Gallaher Limited v The Commissioners for Her Majesty's Revenue & Customs.

• Jurisdiction: European Union
• ECLI: ECLI:EU:C:2023:101
• Date: 16 February 2023
• Docket Number: C-707/20
• Celex Number: 62020CJ0707
• Court: Court of Justice (European Union)

JUDGMENT OF THE COURT (Third Chamber)

16 February 2023 ( *1 )

(Reference for a preliminary ruling – Direct taxation – Corporate income tax – Articles 49, 63 and 64 TFEU – Freedom of establishment – Free movement of capital – Disposal of assets within a group of companies – Company resident for tax purposes in one Member State having a parent company resident for tax purposes in another Member State and a sister company resident for tax purposes in a third country – Disposal of intellectual property rights of the company resident for tax purposes in a Member State to its sister company resident for tax purposes in a third country – Disposal by the company resident for tax purposes in a Member State of shares in one of its subsidiaries to its parent company resident for tax purposes in another Member State – Consideration equal to the market value of the assets transferred – Exemption from tax or imposition of tax depending on the State in which the beneficiary company has its seat)

In Case C‑707/20,

REQUEST for a preliminary ruling under Article 267 TFEU from the Upper Tribunal (Tax and Chancery Chamber) (United Kingdom), made by decision of 29 December 2020, received at the Court on 30 December 2020, in the proceedings

Gallaher Limited

v

The Commissioners for Her Majesty’s Revenue and Customs,

THE COURT (Third Chamber),

composed of K. Jürimäe, President of the Chamber, M. Safjan, N. Piçarra, N. Jääskinen (Rapporteur) and M. Gavalec, Judges,

Advocate General: A. Rantos,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

– Gallaher Limited, by I. Afzal, Barrister, P. Baker, QC, S. Bond and E. Buxton, Solicitors,

– the United Kingdom Government, by L. Baxter and F. Shibli and by J. Simpson, acting as Agents, and by R. Baldry, QC, and B. Elliott, Barrister,

– the European Commission, by P.-J. Loewenthal and W. Roels, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 8 September 2022,

gives the following

Judgment

1 This request for a preliminary ruling concerns the interpretation of Articles 49, 63 and 64 TFEU.

2 The request has been made in proceedings between Gallaher Limited (‘GL’), a company resident for tax purposes in the United Kingdom, and the Commissioners for Her Majesty’s Revenue and Customs (United Kingdom) (‘HMRC’) concerning whether GL is subject to a tax charge, without the right to defer payment of the tax, in respect of two transactions involving the disposal of assets to companies not having their residence for tax purposes in the United Kingdom, forming part of the same group of companies as GL.

Legal context

The withdrawal agreement

3 The Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (OJ 2020 L 29, p. 7; ‘the withdrawal agreement’) was approved by Council Decision (EU) 2020/135 of 30 January 2020 (OJ 2020 L 29, p. 1).

4 According to the preamble to the withdrawal agreement, EU law in its entirety ceases, subject to the arrangements laid down in that agreement, to apply to the United Kingdom from the date of entry into force of that agreement.

5 The withdrawal agreement provides, in Article 126 thereof, for a transition period, starting on the date of entry into force of that agreement and ending on 31 December 2020, during which EU law is applicable to the United Kingdom, unless otherwise provided for in that agreement.

6 Article 86 of the withdrawal agreement, entitled ‘Pending cases before the Court of Justice of the European Union’, provides, in paragraphs 2 and 3 thereof: ‘2. The Court of Justice of the European Union shall continue to have jurisdiction to give preliminary rulings on requests from courts and tribunals of the United Kingdom made before the end of the transition period. 3. For the purposes of this Chapter, … requests for preliminary rulings shall be considered as having been made, at the moment at which the document initiating the proceedings has been registered by the registry of the Court of Justice …’

7 Article 89(1) of the withdrawal agreement states: ‘Judgments and orders of the Court of Justice of the European Union handed down before the end of the transition period, as well as such judgments and orders handed down after the end of the transition period in proceedings referred to in Articles 86 and 87, shall have binding force in their entirety on and in the United Kingdom.’

8 Pursuant to Article 185 of the withdrawal agreement, that agreement entered into force on 1 February 2020.

United Kingdom law

9 Under Sections 2 and 5 of the Corporation Tax Act 2009 (‘the CTA 2009’) and Section 8 of the Taxation of Chargeable Gains Act 1992 (‘the TCGA 1992’), a company having its tax residence in the United Kingdom is chargeable to corporation tax on all its profits (including chargeable gains) accruing in the relevant accounting period.

10 In accordance with Section 5(3) of the CTA 2009, a company which does not have its tax residence in the United Kingdom but which carries on a trade there through a permanent establishment in the United Kingdom is chargeable to tax on the profits attributable to that permanent establishment. Moreover, under Section 10 B of the TCGA 1992, such a company is chargeable to tax on the chargeable gains that it accrues on disposal of assets if those assets are situated in the United Kingdom and are used for the purposes of carrying on a trade or for those of the permanent establishment. Those assets are referred to as ‘chargeable assets’ by Section 171(1A) of the TCGA 1992.

11 According to Sections 17 and 18 of the TCGA 1992, the disposal of an asset is deemed to be for consideration equal to the market value of those assets where the disposal is otherwise than by way of a bargain made at arm’s length or the disposal is made to a connected person.

12 Section 170 of the TCGA 1992 provides: ‘(1) This section has effect for the interpretation of sections 171 to 181 except in so far as the context otherwise requires … (2) Except as otherwise provided— … (b) subsections (3) to (6) below apply to determine whether companies form a group and, where they do, which is the principal company of the group; … (d) “group” and “subsidiary” shall be construed with any necessary modifications where applied to a company incorporated under the law of a country outside the United Kingdom. (3) Subject to subsections (4) to (6) below— (a) a company (referred to below and in sections 171 to 181 as the “principal company of the group”) and all its 75 per cent. subsidiaries form a group and, if any of those subsidiaries have 75 per cent. subsidiaries, the group includes them and their 75 per cent. subsidiaries, and so on, but (b) a group does not include any company (other than the principal company of the group) that is not an effective 51 per cent. subsidiary of the principal company of the group. (4) A company cannot be the principal company of a group if it is itself a 75 per cent. subsidiary of another company. …’

13 Section 171 of the TCGA 1992 and Sections 775 and 776 of the CTA 2009 (together, ‘the group transfer rules’) provide that a disposal of assets between group companies that are chargeable to corporation tax in the United Kingdom must take place on a tax-neutral basis.

14 Article 171 of the TCGA 1992 provides: ‘(1) Where— (a) a company (“company A”) disposes of an asset to another company (“company B”) at a time when both companies are members of the same group, and (b) the conditions in subsection (1A) below are met, company A and company B are treated for the purposes of corporation tax on chargeable gains as if the asset were acquired by company B for a consideration of such amount as would secure that neither a gain nor a loss would accrue to company A on the disposal. (1A) The conditions referred to in subsection (l)(b) above are— (a) that company A is resident in the United Kingdom at the time of the disposal, or the asset is a chargeable asset in relation to that company immediately before that time, and (b) that company B is resident in the United Kingdom at the time of the disposal, or the asset is a chargeable asset in relation to that company immediately after that time. For this purpose an asset is a “chargeable asset” in relation to a company at any time if, were the asset to be disposed of by the company at that time, any gain accruing to the company would be a chargeable gain and would by virtue of section 10B form part of its chargeable profits for corporation tax purposes. …’

15 Section 775 of the CTA 2009 states: ‘(1) A transfer of an intangible fixed asset from one company (“the transferor”) to another company (“the transferee”) is tax-neutral for the purposes of this Part if— (a) at the time of the transfer both companies are members of the same group, (b) immediately before the transfer the asset is a chargeable intangible asset in relation to the transferor, and (c) immediately after the transfer the asset is a chargeable intangible asset in relation to the transferee. (2) For the consequences of a transfer being tax-neutral for the purposes of this Part, see section 776. …’

16 Section 776 of the CTA 2009...