Keywords
Summary

Keywords

1. Freedom of movement for persons – Freedom of establishment – Provisions of the Treaty – Scope

(Arts 43 EC and 56 EC)

2. Freedom of movement for persons – Freedom of establishment – Tax legislation – Corporation tax

(Art. 43 EC)

Summary

1. Legislation which concerns only relations within a group of companies primarily affects the freedom of establishment and must therefore be examined in the light of Article 43 EC. Should that legislation have restrictive effects on the free movement of capital, those effects would be the unavoidable consequence of such an obstacle to freedom of establishment as there might be, and do not therefore justify an independent examination of that legislation from the point of view of Article 56 EC.

(see paras 23-24)

2. Article 43 EC does not preclude a system instituted by legislation of a Member State whereby a subsidiary resident in that Member State may not deduct an intra-group financial transfer which it makes in favour of its parent company from its taxable income unless that parent company has its establishment in that same Member State.

It is true that the difference in treatment to which resident subsidiary companies are subjected according to the seat of their parent company constitutes an obstacle to the freedom of establishment if it makes it less attractive for companies established in other Member States to exercise that freedom and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the State which adopts that measure.

However, having regard to the need to safeguard the balanced allocation of the power to tax between the Member States and the need to prevent tax avoidance, taken together, such a system pursues legitimate objectives compatible with the Treaty and justified by overriding reasons in the public interest.

To accept that an intra-group cross-border transfer may be deducted from the taxable income of the transferor would result in allowing groups of companies to choose freely the Member State in which the profits of the subsidiary are to be taxed, by removing them from the basis of assessment of the latter and, where that transfer is regarded as taxable income in the Member State of the parent company transferee, incorporating them in the basis of assessment of the parent company. That would undermine the system of the allocation of the power to tax between Member States because, according to the choice made by the group of companies, the Member State of the subsidiary would be forced to renounce its right, in its capacity as the State of residence of that subsidiary, to tax the profits of that subsidiary in favour, possibly, of the Member State in which the parent company has its establishment.

Moreover, the possibility of transferring the taxable income of a subsidiary to a parent company with its establishment in another Member State carries the risk that, by means of purely artificial arrangements, income transfers may be organised within a group of companies towards companies established in Member States applying the lowest rates of taxation or in Member States in which such income is not taxed.

(see paras 39, 43, 56, 58, 60, 67, operative part)