This case sought a ruling from the ECJ on the interpretation of Article 49 of the Treaty on the Functioning of the European Union.
Summary of the facts
The Danish authorities refused to allow the Appellant, Bevola to deduct from its taxable income the losses incurred by its Finnish establishment, Jens.
Bevola had its permanent establishment in Denmark and it traded in the manufacture of wagons and trailers for the wholesale sector. It was a subsidiary and sub-subsidiary of Danish companies that are themselves controlled by Jens W. Trock, the group’s parent company, which also has its seat in Denmark.
Bevolaʼs establishment in Finland ceased trading in 2009 and losses incurred of circa 375,000 Euros could not be deducted in Finland following the closure. Bevola submitted an application to deduct those losses from its taxable income in Denmark for the year 2009.
The Danish tax authorities denied the application on the grounds that the law on corporation tax did not allow the inclusion in taxable income of income and expenditure relating to a permanent establishment or real property situated in a Foreign State, unless the company had opted for the international joint taxation scheme. Bevola claimed that it would have been possible to deduct the losses in question if they had been incurred by a Danish establishment.
Questions referred to the ECJ
Does Article 49 TFEU preclude a national taxation scheme such as that at issue in the main proceedings under which it is possible to make deductions for losses in domestic branches, while it is not possible to make deductions for losses in branches situated in other Member States, including in circumstances corresponding to those in the Court’s judgment [of 13 December 2005] in Marks & Spencer, C‑446/03, EU:C:2005:763, paragraphs 55 and 56, unless the group has opted for international joint taxation on the terms as set out in the main proceedings?’
Conclusions by the ECJ
Article 49 TFEU must be interpreted as precluding legislation of a Member State under which it is not possible for a resident company which has not opted for an international joint taxation scheme, such as that at issue in the main proceedings, to deduct from its taxable profits losses incurred by a permanent establishment in another Member State, where, first, that company has exhausted the possibilities of deducting those losses available under the law of the Member State in which the establishment is situated and, second, it has ceased to receive any income from that establishment, so that there is no longer any possibility of the losses being taken into account in that Member State, which is for the national court to ascertain.
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Franco Falzon
(Managing Partner)
E: franco@ffinternational.com.mt
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