Summary of the facts
NN was the group parent company of a Danish group which includes, two Swedish subsidiaries, Sverige 1 AB and Sverige 2 AB, each in turn the proprietors of a branch in Denmark, C and B respectively.
Those two branches merged into one single Branch A by the transfer of Branch B into the company Sverige 1 AB.
In Sweden, the group opted for the transaction to be treated for tax purposes as a restructuring of activities, an operation which, according to the referring court, is not subject to tax in that Member State. Consequently, the transfer to Branch A of the goodwill built up by Branch B could not be written off in Sweden.
In Denmark, by contrast, the merger was taxed as a transfer of assets at market value, which allowed Branch A to write off the acquisition cost of the goodwill built up by B and, consequently, to show a negative result for the tax year 2008.
The Danish tax authority refused, for that tax year, the setting-off of Branch A’s losses against the overall group taxation income, for which NN had applied. That authority argued that those losses could be set off against the taxable income in Sweden of the Swedish company which owned the branch.
Questions referred to the ECJ
(1) What factors are to be taken into account in assessing whether resident companies in a situation such as the present one are subject to an “equivalent condition” within the meaning of paragraph 20 of the judgment of 6 September 2012, Philips Electronics UK (C‑18/11, EU:C:2012:532), with respect to the setting off of losses, to that applicable to branches of non-resident companies?
(2) If it is presumed that the Danish tax rules do not contain a difference of treatment as dealt with in the judgment of 6 September 2012, Philips Electronics UK (C‑18/11, EU:C:2012:532), does a prohibition of setting off similar to that described — in a case in which the loss in the non-resident company’s permanent establishment is also subject to the host country’s power of taxation — in itself constitute a restriction of the right of freedom of establishment under Article 49 TFEU, which has to be justified by reference to overriding reasons of the public interest?
(3) If so, can such a restriction then be justified by the interest in preventing the double use of losses, the objective of ensuring a balanced distribution of powers of taxation between the Member States, or a combination of both?
(4) If so, is such a restriction proportionate?
Conclusions by the ECJ
Article 49 TFEU must be interpreted as not precluding, in principle, national legislation, such as that at issue in the main proceedings, pursuant to which the resident companies in a group are permitted to deduct, from their group profits, the losses sustained by a resident permanent establishment of a non-resident subsidiary of that group only in the case where the rules applicable in the Member State in which that subsidiary has its registered office do not permit those losses to be deducted from the latter’s profits, when the application of that legislation is combined with that of a convention preventing double taxation allowing, in the latter Member State, the deduction from the income tax payable by the subsidiary of a sum corresponding to the income tax paid, in the Member State on the territory of which that permanent establishment is situated, in respect of the latter’s activity.
However, Article 49 TFEU must be interpreted as precluding such legislation in the case where the effect of its application is to deprive that group of any effective possibility of deducting those losses from the group’s overall profits, where it is not possible to set off those losses against that subsidiary’s profits in the Member State on the territory of which that subsidiary is established, these being matters for the referring court to verify.
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