Opinion of Advocate General Campos Sánchez-Bordona delivered on 17 January 2018.

• Jurisdiction: European Union
• Celex Number: 62016CC0650
• ECLI: ECLI:EU:C:2018:15
• Date: 17 January 2018
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Docket Number: C-650/16

Provisional text

OPINION OF ADVOCATE GENERAL

CAMPOS SÁNCHEZ-BORDONA

delivered on 17 January 2018 (1)

Case C‑650/16

A/S Bevola,

Jens W. Trock ApS

v

Skatteministeriet

(Request for a preliminary ruling from the Østre Landsret (Eastern Regional Court, Denmark))

Preliminary-ruling proceedings — Corporation tax — Freedom of establishment — Consolidated groups — Tax legislation permitting a resident company to deduct the losses of resident permanent establishments from its taxable income but excluding that possibility for non-resident permanent establishments, unless the company has opted into the international joint taxation scheme)

1. Twelve years after the judgment in Marks & Spencer, (2) the Court of Justice is once more called upon to give a decision on a dispute which has arisen in relation to company taxation. In this case, the national court asks the Court whether, ‘in conditions equivalent to those in’ that judgment, Article 49 TFEU precludes a national provision pursuant to which a Danish company may not deduct the losses of a permanent establishment (PE) situated in another Member State, unless it opts into the ‘international joint taxation’ scheme.

2. In my view, the request for a preliminary ruling, expressed in those terms, raises three issues that the Court must settle: (a) whether the so-called ‘Marks & Spencer exception’ should be retained; (b) whether, if that exception is retained, the Court considers it applicable to the losses of PEs and not solely to the losses of subsidiaries; and (c) whether the method provided for in the Danish legislation to enable resident companies to deduct the losses of their non-resident PEs (international joint taxation) is compatible with EU law when those losses are definitive.

I. Danish legal framework. Law on corporation tax

3. According to Paragraph 8(2):

‘Taxable income shall not include income and expenditure relating to a permanent establishment or real property situated in a foreign State, on the Faroe Islands or in Greenland, subject to Paragraph 31A. ...’

4. Under Paragraph 31 (‘national joint taxation’ of the activities of group affiliates in Denmark, including income derived from non-Danish companies’ permanent establishments or real property in Denmark):

‘Group affiliates and associations, etc. ..., shall be taxed jointly (national joint taxation). “Group affiliates and associations, etc.” shall be understood to mean companies and associations, etc., which at some point during the fiscal year belong to the same group: see Paragraph 31C. Paragraph 31C(2)-(7) equates real property with permanent establishments. “Ultimate parent company” shall be understood to mean that company which is the parent company without being a subsidiary: see Paragraph 31C.

(2) For jointly taxed companies a joint income statement shall be established, consisting in the sum of the taxable income for each individual company covered by the joint taxation, calculated according to the general rules of the tax legislation, with those exceptions applicable to jointly taxed companies. Losses in a permanent establishment may be offset against other companies’ income only if under the rules in the foreign State, on the Faroe Islands or in Greenland, where the company is resident, losses cannot be included in the calculation of the company’s income statement in that foreign State, on the Faroe Islands or in Greenland, where the company is resident, or if international joint taxation has been elected under Paragraph 31A. The joint taxation income shall be calculated after offset has been made for each individual company for losses from earlier income periods that can be carried forward. If the joint taxation income is positive, the profit shall be distributed proportionately between the profit-making companies. If the joint taxation income for a fiscal year is negative, the losses shall be distributed proportionately between the loss-making companies and carried forward in the relevant company for offset the following subsequent fiscal year. Losses in a company relating to joint taxation periods can be offset only against profits in that same company. In carrying forward losses, the oldest losses are offset first. Losses in a company relating to earlier fiscal years can be offset against profits in another company only if the losses occurred in a fiscal year in which the relevant companies were taxed jointly and the joint taxation has not subsequently been interrupted.

...

(4) In national joint taxation the top parent company taking part in the joint taxation shall be designated as the management company for the purposes of joint taxation. If there is no Danish taxable top parent company, but a number of horizontally linked Danish taxable affiliated companies, one the affiliated companies taking part in the joint taxation shall be designated as the management company. ... The management company shall be responsible for payment of the overall income tax. …

(5) All companies in the joint taxation shall calculate the taxable income for the same period as the management company, irrespective of the accounting year under company law rules: see Paragraph 10(5).

...

(7) In the calculation of the taxable income, a jointly taxed company may opt to ignore losses, including losses carried forward from earlier fiscal years. Losses corresponding to the taxable income in a jointly taxed permanent establishment in Denmark or a jointly taxed subsidiary in Denmark may be ignored when the permanent establishment’s or subsidiary’s income is included in the income statement outside Denmark, provided that the relevant State’s relief for the Danish taxation corresponds to the relief method provided for in Paragraph 33 of the Ligningsloven (Tax Assessment Act). The amount ignored shall instead be carried forward to subsequent fiscal years in accordance with the rules in Paragraph 15 of the Tax Assessment Act. If an amount lower than the overall losses is ignored, that amount shall be distributed proportionately to the individual loss-making sources.’

5. Paragraph 31A(1)(1) to (3) (‘international joint taxation’ also covering activities pursued by group affiliates, both Danish and foreign, or their permanent establishments) reads:

‘The ultimate parent company may elect joint taxation for those group affiliates and associations, etc., which are taxed jointly under Paragraph 31; the same shall apply for all non-Danish companies and associations, etc., in the group, in which none of the participants is personally liable for the company’s obligations, and which distributes the profits in proportion to the participants’ subscribed capital (international joint taxation). The election also covers all permanent establishments and real property situated outside Denmark belonging to those jointly taxed Danish and non-Danish companies and associations, etc. The provisions of Paragraph 31 on national joint taxation shall apply mutatis mutandis to international joint taxation, with the additions and exceptions following from (2)-(14). …’

6. Paragraph 31A(3)(3) and (6) provides:

‘An election of international joint taxation shall be binding for the parent company for a period of 10 years, subject to the 6th and 7th sentences. ... The ultimate parent company may opt to terminate joint taxation, which will result in full recapture of tax: see the 11th sentence.’

II. Facts of the dispute and the question referred for a preliminary ruling

7. A/S Bevola is a company registered in Denmark that produces production platforms for lorries, trailers and accessory equipment. It is a subsidiary and sub-subsidiary of other companies, Danish as well, controlled by Jens W. Trock ApS, the parent company of the group, which is resident in Denmark too.

8. In the 2009 tax year, A/S Bevola had subsidiaries and PEs in a number of Member States. In particular, it had a PE in Finland.

9. The Finnish PE ceased trading in 2009 and relief could not be claimed in Finland for its losses, amounting to 2.8 million Danish krone (DKK). In those circumstances, A/S Bevola applied to deduct those losses from its taxable income for the purposes of corporation tax in Denmark.

10. On 20 January 2014, the Danish authorities, by final decision of the Landsskatteretten (National Tax Appeals Commission) held that A/S Bevola was not entitled to make that deduction because Paragraph 8(2) of the Law on corporation tax (as amended by Law No 426 of 6 June 2005) did not allow either revenue or expenditure attributable to a PE situated in a foreign country to be included in the tax base, unless the company had opted for the international joint taxation scheme provided for in Paragraph 31A of that law.

11. A/S Bevola and Jens W. Trock ApS (‘Bevola’) appealed against that decision before the Østre Landsret (Eastern Regional Court, Denmark), arguing that deduction would have been permissible if the losses had been incurred by a Danish PE and that that difference in treatment constituted a restriction of the freedom of establishment guaranteed by Article 49 TFEU.

12. Against that background, the referring court has submitted the following question for a preliminary ruling:

‘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 [permanent establishments], whilst it is not possible to make deductions for losses in [permanent establishments] situated in other Member States, including in conditions equivalent to those in the EU Court of Justice’s judgment in Marks & Spencer, C‑446/03, ECLI:EU:C:2005:763, paragraphs 55-56, unless the group has elected international joint taxation on the terms as set out the main proceedings?’

III. Summary of the parties’ observations

13. For Bevola, national legislation that does not permit losses incurred by a PE established in another Member State to be taken into account in calculating the taxable...