X AB v Skatteverket.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• ECLI: ECLI:EU:C:2015:31
• Date: 22 January 2015
• Docket Number: C-686/13
• Procedure Type: Reference for a preliminary ruling

OPINION OF ADVOCATE GENERAL

KOKOTT

of 22 January 2015 ( 1 )

Case C‑686/13

X AB

v

Skatteverket

(Request for a preliminary ruling

from the Högsta förvaltningsdomstolen (Sweden))

‛Tax legislation — National tax on earnings — Freedom of establishment under Article 49 TFEU — Free movement of capital under Article 63(1) TFEU — Scheme whereby capital gains and capital losses on the disposal of a shareholding are not taken into account for tax purposes — Shareholding in a subsidiary in another Member State — Cessation of the subsidiary’s activities — Scheme whereby a capital loss on the disposal of assets is taken into account for tax purposes in so far as it arises from a currency loss’

I – Introduction

1. The Swedish tax dispute which has given rise to the present request for a preliminary ruling has its origin in the fact that, in the Kingdom of Sweden, capital gains and capital losses from the disposal of certain shareholdings are not taken into account for income tax purposes. While beneficial to some companies, that scheme is unfavourable to those facing a loss. However, where such a loss is the result of an exchange rate risk, and that risk arises primarily in the context of cross-border activities, the fundamental freedoms could require the loss to be taken into account. It is this issue which the referring court wishes to dispose of before the applicant in the main proceedings terminates the activities of its subsidiary, which is resident in another Member State.

2. The Court previously considered a similar situation in Deutsche Shell, which concerned a currency loss incurred in connection with the closure of a foreign establishment. On that occasion, the Court held that there had been an infringement of the freedom of establishment. ( 2 ) In the present case, it must now be analysed to what extent the findings of the judgment in Deutsche Shell may be transposed to currency losses incurred in connection with the cessation of the activities of a subsidiary.

II – Legal framework

3. The Kingdom of Sweden levies income tax. In principle, that tax is also charged on income from the disposal of shares in public limited companies.

4. An exception is, however, provided for in the case of shares held by certain companies, in particular public limited companies, for business purposes. In accordance with Chapter 25a, Paragraph 5(1) of the Swedish Law on income tax (inkomstskattelag 1999:1229), a capital gain realised on the disposal of such shares is, in principle, not to be taken into account. On the other hand, in accordance with subparagraph 2 of that provision, a capital loss on disposal is deductible only if a corresponding capital gain would have been taxable.

5. In accordance with Chapter 24, Paragraph 14(1) of the Swedish Law on income tax, capital gains and capital losses on disposal are not to be taken into account for tax purposes, provided that the shareholding satisfies one of the following conditions: ‘1. The holding must not be listed. 2. The total number of voting rights attached to all the shares held by the company owning the shares in the company owned corresponds to at least 10 per cent of the total number of voting rights attached to all the shares in that company. 3. The share is held for the purpose of the activities of the holding company or by an undertaking which, having regard to the conditions of ownership or of organisation, can be regarded as being close to that company.’

6. Similar provisions apply to dividends on such shares, which are also, in principle, excluded from taxation. The scheme whereby dividends and profits on the disposal of assets are not taken into account for tax purposes is intended to avoid the multiple taxation of company profits.

III – The dispute in the main proceedings

7. The dispute in the main proceedings concerns the request by the Swedish company X AB for a preliminary decision in the context of the taxation of its income.

8. In 2003, X had formed a British subsidiary. The shares were issued in US dollars. From 2003 to 2009, X increased its capital holding in the subsidiary on a number of occasions.

9. Furthermore, following its formation, X disposed of shares in its subsidiary to its own parent company, with the result that X now holds only 45% of those shares.

10. X is planning — in a manner undisclosed — to terminate the activities of its British subsidiary, and it would appear that, under Swedish law, that cessation of activities is treated as the disposal of the shareholding in the subsidiary. On account of the change in the exchange rate between the Swedish krona and the US dollar which has since taken place, it expects the cessation of activities to lead to a currency loss. Under the Swedish provisions governing capital losses on the disposal of shares held for business purposes, it would be unable to claim such a loss against tax.

11. Against that background, X requested a preliminary decision from the Skatterättsnämnden (Revenue Law Commission) with a view to ascertaining whether the refusal to take a currency loss into account for tax purposes is an infringement of EU law. After the Skatterättsnämnden had answered that question in the negative, X instituted legal proceedings.

IV – Procedure before the Court of Justice

12. On 27 December 2013, the Högsta förvaltningsdomstol (Supreme Administrative Court), before which the dispute is now pending, referred the following question to the Court of Justice pursuant to Article 267 TFEU: ‘Do Article 49 TFEU and Article 63 TFEU preclude national legislation under which the State of residence does not grant a deduction for a currency loss incorporated into a capital loss on the disposal of a holding for business purposes in a company resident in another Member State, where the Member State of residence applies a system that does not take into account the capital gains and capital losses on the disposal of such holdings in the calculation of the basis of assessment for tax?’

13. The parties to the main proceedings, the Kingdom of Denmark, the Federal Republic of Germany, the Kingdom of Spain, the French Republic, the Italian Republic, the Kingdom of the Netherlands, the Portuguese Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland and the European Commission submitted written observations to the Court of Justice in March and April 2014.

V – Legal assessment

14. By its question, the referring court wishes to ascertain whether a Member State may leave capital gains and losses arising on the disposal of shares in companies out of account when levying income tax without thereby infringing the freedom of establishment or the free movement of capital. The referring court considers such an infringement to be possible because, under the national legislation, currency losses are also not taken into account for tax purposes.

15. Before answering this question, it must be emphasised that it is for the national court to determine whether and to what extent a currency loss is actually capable of being sustained by company X. ( 3 ) The information in the order for reference does not in itself make clear whether a currency loss has occurred. The mere fact that a share is issued in a foreign currency does not necessarily mean that there is a possibility of a currency loss being sustained if the activity is terminated. The only conceivable situation in which such a loss would be a definite possibility would be if shareholder X, on the cessation of the activities of its subsidiary, had a claim only to payment of the nominal capital in foreign currency. However, if, in that event, there were a claim to the subsidiary’s assets, it would probably not be easy to identify a distinct currency loss, even if the assets were disposed of in a foreign currency in the course of the company’s being wound up. The interplay between the level of prices in the economies concerned and the rate of exchange between their currencies would probably make it difficult to distinguish between real changes in the value of the assets and mere currency fluctuations.

16. In the remainder of this Opinion, I shall therefore — as the Court of Justice did in the judgment in Deutsche Shell ( 4 ) — assume, for the purpose of answering the question referred, that a distinct currency loss can be identified in connection with the cessation of the subsidiary’s activities in the present case.

A – The fundamental freedom applicable

17. The first question that arises is whether legislation such as that in Sweden should be measured against the criterion of the freedom of establishment provided for in Article 49 TFEU or the free movement of capital provided for in Article 63(1) TFEU. In principle, in the present case of participation in a company resident in another Member State, both freedoms may be involved.

18. To that end, it is necessary first of all to examine the subject-matter of the national legislation. According to the case-law, national legislation intended to apply only to those shareholdings which enable the holder to exert a definite influence on a company’s decisions and to determine its activities falls within the scope of Article 49 TFEU alone. On the other hand, national provisions which apply to shareholdings acquired solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking must be examined exclusively in light of the free movement of capital. ( 5 )

19.

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