Article 49 TFEU – Transfer of losses sustained by a non-resident subsidiary

Judgment

C-172/13

03.02.2015

Parties

Jurisdiction

Formation

Judge Rapporteur

Advocate General

Subject-matter

Infingement proceedings – Failure to fulfil obligations

European Commission

v

United kingdom of Great Britain and Northern Ireland

CJEU

Grand Chamber

 M. K. Lenaerts

J. Kokott

Freedom of establishment

Keywords

 Article 49 TFEU — Article 31 of the EEA Agreement — Corporation tax — Groups of companies — Group relief — Transfer of losses sustained by a non-resident subsidiary — Conditions — Date to be used for determining whether the losses of the non-resident subsidiary are definitive.

Significant points

The Commission submits that Section 119(4) of the Corporation Tax Act 2010 (CTA 2010), as amended after the Mark & Spencer CJEU’s judgment, does not meet the requirements entailed for the Member State concerned by paragraphs 55 and 56 of this judgment in so far as, under that provision, the determination that it is impossible for losses sustained by a subsidiary established in another Member State, or in a non-member State party to the EEA Agreement, to be taken into account in the future must be made ‘as at the time immediately after the end’ of the accounting period in which the losses were sustained. According to the Commission, that provision has the effect of making it virtually impossible for a resident parent company to obtain cross-border group relief and as a result constitutes a disproportionate obstacle to the freedom of establishment.According to the Commission, Section 119(4) allows the resident parent company to take such losses into account in only two situations: (i) where the legislation of the Member State of residence of the subsidiary concerned makes no provision for losses to be carried forward and (ii) where the subsidiary is put into liquidation before the end of the accounting period in which the loss was sustained.The Court stated that the first of those situations referred to by the Commission is irrelevant for the purposes of assessing the proportionality of Section 119(4) of the CTA 2010. It is settled law that losses sustained by a non-resident subsidiary cannot be characterised as definitive, as described in paragraph 55 of the judgment in Marks & Spencer, by dint of the fact that the Member State in which the subsidiary is resident precludes all possibility of losses being carried forward. In such a situation, the Member State in which the parent company is resident may not allow cross-border group relief without thereby infringing Article 49 TFEU.As regards the second situation referred to, the Court stated that the Commission has not established the truth of its assertion that Section 119(4) of the CTA 2010 requires the non-resident subsidiary to be put into liquidation before the end of the accounting period in which the losses are sustained in order for its resident parent company to be able to obtain cross-border group relief. In addition, it is clear from the wording of that provision that it does not, on any view, impose any requirement for the subsidiary concerned to be wound up before the end of the accounting period in which the losses are sustained.The Commission submits that losses sustained before 1 April 2006 are excluded from cross-border group relief, contrary to Article 49 TFEU and Article 31 of the EEA Agreement, inasmuch as the provisions laid down in the CTA 2010 concerning that relief apply only to losses sustained after 1 April 2006, the date on which the Finance Act 2006 entered into force.

Again, the Court stated that the Commission has not established the existence of situations in which cross-border group relief for losses sustained before 1 April 2006 was not granted.

Consequently, the Court dismissed the action in its entirety.

Noteworthy

According to the judgment in Marks & Spencer, cross-border group relief is not required in principle by European Union law. Nevertheless, an exception applies in the case where losses incurred by a foreign subsidiary within the framework of foreign taxation cannot be taken into account either for past or for future tax years.

The Advocate General seems to plead for the abandonment of the Marks & Spencer exception due to its contradictions in relation to the Court’s other case-law on tax matters, which provides for a clear demarcation of the fiscal powers of the Member States. The Marks & Spencer exception does not either satisfy the requirement of legal certainty, but makes investment conditions unforeseeable and liable to give rise to disputes