“Such a difference in treatment makes it less attractive for companies having their seat in other Member States to exercise the right to freedom of establishment through a branch. It follows that national legislation such as that at issue in the main proceedings restricts the freedom to choose the appropriate legal form in which to pursue activities in another Member State.”
“The comparability of a Community situation with an internal situation must be examined having regard to the aim pursued by the national provisions at issue.”
“The situation of a non‑resident company with only a permanent establishment in the national territory and that of a resident company are, having regard to the objective of a tax regime such as that at issue in the main proceedings, objectively comparable in so far as concerns the possibility of transferring by means of group relief losses sustained in the United Kingdom to another company in that group.”
“28. As regards, secondly, the objective of preventing the double use of losses, it must be observed that even if such a ground, considered independently, could be relied on, it cannot in any event be relied on in circumstances such as those in the main proceedings to justify the national legislation of the host Member State. 29. The dispute in the main proceedings concerns the question whether the host Member State may impose certain conditions on the possibility of transferring, through group relief and to a resident company, losses sustained by the permanent establishment situated in that Member State of a non-resident company, while the transfer of losses sustained in that Member State by a resident company is not subject to any equivalent condition. 30. In such circumstances, the risk that those losses may be used both in the host Member State where the permanent establishment is situated and also in the Member State where the non-resident company has its seat has no effect on the power of the Member State where the permanent establishment is situated to impose taxes. 31. As observed by the A.G. in point AG49 et seq. of her Opinion, the losses transferred by the permanent establishment in the United Kingdom of LG.PD Netherlands to Philips Electronics UK, which is a resident company established in the United Kingdom, can be linked, in any event, to the United Kingdom’s power to impose taxes. That power is not at all impaired by the fact that the losses transferred might also, in appropriate circumstances, be used in the Netherlands. 32. Consequently, in circumstances such as those of the main proceedings, the objective of preventing the risk of double use of losses cannot, as such, allow the Member State in which the permanent establishment is situated to exclude the use of losses on the ground that those losses may also be used in the Member State in which the non-resident company has its seat. 33. The host Member State, in whose territory the permanent establishment is situated, therefore cannot, in order to justify its legislation in a situation such as that in the main proceedings and in any event, plead as an independent justification the risk of the double use of losses. 34. The same is true, for the grounds set out in [23]-[33] of this judgment, with regard to a combination of the objective of preserving a balanced allocation of the power to impose taxes between the Member States and that of preventing the double use of losses. 35. It follows from the foregoing that the answer to the second question is that a restriction on the freedom of a non-resident company to establish itself in another Member State, such as that at issue in the main proceedings, cannot be justified by overriding reasons in the public interest based on the objective of preventing the double use of losses or the objective of preserving a balanced allocation of the power to impose taxes between Member States or by a combination of those two grounds.”
“52. Furthermore, the prevention of the risk of the double use of losses, while not expressly relied on by the Danish government, is also capable of justifying a restriction of freedom of establishment such as that at issue in the present case (see, to that effect, judgment of3 February 2015 , European Commission v UK (Case C-172/13 ) EU:C:2015:50,[2015] STC 1055 ,[2015] Ch 394 , para 24). 53. The legislation at issue in the main proceedings can therefore be justified by overriding reasons in the public interest relating to the balanced allocation of powers of taxation between the member states, the coherence of the Danish tax system, and the need to prevent the risk of double deduction of losses.”
“16. By its questions, the referring court is asking, in essence, whether Article 49 TFEU must be interpreted as precluding national legislation concerning group taxation, pursuant to which resident companies in a group are permitted to deduct, from their overall profits, the losses of a resident permanent establishment of a non-resident subsidiary of the group only in the case where the rules applicable in the Member State in which the subsidiary has its registered office do not permit those losses to be deducted from the subsidiary’s taxable profits.”
“In that judgment, the Court ruled that such a condition was contrary to the freedom of establishment, since the transfer of losses sustained by a resident company to another resident company in the same group was not subject to any equivalent condition.”
“The tax treatment of a Danish group which owns a permanent establishment in Denmark through a non-resident subsidiary is, under Paragraph 31(2)(2) of the Law on corporation tax, less favourable than that of a group in which all of the companies have their registered offices in Denmark.”
“That difference in treatment is liable to render less attractive the exercise of freedom of establishment through the creation of subsidiaries in other Member States. It is, however, incompatible with the provisions of the Treaty only if it concerns situations which are objectively comparable.”
“32. In the present case, it is apparent both from the terms of Paragraph 31(2)(2) of the Law on corporation tax and from the explanations provided by the Danish Government relating to that provision that the objective of the provision is to prevent the double deduction of losses. 33. The Court has held that, with regard to measures laid down by a Member State in order to prevent or mitigate the double taxation of a resident company’s profits, companies which have a permanent establishment in another Member State are not, in principle, in a situation comparable to that of companies which have a resident permanent establishment (judgment of12 June 2018 , Bevola and Jens W. Trock, C‑650/16, EU:C:2018:424, paragraph 37). 34. By analogy, the view must therefore be taken, as regards the measures intended to prevent the double deduction of losses, that a group whose non-resident subsidiary has a resident establishment is also not in a situation comparable to that of a group whose subsidiary, and the latter’s permanent establishment, are also resident. 35. It is nevertheless important to make an exception for the situation in which there is no other possibility of deducting the losses of the non-resident subsidiary attributable to the permanent establishment which is resident in the Member State in which the subsidiary is established. In that situation, the group whose subsidiary is situated in another Member State is not in a different situation to that of the purely national group, in the light of the objective of preventing the double deduction of its losses. The tax-paying capacity of the two groups is then affected in the same way by the losses of their resident permanent establishment (see, to that effect, judgment of12 June 2018 , Bevola and Jens W. Trock, C‑650/16, EU:C:2018:424, paragraph 38). 36. Admittedly, Paragraph 31(2)(2) of the Law on corporation tax removes the difference in treatment ‘if the rules in the foreign State … in which the company is resident provide that a loss cannot be set off’, by accepting, in that case, that the losses of the resident permanent establishment of the non-resident subsidiary may be set off against the group’s income. 37. However, it cannot be excluded that such a deduction, even when permitted by the legislation of the foreign State, may not be possible in practice, particularly in the case where the non-resident subsidiary has definitively ceased all activity. 38. Thus the difference in treatment mentioned in paragraph 29 of the present judgment may, at least in that case, concern objectively comparable situations.”
“42. In that respect, the Court has already ruled that Member States must be able to prevent the risk of losses being taken into account twice (judgments of13 December 2005 , Marks & Spencer, C‑446/03, EU:C:2005:763, paragraph 47, and of15 May 2008 , Lidl Belgium, C‑414/06, EU:C:2008:278, paragraph 35). 43. It is true that, in a situation in which a permanent establishment’s income is taxed by two Member States, it appears justified that the charges borne by that establishment should be capable of being deducted from that income in one and the other tax systems, in accordance with national rules. 44. However, the existence of such a situation cannot simply be inferred from the fact that two Member States concurrently exercise their power of taxation over the profits of the same permanent establishment, as is the case, in the dispute in the main proceedings, with regard to the Kingdom of Denmark and the Kingdom of Sweden. 45. The tax agreements between Member States specifically designed to prevent double taxation cannot be disregarded. In that regard, as is apparent from the European Commission’s written observations and the answers given by NN’s representative during the hearing, relations between the Kingdom of Denmark and the Kingdom of Sweden are regulated by the Nordic Convention. 46. Under Article 25 of that convention, if a person residing in Sweden receives income that is taxable in another contracting State, the Kingdom of Sweden allows the deduction from income tax of a sum corresponding to the income tax paid in the other State. 47. In the light of that mechanism, the parallel exercise of the powers of taxation of the Kingdom of Denmark and the Kingdom of Sweden does not entail an obligation for the Swedish company which has a permanent establishment in Denmark to pay income tax twice. In those circumstances, the ability, claimed by the Danish group to which the Swedish company belongs, to deduct the losses of such an establishment twice, that is to say, in one and the other national tax systems, does not appear to be justified. 48. Paragraph 31(2)(2) of the Law on corporation tax is specifically intended to prevent the group concerned from exploiting the same loss twice. In the absence of such a provision, as noted by the Advocate General in point 75 of his Opinion, cross-border situations would confer an unjustified advantage over comparable national situations, in which a double deduction is not possible. The difference in treatment established by national legislation thus appears to be justified.”
“55. That principle would, by contrast, be respected if the setting off, against the Danish group’s profits, of the loss sustained by the resident permanent establishment of its non-resident subsidiary were accepted, by derogation from the rule laid down in Paragraph 31(2)(2) of the Law on corporation tax, [provided that] the group would have demonstrated that the setting off of the abovementioned losses against the subsidiary’s profits is actually impossible in the other Member State. 56. It is for the referring court to determine whether that is the case in the dispute in the main proceedings, with regard to the Danish branch of NN’s Swedish subsidiary.”
“Article 49 TFEU must be interpreted as not precluding, in principle, national legislation, such as that at issue in the main proceedings, pursuant to which the resident companies in a group are permitted to deduct, from their group profits, the losses sustained by a resident permanent establishment of a non-resident subsidiary of that group only in the case where the rules applicable in the Member State in which that subsidiary has its registered office do not permit those losses to be deducted from the latter’s profits, when the application of that legislation is combined with that of a convention preventing double taxation allowing, in the latter Member State, the deduction from the income tax payable by the subsidiary of a sum corresponding to the income tax paid, in the Member State on the territory of which that permanent establishment is situated, in respect of the latter’s activity. However, Article 49 TFEU must be interpreted as precluding such legislation in the case where the effect of its application is to deprive that group of any effective possibility of deducting those losses from the group’s overall profits, where it is not possible to set off those losses against that subsidiary’s profits in the Member State on the territory of which that subsidiary is established, these being matters for the referring court to verify.”
“As regards the second justification, relating to the danger that losses would be used twice, it must be accepted that member states must be able to prevent that from occurring.”
“35. As regards the second justification put forward in the observations submitted to the Court, which is based on the danger that losses might be taken into account twice, the Court has accepted that the Member States must be able to prevent such a danger (see Marks & Spencer at [47]; and Rewe Zentralfinanz eG v Finanzamt Koln-Mitte (C-347/04) [2007] 2 C.M.L.R. 42 at [47]). 36. In this connection, it must be pointed out that, in circumstances such as those which underlie the main proceedings, there is clearly a danger that the same losses will be used twice (see Marks & Spencer at [48]). It is possible that a company might deduct, in the Member State in which its seat is situated, losses incurred by a permanent establishment belonging to it and situated in another Member State and that, despite such offsetting, the same losses might be taken into account subsequently in the Member State in which the permanent establishment is situated, when that establishment generates profits, thereby preventing the Member State in which the principal company has its seat from taxing that profit. 37. Consequently, the two justifications put forward must each be considered as being capable of justifying a restriction on the freedom of establishment arising from the tax treatment by the Member State in which the seat of a company is located of losses incurred by a permanent establishment belonging to that company and situated in another Member State.”
“… bearing in mind the wide variety of situations in which a Member State may put forward such reasons, it cannot be necessary for all the justifications referred to at [51] of the Marks & Spencer judgment to be present in order for national tax rules which restrict the freedom of establishment laid down in Art.43 EC to be capable, in principle, of being justified.”
“56. As regards, in the second place, the justification relating to the need to prevent losses being taken into account twice, which is put forward by the German and Swedish Governments, the Court has accepted that the Member States must be able to prevent that danger (see Marks & Spencer, paragraph 47; Rewe Zentralfinanz, paragraph 47; and Lidl Belgium, paragraph 35). 57. However, in circumstances such as those underlying the dispute in the main proceedings, there appears to be no danger of a taxpayer deducting the same loss twice. 58. As the Advocate General has noted in point 32 of his Opinion, losses incurred in France on an immovable property situated there cannot be deducted either from overall income or from a gain realised on the sale of another asset.”
“… the crucial factor for the justification is that the national legislation pursues the objective of preserving the allocation of the power to tax. The objective of preventing the double use of losses is not an autonomous justification.”
“The name Marks & Spencer is actually that of a chain of department stores. In the Court’s case law on tax law, however, it stands for an express recognition that the allocation of taxation powers among the Member States may justify restrictions of the freedom of establishment. In the Member States’ case law and in the works of commentators, on the other hand, the name Marks & Spencer appears also to be synonymous with chaos and despair.”
“… perhaps the time has arrived to moderate those assertions made in the judgment in Philips Electronics, in view of the fact that the EU legislature has paid special attention to the fight against double deduction since that judgment was delivered.”
“… Directive 2016/1164 reflects a widespread concern, the strength of which was probably not evident – and, of course, was not expressly reflected in legislation – when the judgment in Philips Electronics was given.”
“… [using losses twice] remains conduct which, in line with the school of thought favoured by the OECD, must also be rejected under EU law. That is why, as I pointed out above, the aim of preventing such conduct may perhaps be categorised as an (independent) overriding reason in the public interest, without necessarily having to be linked to the fight against tax evasion.”
“… where a Member State acts in a field where it has a wide discretion, comparable to that of the Community institutions in implementing Community policies, the conditions under which it may incur liability must, in principle, be the same as those under which the Community institutions incur liability in a comparable situation.”