Opinion of Advocate General Kokott delivered on 10 January 2019.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• ECLI: ECLI:EU:C:2019:9
• Date: 10 January 2019
• Docket Number: C-608/17
• Procedure Type: Reference for a preliminary ruling

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 10 January 2019 (1)

Case C‑608/17

Skatteverket

v

Holmen AB

(Request for a preliminary ruling from the Högsta förvaltningsdomstol (Supreme Administrative Court, Sweden))

(Request for a preliminary ruling — National tax legislation — Freedom of establishment — Deduction of losses of a foreign subsidiary in the State of the parent company — Justification of non-deductibility of ‘final losses’ — Proportionality of an absence of cross-border relief for losses — Notion of ‘final losses’ — Requirement of direct participation by the parent company for the acceptance of a final loss — Use of losses on the basis of a restriction on loss relief in the State of the sub-subsidiary — Use of losses on the basis of an absence of group relief in the year of liquidation in the State of the sub-subsidiary)

I. Introduction

1. In the present case and one other case, (2) the Court is dealing with the implementation and interpretation of its case-law by the Member States, in this instance the Kingdom of Sweden. The point at issue is whether a Swedish parent company has the right, on the basis of Article 49 in conjunction with Article 54 TFEU, to deduct losses in an indirectly and wholly owned Spanish subsidiary (a sub-subsidiary) from its profits made in Sweden if the sub-subsidiary has been liquidated and was not able to use all its losses in Spain (that is, to set them off against its own or other profits of the Spanish group).

2. The Grand Chamber of the Court of Justice (3) ruled in 2005 that cross-border use of losses within a group is not required in principle by the fundamental freedoms. Losses arising abroad would be forfeited and could not therefore be used by other members of the group in national territory. Provision is to be made for cross-border use of losses only in the case of final losses in accordance with the principle of proportionality.

3. A number of problems have grown up around this category of ‘final losses’ created by the Court, which has already led to several decisions by the Court (4) (including two others by the Grand Chamber). However, none of these decisions thus far have been able to clarify definitively the conditions for final losses. (5)

4. In this regard, the Court has another opportunity — if it still wishes to adhere to the final losses exception (6) — to refine this category.

II. Legal framework

A. EU law

5. The framework for the case in EU law is provided by freedom of establishment of companies or firms under Article 49 in conjunction with Article 54 TFEU.

B. Swedish law

6. In Swedish law, what is known as intra-group transfers are used to achieve the balancing of results within a group of companies. The intra-group transfer is set off by the company which makes the transfer and is entered for taxation by the company which receives it. By making an intra-group transfer to an (even indirectly owned) loss-making subsidiary, a parent company can ‘assign’ those losses economically to itself.

7. The rules on intra-group transfers (7) do not apply, however, where the subsidiary is not liable for tax in Sweden. In this regard, only the rules on group relief introduced on the basis of the requirements of EU law permit a cross-border use of losses. Under those rules, a Swedish parent company may, on certain conditions, apply group relief to a definitive loss made by a wholly owned foreign subsidiary. (8) The rules provide that the subsidiary must be established in a State within the EEA and must correspond, inter alia, to a Swedish limited company.

8. A loss is definitive if it has not been possible and will not be possible for the subsidiary or any other person in the State where the subsidiary is established to use it. It is further necessary that the reason that the loss cannot be used by the subsidiary is not that there is no possibility in law to do so or that this possibility is limited in time.

9. Under Paragraph 5, the application of group relief is conditional, inter alia, on the subsidiary having been placed in liquidation and the liquidation having been completed (point 1). Further, according to the request for a preliminary ruling, the subsidiary must have been wholly owned by the parent company for all the tax years for the parent company and the subsidiary until the liquidation was completed or have been wholly owned by it since it began operating in any way until the liquidation was completed(point 2). The parent company must also have no associated companies which, on completion of the liquidation, carry on business in the State where the subsidiary is established (point 5).

10. During the drafting of the legislative proposal, according to the referring court, objections were raised to the provisions being applicable solely to losses in directly and wholly owned subsidiaries. The view was taken, however, that if losses in indirectly owned subsidiaries were also to be included, it would become possible for companies to choose in which State the losses should be used.

III. Main proceedings

11. The case concerns a preliminary decision by the Skatterättsnämnd (Revenue Law Commission, Sweden). The preliminary decision is based on the following facts:

12. Holmen AB (‘Holmen’) is the parent company in a group with subsidiaries in several countries, including Spain. The Spanish part of the group — in so far as is relevant here — is structured as follows: Holmen owns all the shares in the subsidiary Holmen Suecia Holding S.L. (HSH). HSH owns all the shares in the two sub-subsidiaries Holmen Paper Madrid S.L. (HPM) and Holmen Paper Iberica S.L. (HPI).

13. Since 2003, the Spanish companies have formed a tax grouping and are taxed in accordance with the Spanish tax consolidation system. Under that system, the profits and losses of the entities which are members of the grouping can, without restriction, be set off against each other. That is achieved by the grouping drawing up a joint consolidated tax declaration for revenue. Unused losses may, without limit in time, be carried forward and deducted against any profits in future years.

14. However, in Spain since 2011, only part of the profits made in a certain year may be set off against previous years’ losses. Losses which may not be deducted as a result of that amendment are carried forward, in the same way as other unused losses, to the next year. If the tax groupingis dissolved because the entities in the grouping are liquidated, any outstanding losses are allocated to the companies in which they arose. In the year of liquidation, it is not possible for any entity to use them other than that in which the losses arose.

15. The Spanish part of the Holmen group made losses. The majority of the losses arose in the sub-subsidiary HPM. Since 2003 that company has accumulated operating losses relating to the activity in Spain totalling approximately EUR 140 million. The profits made by the Spanish part of the group during the period covered by the application (from 2003 inclusive forward) are insignificant. Holmen now intends to liquidate its Spanish activity. The liquidation was begun in 2016 when most of the assets of HPM were sold to an outside buyer.

16. In the preliminary decision applied for, it must now be determined whether Holmen is entitled to apply group relief to the losses in HPM (the sub-subsidiary of Holmen) when the liquidation is complete. Two alternatives for liquidation are assessed in the preliminary decision applied for.

17. Under the first alternative, the sub-subsidiary HPI, the sub-subsidiary HPM and the subsidiary HSH are liquidated in the same tax year and in the order stated. Under the other alternative, the subsidiary HSH is absorbed by the former sub-subsidiary HPM in a reverse merger, after which HPM (as a subsidiary) is liquidated.

18. It is a condition for both alternatives that the group will not carry out any operations during the period when the liquidations are being completed and will not have any company remaining in Spain after the measures have been implemented. It also does not plan to operate there in future.

19. The Skatterättsnämnd (Revenue Law Commission) found that Holmen is not entitled to apply group relief to the losses of the sub-subsidiary HPM if it were liquidated according to the first alternative. However, in the case of liquidation according to the second alternative, Holmen is entitled to apply group relief in respect of the definitive losses in HPM, then as a subsidiary.

20. The Skatterättsnämnd (Revenue Law Commission) essentially based the preliminary decision, as regards the first alternative, on the ground that HSH (as the subsidiary) does not have any possibility in law in Spain of using the losses in the sub-subsidiary (HPM). The losses cannot therefore be regarded as definitive for the purposes of the case-law of the Court of Justice. A refusal to grant group relief to the Swedish parent company Holmen in respect of the losses thus cannot be regarded as disproportionate and accordingly does not run counter to EU law.

21. As regards the second alternative, in essence the Skatterättsnämnd (Revenue Law Commission) based its conclusion on the ground that HPM (then as a directly owned subsidiary) has the possibility in law, on taxation in Spain, of itself making use of at least part of the losses in question. The fact that there is no longer any possibility for Spanish entities other than HPM to make use of the losses after the tax grouping is dissolved does not mean that the losses are definitive. At least part of the losses at issue could thus be regarded as final for the purposes of the Court’s case-law.

22. Both the Skatteverket (Tax Board) and the applicant Holmen have appealed against the preliminary decision before the Högsta förvaltningsdomstol (Supreme Administrative Court, Sweden).

IV. Request for a preliminary ruling and procedure before the Court

23. The Högsta...