“We [ie the United Kingdom] tax a UK branch in exactly the same way as a UK subsidiary (or a separate UK company) so far as the branch profits or losses made in the UK are concerned, except in relation to group relief under s 403D(1)(c). Because we treat them in the same way generally the correct comparison is between the UK branch and a UK company. On this basis, the limitation on group relief is something that affects non-resident companies only and is therefore a restriction.”
“From a review of the ECJ cases, we conclude that, according to the present jurisprudence, a member state cannot rely solely on the prevention of the use of losses twice to justify a restriction, even one that is targeted at such double use.”
“Section 403D contains a restriction that cannot be justified and so does not apply to prevent consortium relief from being available in these circumstances. If we are wrong about justification there is a more proportional method of restricting the double use of losses in the form of the no-possibilities test adopted in Marks & Spencer and s 403D should be interpreted so as to be in conformity with that test.”
“(1) Where a member state (such as the UK) includes in its tax base the profits and losses of a company incorporated and tax resident in another member state (such as the Netherlands) to the extent that the profits are attributable to a business carried on by the Netherlands company in the UK through a permanent establishment situated in the UK, is it a restriction on the freedom of a national of a member state to establish in the UK under art 49 TFEU ([formerly] art 43 EC) for the UK to prevent the surrender of the UK losses of a permanent establishment situated in the UK of a non-UK resident company to a UK company by way of group relief where any part of those losses or any amount brought into account in computing them “corresponds to, or is represented in, any amount which, for the purposes of any foreign tax is (in any period) deductible from or otherwise allowable against non-UK profits of the company or any person” ie to permit the surrender of UK losses in the case of a permanent establishment situated in the UK only where it is clear that at the time of the claim there can never be any deduction or allowance in any state outside the UK (including another member state (such as the Netherlands)), and it being insufficient that relief available overseas has not in fact been claimed, and in circumstances where there is no equivalent condition applicable to the surrender of UK losses of a UK resident company? (2) If so, is that restriction capable of being justified: (a) solely on the basis of the need to prevent the double use of losses, or (b) solely on the basis of the need to preserve the balanced allocation of taxing powers between member states, or (c) on the basis of the need to preserve the balanced allocation of taxing powers between member states in conjunction with the need to prevent the double use of losses? (3) If so, is the restriction proportionate to such justification or justifications? (4) If any restriction on the rights of the Netherlands company is not justified or to the extent that it is not proportionate to any justification, does EU Law require the UK to provide the UK company with a remedy such as the right to claim group relief against its profits?”
“In Saint Gobain ZN the court also recognised a comparable situation of resident and non-resident companies primarily because the difference in treatment applied only as regards the grant of the tax concessions in question. In the present case, the lower court in the main proceedings found in this regard that domestic companies and UK-resident permanent establishments of foreign companies are treated in exactly the same way, for the purposes of corporation tax, with regard to profits and losses made in the United Kingdom, with the exception of the group relief which is at issue here”
“The answer to the first question must therefore be that the special conditions laid down by s 403D(1)(c) of the ICTA for group relief in relation to companies established in a member state other than the United Kingdom constitute a restriction of the freedom of establishment.”
“… clear that the crucial factor for the justification is ultimately that national legislation pursues the objective of preserving the allocation of the power to tax. Against this background, the objectives of preventing the double use of losses and tax avoidance do not constitute an end in themselves, but are relevant only in so far as they serve to preserve the allocation of the power to tax between the member states.”
“Against this background, it is irrelevant that the taxpayer in the main proceedings does not exercise its right of establishment itself.
“The freedom to choose the appropriate legal form in which to pursue activities in another member state serves, inter alia, to allow companies having their seat in a member state to open a branch in another member state in order to pursue their activities under the same conditions as those which apply to subsidiaries (CLT-UFA SA v Finanzamt Köln-West (Case C-253/03 )[2007] STC 1303 ,[2006] ECR I-1831 , para 15).”
“ … that art 43 EC must be interpreted as meaning that where, under the national legislation of a member state, the possibility of transferring, by means of group relief and to a resident company, losses sustained by the permanent establishment in that member state of a non-resident company is subject to a condition that those losses cannot be used for the purposes of foreign taxation, and where the transfer of losses sustained in that member state by a resident company is not subject to any equivalent condition, those provisions constitute a restriction on the freedom of a non-resident company to establish itself in another member state.”
“… 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.”
“(1) What factors are to be taken into account in assessing whether resident companies in a situation such as the present one are subject to an “equivalent condition” within the meaning of paragraph 20 of the judgment of6 September 2012 , Philips Electronics UK, C-18/11, EU:C:2012:532, with respect to the setting off of losses, to that applicable to branches of non-resident companies? (2) If it is presumed that the Danish tax rules do not contain a difference of treatment as dealt with in the judgment of6 September 2012 , Philips Electronics UK, C-18/11, EU:C:2012:532, does a prohibition of setting off similar to that described — in a case in which the loss in the non-resident company’s permanent establishment is also subject to the host country’s power of taxation — in itself constitute a restriction of the right of freedom of establishment under Article 49 TFEU, which has to be justified by reference to overriding reasons of the public interest? (3) If so, can such a restriction then be justified by the interest in preventing the double use of losses, the objective of ensuring a balanced distribution of powers of taxation between the Member States, or a combination of both? (4) If so, is such a restriction proportionate?”
‘Hybrid permanent establishment mismatches occur where differences between the rules in the jurisdictions of permanent establishment and of residence for allocating income and expenditure between different parts of the same entity give rise to a mismatch in tax outcomes and include those cases where a mismatch outcome arises due to the fact that a permanent establishment is disregarded under the laws of the branch jurisdiction. Those mismatch outcomes may lead to a double deduction or a deduction without inclusion, and should therefore be eliminated.’
‘A loss in a permanent establishment may be set off against the income of other companies only if the rules in the foreign State … in which the company is resident provide that a loss cannot be set off in the calculation of the company’s income in the foreign State … or if group taxation has been chosen pursuant to Paragraph 31 A ...’
“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.”
“It is true that the Court held in paragraphs 50 and 51 of [its earlier decision in] Akrich that, in order to benefit from the rights provided for in Article 10 of Regulation No 1612/68, the national of a non-member country who is the spouse of a Union citizen must be lawfully resident in a Member State when he moves to another Member State to which the citizen of the Union is migrating or has migrated. However, that conclusion must be reconsidered. The benefit of such rights cannot depend on the prior lawful residence of such a spouse in another Member State (see, to that effect, MRAX, paragraph 59, and Case C‑157/03 Commission v Spain, paragraph 28).”
“20. It follows from the foregoing that the existence of those various legal remedies is not sufficient to guarantee, with certainty and in all circumstances, that a measure adopted by the Council or the Commission in disregard of the Parliament's prerogatives will be reviewed.”
“As is evident from the judgment in Case 302/87, cited above, the Parliament does not have the right to bring an action for annulment under Article 173 of the EEC Treaty or under Article 146 of the Euratom Treaty, which are identical in content.”
“Normally when construing domestic legislation, the English courts must find the meaning of the words which Parliament has used. In the context, however, of legislation which requires to be construed in a way which is compatible with European Union law or with the rights conferred by the European Convention on Human Rights, the English courts can adopt a construction which is not the natural one. The process, however, remains one of interpretation: the obligation imposed by the Court of Justice is only to interpret national law in conformity with a directive "so far as possible". That raises the question when a process ceases to be that of legitimate interpretation and trespasses into the field of lawmaking that is the task of Parliament and not the courts.”
“… The jurisdiction of the ECJ to give preliminary rulings relates to the interpretation of the EC Treaty and the other matters referred to in art 234 EC. They do not include the interpretation of the legislation of a member state, see Pfeiffer v Deutsches Rotes Kreuz, Kreisverband Waldshut eV (Joined cases C-397/01 to C-403/01)[2004] ECR I-8835 ,[2005] ICR 1307 , para 115 of the judgment and Criminal Proceedings against Pupino (Case C-105/03 )[2006] QB 83 ,[2005] ECR I-5285 , para 47 of the judgment. Further, as those citations show, the obligation of the national court is to examine the whole of the national law to consider how far it may be applied so as to conform to enforceable Community rights.”
“The principles which those cases established or illustrated were helpfully summarised by counsel for HMRC in terms from which counsel for V2 did not dissent. Such principles are that: ‘In summary, the obligation on the English courts to construe domestic legislation consistently with Community law obligations is both broad and far-reaching. In particular: (a) It is not constrained by conventional rules of construction (see Pickstone[1988] 2 All ER 803 at 817,[1989] AC 66 at 126 per Lord Oliver); (b) It does not require ambiguity in the legislative language (Pickstone[1988] 2 All ER 803 at 817,[1989] AC 66 at 126 per Lord Oliver; Ghaidan[2004] 3 All ER 411 at [32],[2004] 2 AC 557 at [32] per Lord Nicholls); (c) It is not an exercise in semantics or linguistics (see Ghaidan[2004] 3 All ER 411 at [31] and [35],[2004] 2 AC 557 at [31] and [35] per Lord Nicholls; per Lord Steyn at [48]–[49]; and Lord Rodger at [110]–[115]); (d) It permits departure from the strict and literal application of the words which the legislature has elected to use (Litster[1989] 1 All ER 1134 at 1138,[1990] 1 AC 546 at 577 per Lord Oliver; Ghaidan[2004] 3 All ER 411 at [31],[2004] 2 AC 557 at [31] per Lord Nicholls); (e) It permits the implication of words necessary to comply with Community law obligations (see Pickstone[1988] 2 All ER 803 at 814–815,[1989] AC 66 at 120–121 per Lord Templeman; Litster[1990] 1 AC 546 at 577,[1989] 1 All ER 1134 at 1138 per Lord Oliver); and (f) The precise form of the words to be implied does not matter (Pickstone[1988] 2 All ER 803 at 807,[1989] AC 66 at 112 per Lord Keith; Ghaidan[2004] 3 All ER 411 at [122],[2004] 2 AC 557 at [122] per Lord Rodger; and IDT Card Services Ireland Ltd[2006] STC 1252 at [114] per Arden LJ).’”
“Counsel for HMRC went on to point out, again without dissent from counsel for V2, that: ‘The only constraints on the broad and far-reaching nature of the interpretative obligation are that: (a) The meaning should “go with the grain of the legislation” and be “compatible with the underlying thrust of the legislation being construed.” (Ghaidan[2004] 3 All ER 411 at [33],[2004] 2 AC 557 at [33] per Lord Nicholls; Dyson LJ in EB Central Services[2006] STC 1252 at [114]). An interpretation should not be adopted which is inconsistent with a fundamental or cardinal feature of the legislation since this would cross the boundary between interpretation and amendment; (See Ghaidan at [33] and [110]–[113] per Lord Nicholls and Lord Rodger respectively; Arden LJ in IDT Card Services at [82] and [113]) and (b) The exercise of the interpretative obligation cannot require the courts to make decisions for which they are not equipped or give rise to important practical repercussions which the court is not equipped to evaluate. (See Ghaidan per Lord Nicholls at [33]; Lord Rodger at [115]; Arden LJ in IDT Card Services at [113].)’”