Freedom of movement for persons – Freedom of establishment – Tax legislation
(EC Treaty, Arts 52 (now, after amendment, Art. 43 EC) and 58 (now Art. 48 EC))
Article 52 of the Treaty (now, after amendment, Article 43 EC) and Article 58 of the Treaty (now Article 48 EC) preclude legislation of a Member State which restricts the right of a parent company which is resident in that State to deduct for tax purposes losses incurred by that company in respect of write-downs to the book value of its shareholdings in subsidiaries established in other Member States, in which it holds shares which give it a definite influence over the decisions of those foreign subsidiaries and allow it to determine their activities, whereas such a restriction does not exist in relation to shareholdings in resident subsidiaries.
Such a difference in tax treatment between resident parent companies according to whether or not they have subsidiaries abroad cannot be justified merely by the fact that they have decided to carry on economic activities in another Member State, in which the State concerned cannot exercise its taxing powers. Accordingly, an argument based on the balanced allocation of the power to impose taxes between the Member States cannot in itself justify a Member State systematically refusing to grant a tax advantage to a resident parent company, on the ground that that company has developed a cross-border economic activity which does not have the immediate result of generating tax revenues for that State.
Moreover, where such a provision does not have the specific object of excluding from the benefit of a tax advantage purely artificial arrangements designed to circumvent national tax law, but is targeted, generally, at any situation in which subsidiaries are established, for any reason, in another Member State, it cannot, without going beyond what is necessary to attain the objective which it allegedly seeks to achieve, be regarded as justified by the danger of tax avoidance. The formation of a company outside that Member State does not, of itself, imply the existence of tax avoidance, since the company in question is, in any event, subject to the tax legislation of the State in which it is established.
(see paras 43, 52, 70, operative part)