Nordea Bank Danmark A/S v Skatteministeriet.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• ECLI: ECLI:EU:C:2014:153
• Date: 13 March 2014
• Docket Number: C-48/13
• Procedure Type: Reference for a preliminary ruling

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 13 March 2014 (1)

Case C‑48/13

Nordea Bank Danmark A/S

v

Skatteministeriet

(Request for a preliminary ruling from the Østre Landsret (Denmark))

(Tax legislation — Freedom of establishment — National tax on profits — Group taxation — Taxation of the activities of foreign permanent establishments of domestic companies — Avoidance of double taxation through tax credits (credit method) — Recapture of previous loss relief upon the sale of a permanent establishment within a group of companies that results in the loss of the right of taxation)

1. In this case, the Court must once again look at the cross-border taxation of a group of companies by a Member State and the compatibility of that taxation with freedom of establishment. And once again it will have to examine the ground of justification of ‘preservation of the allocation of the power to impose taxes between Member States’, which it expressly recognised for the first time in Marks & Spencer (2) and the scope of which still does not appear to have been sufficiently clarified.

2. The cases referred are also becoming more complex, however. The Danish request for a preliminary ruling at issue here concerns the taxation of a domestic company together with its permanent establishments situated in other Member States. Although the activities of those foreign permanent establishments were taxed in full by Denmark, the tax paid abroad was set off against the Danish tax, in accordance with the ‘credit method’. In the present case, however, the foreign permanent establishments had been entirely loss-making. In accordance with a special rule, the relief for those losses which was granted when taxing the domestic company must now be recaptured because the permanent establishments were sold within the group to companies in respect of which Denmark has no right of taxation.

3. That said, the special case with which these proceedings are concerned is not so unusual as to be of no general significance. Indeed, it gives the Court an opportunity to develop further its case-law on cross-border loss relief in general and the provision of such relief by way of the credit method in particular.

I – Legal context

4. In the Kingdom of Denmark, tax is charged on the profits of companies resident in national territory.

5. If such a company has a permanent establishment in another Nordic State (Sweden, Finland or Norway), the Kingdom of Denmark may, in accordance with Article 7 of the Nordic Double Taxation Convention, tax the company also on the share of profits attributable to that foreign permanent establishment. In this connection, however, Article 25 of the Convention provides that the foreign tax charged on the activities of the permanent establishment is to be set off against the Danish tax, but only up to the amount of the assessment to tax in the Kingdom of Denmark on the profits of the permanent establishment.

6. In accordance with the legislation applicable to the main proceedings, account had to be taken, for the purposes of Danish taxation, of the ongoing profits and losses of foreign permanent establishments of domestic companies.

7. In certain cases, however, the loss relief was required to be recaptured. Paragraph 33 D(5) of the ligningsloven (Law on tax assessment) provided:

‘If all or part of a permanent establishment situated in a foreign State … is sold to an affiliated company, … deducted losses which are not matched by profits in subsequent years shall be included in the calculation of taxable income, irrespective of which relief method is applied …’.

8. According to the information provided by the referring court, that rule applied only if the affiliated purchasing company was not taxed together with the selling company. According to the explanatory memorandum to the draft of that law, the rule was intended to ensure that Danish companies could not first gain relief for the losses of their foreign permanent establishments and then later, as soon as those permanent establishments were profit-making, sell them to an affiliated foreign company in order to avoid having to pay tax on those profits in Denmark.

II – Main proceedings

9. The applicant in the main proceedings is the company Nordea Bank Danmark A/S. It is the successor in law to a bank which, in 2000, formed the Nordea Group together with a Swedish bank, a Finnish bank and a Norwegian bank.

10. In the period from 1996, or as the case may be 1997, to 2000, the predecessor in law had permanent establishments in the form of bank branches in Sweden, Finland and Norway. Those branches made losses every year. As a result, a total of DKK 204 402 324 — corresponding, at the current exchange rate, to approximately EUR 27 million — was deducted from the basis of assessment to Danish tax.

11. Following the formation of the Nordea Group, those bank branches were closed. Approximately half of the employees were taken over by Swedish, Finnish or Norwegian companies forming part of the Nordea Group, as were some of the customers. The acquiring companies could no longer claim relief against their own taxation for the losses previously made by the permanent establishments.

12. The Danish tax authorities classified those transactions as a partial sale of permanent establishments to affiliated companies for the purposes of Paragraph 33 D(5) of the ligningsloven. They therefore increased the basis of assessment to tax for the year 2000 by the sum of the losses for which relief had been claimed in previous years. Nordea Bank Danmark takes the view, however, that that rule infringes both EU law and the EEA Agreement.

III – Procedure before the Court

13. The Østre Landsret (Eastern Regional Court), before which the dispute is now pending, has referred the following question to the Court for a preliminary ruling:

Are Article 49 TFEU, read together with Article 54 TFEU (formerly Article 43 EC, read together with Article 48 EC) and Article 31 of the EEA Agreement, read together with Article 34 thereof, to be interpreted as precluding a Member State, which allows a company situated in that State to deduct on an ongoing basis losses from a permanent establishment situated in another Member State, from making full recapture from the company in respect of the losses arising from the permanent establishment (in so far as they are not matched by profits in subsequent years) in the event of the permanent establishment closing down, in connection with which part of the establishment’s business is transferred to an affiliated company within the group which is resident in the same State as the permanent establishment, and where it must be assumed that the possibilities for applying the losses in question have been exhausted?

14. In the proceedings before the Court, written observations have been submitted by Nordea Bank Danmark, the Kingdom of Denmark, the Federal Republic of Germany, the Kingdom of the Netherlands, the Republic of Austria, the EFTA Surveillance Authority and the Commission.

IV – Legal assessment

15. This case calls for clarification of whether the aforementioned recapture in respect of the losses of a foreign permanent establishment under the Danish taxation of the profits of domestic companies is compatible with the freedom of establishment provided for in the EC Treaty, applicable to the main proceedings, and that provided for in the EEA Agreement.

16. In this connection, there is no need here to distinguish between the examination of an infringement of a company’s freedom of establishment in the Member States, which must be assessed in accordance with Article 43 EC in conjunction with Article 48 EC, and in the Kingdom of Norway, to which Article 31 of the EEA Agreement, in conjunction with Article 34 thereof, is applicable. This is because both sets of rules prohibit restrictions on freedom of establishment in an identical manner. (3)

17. Let me say first of all that I share the view of all the parties to the proceedings that a restriction on freedom of establishment must be found to exist in the present case.

18. Freedom of establishment confers on a company inter alia the right to pursue its activities in other Member States through a branch. (4) The Member State in which a company originates is also in principle prohibited from hindering its establishment in another Member State. (5) A company is so hindered where the treatment of an establishment in another Member State is disadvantageous and discriminatory by comparison with that of a purely domestic establishment. (6)

19. In the Kingdom of Denmark, companies with foreign branches and those with domestic branches were treated differently by the rule contained in Paragraph 33 D(5) of the ligningsloven. If a Danish company operated a domestic branch and sold that branch to an affiliated company not taxed in Denmark, previous relief on losses made by that domestic branch was not recaptured, in contrast to the case of a foreign branch. The operation of a branch in another Member State was therefore treated less favourably for tax purposes.

20. In accordance with case-law, however, such a disadvantageous difference in treatment is compatible with freedom of establishment where either it relates to situations which are not objectively comparable (see A below) or it is justified by an overriding reason in the public interest (see B below). (7)

A – The need for an examination of the objective comparability of the situations

21. Traditionally, it would therefore be necessary first of all to examine whether companies with a domestic branch and those with a branch in another Member State are in an objectively comparable situation, having regard to the aim pursued by the national provisions at issue. (8)

22. Although I have carried out such examinations myself in the past, (9) it seems to me that the time has come to dispense with them. (10) First, not only...