaty, and now, after amendment, Article 43 EC) and 58 of the EEC Treaty (subsequently Article 58 of the EC Treaty, and now Article 48 EC) preclude the application of tax legislation of a Member State which, for the purposes of valuing the unlisted shares of a company in circumstances such as those in the main proceedings, causes that company’s holding in a partnership established in another Member State, subject to the condition that such a holding is capable of allowing it a definite influence on the decisions of the partnership established in the other Member State and enabling it to determine its activities, to be assigned a greater value than its holding in a partnership established in the Member State concerned.

Article 49 EC precludes Member State legislation, such as that at issue in the main proceedings, pursuant to which undertakings which acquire tangible assets are refused the benefit of an investment premium solely because the assets in respect of which that premium is claimed, which are hired out for remuneration, are used primarily in other Member States.

Article 43 EC does not preclude a situation in which a company established in a Member State cannot deduct from its tax base losses relating to a permanent establishment belonging to it and situated in another Member State, to the extent that, by virtue of a double taxation convention, the income of that establishment is taxed in the latter Member State where those losses can be taken into account in the taxation of the income of that permanent establishment in future accounting periods.

Articles 43 EC and 48 EC preclude national legislation, such as that at issue in the main proceedings, under which interest payments made by a company resident in a Member State to a director which is a company established in another Member State are reclassified as dividends and are, on that basis, taxable, where, at the beginning of the taxable period, the total of the interest-bearing loans is higher than the paid-up capital plus taxed reserves, whereas, in the same circumstances, where those interest payments are made to a director which is a company established in the same Member State, those payments are not reclassified as dividends and are, on that basis, not taxable.

Article 52 of the Treaty (now, after amendment, Article 43 EC) is to be interpreted as meaning that it precludes legislation of a Member State by virtue of which a group tax regime is made available to a parent company which is resident in that Member State and holds subsidiaries and sub-subsidiaries which are also resident in that State, but is unavailable to such a parent company if its resident sub-subsidiaries are held through a subsidiary which is resident in another Member State.

Article 43 EC does not preclude a situation in which a company established in a Member State cannot deduct from its tax base losses relating to a permanent establishment belonging to it and situated in another Member State, to the extent that, by virtue of a double taxation convention, the income of that establishment is taxed in the latter Member State where those losses can be taken into account in the taxation of the income of that permanent establishment in future accounting periods.

Article 43 EC is to be interpreted as meaning that it does not preclude legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, when that State imposes corporation tax on dividends which a resident company receives from a non-resident company in which the resident company has a shareholding enabling it to exercise a definite influence over the decisions of that non-resident company and to determine its activities, while at the same time granting a tax credit for the tax actually paid by the company making the distribution in the Member State in which it is resident, provided that the rate of tax applied to foreign-sourced dividends is no higher than the rate of tax applied to nationally-sourced dividends and that the tax credit is at least equal to the amount paid in the Member State of the company making the distribution, up to the limit of the amount of the tax charged in the Member State of the company receiving the distribution.

Article 56 EC is to be interpreted as meaning that it does not preclude legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, when that State imposes corporation tax on dividends which a resident company receives from a non-resident company in which the resident company holds at least 10% of the voting rights, while granting a tax credit for the tax actually paid by the company making the distribution in the Member State in which it is resident, provided that the rate of tax applied to foreign-sourced dividends is no higher than the rate of tax applied to nationally-sourced dividends and that the tax credit is at least equal to the amount paid in the Member State of the company making the distribution, up to the limit of the amount of the tax charged in the Member State of the company receiving the distribution.

Article 56 EC is, furthermore, to be interpreted as meaning that it precludes legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, where that State levies corporation tax on dividends which a resident company receives from a non-resident company in which it holds less than 10% of the voting rights, without granting the company receiving the dividends a tax credit for the tax actually paid by the company making the distribution in the State in which the latter is resident.

Article 56 EC is to be interpreted as meaning that it precludes legislation of a Member State which allows an exemption from corporation tax for certain dividends received from resident companies by resident insurance companies but excludes such an exemption for similar dividends received from non-resident companies, in so far as it entails less favourable treatment of the latter dividends.

Articles 43 EC and 48 EC must be interpreted as precluding the inclusion in the tax base of a resident company established in a Member State of profits made by a controlled foreign company in another Member State, where those profits are subject in that State to a lower level of taxation than that applicable in the first State, unless such inclusion relates only to wholly artificial arrangements intended to escape the national tax normally payable.

Accordingly, such a tax measure must not be applied where it is proven, on the basis of objective factors which are ascertainable by third parties, that despite the existence of tax motives, that controlled foreign company is actually established in the host Member State and carries on genuine economic activities there.

However, Articles 43 EC and 48 EC are to be interpreted as not precluding national tax legislation which imposes certain compliance requirements where the resident company seeks exemption from taxes already paid on the profits of that controlled foreign company in the State in which it is resident, provided that the aim of those requirements is to verify that the controlled foreign company is actually established and that its economic activities are genuine without that entailing undue administrative constraints.

Articles 56 EC to 58 EC are to be interpreted as not precluding the legislation of a Member State which grants a corporation tax concession in respect of certain dividends received from resident companies by resident companies but excludes such a concession for dividends received from companies established in a non-member country particularly where the grant of that concession is subject to conditions compliance with which can be verified by the competent authorities of that Member State only by obtaining information from the non-member country where the distributing company is established.

In the absence of Community legislation, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, including the classification of claims brought by injured parties before national courts and tribunals. Those courts and tribunals are, however, obliged to ensure that individuals have an effective legal remedy enabling them to obtain reimbursement of the tax unlawfully levied on them and the amounts paid to that Member State or withheld by it directly against that tax. As regards other loss or damage which a person may have sustained by reason of a breach of Community law for which a Member State is liable, the latter is under a duty to make reparation for the loss or damage caused to individuals under the conditions set out in paragraph 51 of the judgment in Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, but that does not preclude the State from being liable under less restrictive conditions, where national law so provides.

Where it is established that the legislation of a Member State constitutes a restriction on freedom of establishment prohibited by Article 43 EC or a restriction on the free movement of capital prohibited by Article 56 EC, the national court may, in order to establish the recoverable losses, determine whether the injured parties have shown reasonable diligence in order to avoid those losses or to limit their extent and whether, in particular, they availed themselves in time of all legal remedies available to them. However, in order to prevent the exercise of the rights which Articles 43 EC and 56 EC confer on individuals from being rendered impossible or excessively difficult, the national court may determine whether the application of that legislation, coupled, where appropriate, with the relevant provisions of Double Taxation Conventions, would, in any event, have led to the failure of the claims brought by the claimants in the main proceedings before the tax authorities of the Member State concerned.

Incompatibility of the Belgian provisions designed to abolish double taxation of distributed profits with Articles 43 EC and 56 EC and Article 4(1), first indent, and 4(2) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Interpretation of Articles 43 EC, 48 EC, 56(1) EC and 58(1)(a) and (3) EC, and Article 2(a) and paragraph (f) of the Annex to Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States with regard to the concept of ‘company of a Member State’

Tax exemption restricted to winnings from lotteries and games of chance organised by certain national bodies and entities

Discrimination in the treatment of dividends paid by Netherlands companies to Norway or Iceland by imposing a withholding tax

Difference in treatment of taxation of interest paid to financial institutions depending on whether they are resident or not in Portuguese territory

Application of a levy of 5% at the time of distribution of dividends and of the ‘refund of the adjustment surtax’ by an Italian subsidiary to its parent company established in the Netherlands, pursuant to a bilateral convention

Conditions for taking into account, when determining the acquirer’s tax base, the reduction in value of the shares resulting from the dividend distribution

Common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States

Application of a levy of 5% at the time of distribution of dividends and of the ‘refund of the adjustment surtax’ by an Italian subsidiary to its parent company established in the Netherlands, pursuant to a bilateral convention

Permissibility of a national law providing for the taxation of a resident company on an unusual or gratuitous advantage granted to a non-resident company with which it has a relationship of interdependence but which does not provide for such taxation where the same advantage is granted to a resident company

Exclusion of non-resident subsidiaries from possibility to be a part of national tax entity