Opinion of Advocate General Kokott delivered on 17 October 2019.

• Jurisdiction: European Union
• Celex Number: 62018CC0405
• ECLI: ECLI:EU:C:2019:879
• Court: Court of Justice (European Union)
• Date: 17 October 2019

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 17 October 2019 (1)

Case C‑405/18

AURES Holdings a.s.

Other party:

Odvolací finanční ředitelství

(Request for a preliminary ruling from the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic))

(Request for a preliminary ruling — Freedom of establishment — Tax legislation — Corporation tax — Transfer of a company’s place of management from one Member State to another — Cross-border cross-period loss relief — Non-allowance of losses incurred prior to the transfer of the place of management to another Member State — Final losses in the case of a transfer of the place of management)

I. Introduction

1. This case concerns the interpretation of freedom of establishment under Article 49 TFEU read in conjunction with Article 54 TFEU. In particular, the question arises whether freedom of establishment permits a taxpayer, when relocating a company’s place of management, to claim in the host State a tax loss incurred in previous years in another Member State.

2. The case is set in the context of an action brought by a Czech company which is claiming a loss before the Czech tax authorities. The company sustained that loss previously in the Netherlands. It was no longer able to take the loss into account there due to the transfer of its place of effective management to the Czech Republic and thus in the absence of economic activity in the Netherlands. Under Czech tax law, it is possible, in principle, to carry forward losses across periods. However, provision is made for this possibility only in respect of losses incurred under Czech fiscal sovereignty.

3. The Grand Chamber of the Court of Justice (2) ruled in 2005 that provision is to be made, exceptionally, for cross-border use of losses within a single tax period in the case of final losses in accordance with the principle of proportionality. But does this also apply across a group structure and across periods where the place of management is simply transferred (upon exit) to another Member State? In this regard, the Court has another opportunity — if it still wishes to adhere to the final losses exception (3) — to refine this category.

II. Legal framework

A. EU law

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

B. Czech law

5. The Czech Law on income tax (4) regulates the possibilities for loss relief in Paragraphs 34 and 38n thereof.

6. Under Paragraph 34 of the Law on income tax, it is possible ‘to deduct from the tax base a tax loss incurred in and assessed for the previous tax period or part thereof, and to do so in up to five tax periods immediately following the period for which the tax loss is assessed’.

7. The provisions of Paragraph 38n of the Law on income tax define a tax loss and specify that ‘a tax loss shall be administered in the same way as a tax obligation … The tax loss shall be assessed …’.

III. Main proceedings

8. AURES Holdings a.s. (Aures) (originally AAA Auto International a.s.) is the successor company to the Dutch company AAA Auto Group N.V., including its branch AAA Auto Group N.V. — organisational entity. The company’s place of management was in the Netherlands. On 1 January 2008, it set up an organisational entity in the Czech Republic. Under Czech law, an organisational entity does not have autonomous legal personality.

9. According to Aures, on 1 January 2009 its place of effective management was relocated, that is, the address of the place from which it is effectively managed (‘the place of management’) was moved from the Netherlands to the Czech Republic, to the same address as the aforementioned organisational entity. This change of address was entered in the Czech commercial register on 19 April 2013, while the original official address (registered office) remained in Amsterdam (Netherlands). Aures is registered in the commercial register there and its internal organisation remains governed by Netherlands law. Aures is still a taxable entity in the Netherlands, but does not carry on any economic activity there at present.

10. Before Aures became resident for tax purposes in the Czech Republic, it had suffered a tax loss in the Netherlands in 2007, and apparently also in 2008, of EUR 2 792 187, which had been assessed in the Netherlands in accordance with Netherlands tax law.

11. In the view of Aures, the tax loss from 2007 and 2008 could not be claimed in the relevant tax period in the Netherlands. It therefore requested that its losses be taken into account in order to reduce its tax base in the Czech Republic. In respect of the tax bases for 2009 and 2010 the losses incurred by Aures were erroneously taken into account. In the absence of profits, there was no offsetting in 2011. Aures is now seeking to claim the remainder of its tax loss in the Czech Republic pursuant to Paragraphs 34 and 38n of the Law on income tax in order to reduce the tax base for the 2012 tax period.

12. On 19 March 2014, the tax authority initiated a procedure in relation to Aures. The aim of the tax authority’s investigation was to assess the correctness of the tax loss claimed in 2012. The tax authority concluded that the tax loss cannot be set off under Paragraph 38n of the Law on income tax. Aures appealed against the payment assessment, but the appeal was dismissed by the tax appeals authority. Aures brought proceedings against that decision unsuccessfully. It lodged an appeal on a point of law against the judgment.

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

13. By decision of 31 May 2018, the Nejvyšší správní soud (Supreme Administrative Court, Czech Republic) decided to make an order for reference pursuant to Article 267 TFEU and referred the following questions to the Court for a preliminary ruling:

1. Can the concept of freedom of establishment within the meaning of Article 49 TFEU be held to cover a simple transfer of the place of a company’s management from one Member State to another Member State?

2. If so, is it contrary to Article 49, Article 52 and Article 54 TFEU for national law not to allow an entity from another Member State, when relocating its place of business or place of management to the Czech Republic, to claim a tax loss incurred in that other Member State?

14. In the proceedings before the Court, Aures, the Czech Republic, the Federal Republic of Germany, the Italian Republic, the Kingdom of Spain, the Kingdom of the Netherlands, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland and the European Commission submitted written observations on these questions and, with the exception of the Italian Republic and together with the French Republic, took part in the hearing on 13 May 2019.

V. Legal assessment

15. In the main proceedings Aures is challenging a payment assessment issued by the Czech tax authority in which losses incurred by it in the Netherlands were not taken into account. The request for a preliminary ruling thus concerns the compatibility of the non-allowance of the tax loss with EU law. This is, in turn, against the background of the fact that, under Paragraph 34 of the Czech Law on income tax, losses incurred in the past tax period may be taken into account. However, according to the referring court, this does not apply to losses incurred abroad prior to the transfer of the place of management to the Czech Republic.

A. The first question

16. The referring court asks, first of all, whether a simple transfer of the place of a company’s management from one Member State to another Member State falls within the scope of freedom of establishment under Article 49 TFEU.

17. It must be observed that Article 49 TFEU, read in conjunction with Article 54 TFEU, extends the benefit of freedom of establishment to companies or firms formed in accordance with the legislation of a Member State and having their registered office, their central administration or principal place of business within the European Union. (5)

18. The Court has ruled that the freedom of establishment encompasses the right to transfer the principal place of business of the company to another Member State. (6) Furthermore, a company incorporated under the law of a Member State which transfers its place of effective management to another Member State, without that transfer affecting its status as a company of the former Member State, may rely on Article 49 TFEU for the purpose of challenging the lawfulness of a tax imposed on it by the former Member State in connection with such a transfer. (7)

19. Consequently, contrary to the view taken by Spain, a simple transfer of the place of management of a company, in this case Aures, falls within the scope of freedom of establishment under Article 49 TFEU read in conjunction with Article 54 TFEU.

B. The second question

20. The referring court also asks whether it is contrary to Article 49 and Article 54 TFEU for national law not to allow an entity from another Member State, when relocating its place of business or place of management to the Czech Republic, to claim a tax loss incurred in that other Member State.

21. First of all, it must be borne in mind that, according to settled case-law, although direct taxation falls within their competence, Member States must nonetheless exercise that competence consistently with EU law. (8)

22. In order for tax legislation of a Member State to infringe the freedom of establishment of companies, it must result in a difference in treatment to the detriment of the companies exercising that freedom; that difference in treatment must relate to objectively comparable situations and must not be justified by an overriding reason in the public interest or proportionate to that objective. (9)

1. Difference in treatment to the detriment of the company

23. It is possible under Czech law to deduct a...