Keywords
Summary

Keywords

1. Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435

(Council Directive 90/435, Article 4(1), first indent)

2. Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435

(Council Directive 90/435, Article 4(1), first indent)

Summary

1. The first indent of Article 4(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States is to be interpreted as precluding legislation of a Member State which provides that the dividends received by a parent company are to be included in the latter’s basis of assessment, to be subsequently deducted in the amount of 95%, to the extent to which the parent company has, for the tax period in question, a positive profit balance after other exempted profits have been deducted.

The obligation on a Member State which has chosen the system set out in the first indent of Article 4(1) of Directive 90/435 to refrain from taxing the profits of the parent company which it receives by virtue of its association with its subsidiary is not subordinated to any condition and is expressly subject only to Articles 4(2) and (3) and 1(2) of that directive. The first indent of Article 4(1) of the directive does not lay down, in particular, any condition that there must be other taxable profits in order for the dividends received by the parent company not to be subject to taxation. Accordingly, Member States cannot unilaterally introduce restrictive measures such as a requirement that the parent company have taxable profits and thus impose conditions on the possibility of benefiting from the advantages provided for in Directive 90/435.

Furthermore, when the parent company does not make other taxable profits in the tax period concerned, such legislation has the effect of reducing the losses of the parent company in the amount of the dividends received. Since, in principle, that tax legislation allows losses to be carried forward to subsequent tax years, the reduction of losses to the parent company which could benefit from being thus carried forward up to the amount of the dividends received, has an effect on the basis of assessment of that company during the tax year which follows that in which those dividends were received in so far as its profits exceed the losses which can be carried forward. It follows that, even if the dividends received by the parent company are not subject to corporation tax for the tax year in the course of which those dividends were distributed, that reduction of losses of the parent company may have the effect that the parent company is subject indirectly to taxation on those dividends in subsequent tax years when its results are positive. Such a restriction on the reduction of dividends received is not compatible with Directive 90/435.

Even where, in applying that system to the dividends distributed by both resident subsidiaries and those established in other Member States, a Member State seeks to eliminate all penalisation of cooperation between companies of different Member States as compared with cooperation between companies of the same Member State, that does not justify the application of a system which is not compatible with the system for preventing economic double taxation set out in the first indent of Article 4(1) of Directive 90/435.

(see paras 33-34, 36-37, 39-41, 46, operative part)

2. The first indent of Article 4(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States is unconditional and sufficiently precise to be capable of being relied on before national courts. The obligation to refrain from taxing profits which a subsidiary distributes to its parent company, set out in the first indent of Article 4(1) of Directive 90/435, is worded in unequivocal terms and is not subject to any condition. Likewise, its implementation or effects are not subject to the intervention of any other act on the part of the Community institutions or the Member States.

(see paras 64-65, operative part)