ECJ Tax Cases 2009 Index

(1) Article 4(1), first indent, 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 must be interpreted as meaning that it precludes legislation of a Member State which, for the purposes of the exemption of the dividends received by a parent company established in that State from a subsidiary with its seat in another Member State, provides that those dividends are included in the basis of assessment of the parent company and 95% of those dividends are subsequently deducted, in so far as, during the taxable period concerned, a profit remains after deduction of the other exonerated dividends, with the consequence that: – if the parent company had no or insufficient taxable profits during the taxable period in which the distributed profits were received, it would in a subsequent taxable period be taxed on those distributed profits received, or that – the losses of that taxable period would be offset by means of distributed profits, and cannot, in the amount of those distributed profits, be carried forward to a subsequent taxable period.

(2) Article 4(1), first indent, of Directive 90/435, read in combination with Article 4(2) thereof, must be interpreted as meaning that it does not oblige Member States necessarily to allow profits distributed to a parent company established in that State by its subsidiary with its seat in another Member State to be wholly deductible from the profits of the taxable period of the parent company and that it be possible for the resulting loss to be carried forward to a subsequent taxable period. It is for the Member States to estalbish, taking account both of the needs of their domestic legal system and the option provided for in Article 4(2), the method by which the result prescribed in Article 4(1), first indent, is achieved. However, where a Member State has chosen the exemption system provided for in Article 4(1), first indent, of Directive 90/435 and, in principle, the legislation of that Member State allows losses to be carried forward to subsequent taxable periods, that provision precludes legislation of a Member State which has the effect of limiting, to the amount of the dividends received, the losses of the parent company which may be carried forward.

(3) Where, in regulating purely internal situations, domestic legislation adopts the same solutions as those adopted in Community law, it is for the national court alone, pursuant to the allocation of judicial functions between national courts and the Court of Justice under Article 234 EC, to assess the precise scope of that reference to Community law, consideration of the limits which the national legislature may have placed on the application of Community law to purely internal situations being a matter for the law of the Member State concerned and consequently falling within the exclusive jurisdiction of the courts of that Member State.

(4) Where, under the national legislation of a Member State, dividends originating from a company established in a non-Member State are entitled to less favourable treatment than those from a company with its seat in that Member State, it is for the national court, taking account both of the purpose of the national legislation and of the facts of the case before it, to ascertain whether Article 56 EC is applicable and, if so, whether it precludes the different treatment.

(5) Article 43 EC does not preclude the legislation of a Member State which provides that a parent company established in a Member State and receiving profits distributed by its subsidiary with its seat in another Member State may deduct those profits from its taxable income only up to the amount of the profits of the taxable period during which the profits were distributed, whereas a full exemption of the distributed profits would be possible if that company had set up a permanent establishment in that other Member State, on condition that profits from entities set up in another Member State are not treated in a manner that is discriminatory in comparison with the treatment granted to profits from comparable national entities.

The first indent of Article 4(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 must be interpreted as precluding legislation of a Member State, such as that at issue in the main proceedings, which provides that dividends received by a parent company are to be included in its basis of assessment in order subsequently to be deducted from that basis in the amount of 95%, in so far as, for the tax period in question, the parent company has a positive profit balance after deduction of other exempted profits.

The first indent of Article 4(1) of Directive 90/435 is unconditional and sufficiently precise to be capable of being relied on before national courts.

1. By not exempting dividends paid by Netherlands companies to companies established in Iceland or Norway from deduction at source of the tax on dividends under the same conditions as dividends paid to Netherlands companies or companies of other Member States of the Community, the Kingdom of the Netherlands has failed to fulfil its obligations under Article 40 of the Agreement on the European Economic Area. 2. The Kingdom of the Netherlands is ordered to pay the costs.

Article 73b of the EC Treaty (now Article 56 EC) must be interpreted as not precluding legislation of a Member State which excludes the reduction in value of shares as a result of the distribution of dividends from the basis of assessment for a resident taxpayer, where that taxpayer has acquired shares in a resident capital company from a non-resident shareholder, whereas, had the shares been acquired from a resident shareholder, such a reduction in value would have reduced the acquirer’s basis of assessment.

This applies in cases where such legislation does not exceed what is necessary to maintain a balanced allocation of the power to impose taxes between the Member States and to prevent wholly artificial arrangements which do not reflect economic reality and whose only purpose is unduly to obtain a tax advantage. It is for the national court to examine whether the legislation at issue in the main proceedings is limited to what is necessary in order to attain those objectives.

Part 2: Pending Cases

In circumstances such as those of the main proceedings, in which a resident capital company has a holding of less than 10% in another capital company, Article 56 EC must be interpreted as precluding a prohibition on the deduction of reductions in profit in connection with such a holding which enters into force earlier with regard to a holding in a non-resident company than with regard to a holding in a resident company.

National legislation making the deduction of dividends received as definitively taxed income subject to the existence of a taxable profit of the parent company

Taxation of dividends paid to a company with its registered office in another Member State or in the European Economic Area at a higher rate than dividends paid to a company with its registered office in the Federal Republic of Germany

Infringement of Article 299(4) EC Treaty, as it has been interpreted in the case-law of the Court of Justice

Different treatment given to dividends distributed to domestic and foreign shareholders

Discrimination against foreign equity holdings which, unlike domestic equity holdings, are not tax exempt under legislation until the size of the equity holding reaches 25%

Interpretation of articles 43 and 56 of EC Treaty with regard to exclusion of possibility to set off the advance payment if the dividend comes from a subsidiary established in another Member State

Discrimination against foreign equity holdings which, unlike domestic equity holdings, are not tax exempt under legislation until the size of the equity holding reaches 25%

Legislation which grants legal persons having their effective centre of management in France or, since 1 January 2008, in a Member State of the European Union, entitlement to exemption from the tax at issue and which, as regards legal persons having their effective centre of management in the territory of a non-Member State, makes that entitlement conditional

The free movement of capital under Articles 56(1) EC and 58(1)(a) and (3) EC Treaty