Case C-18/11

The Commissioners for Her Majesty’s Revenue & Customs

v

Philips Electronics UK Ltd

(Reference for a preliminary ruling from the Upper Tribunal (Tax and Chancery Chamber))

‛Freedom of establishment — Tax legislation — Corporation tax — Group relief — National legislation excluding the transfer of losses incurred in the national territory by a non-resident branch of a company established in another Member State to a company of the same group established in the national territory’

Summary of the Judgment

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

   (Arts 43 EC and 48 EC)

2. Freedom of movement for persons — Freedom of establishment — Tax legislation — Corporation tax — Deduction of losses — Group relief — National legislation excluding the transfer of losses incurred in the national territory by a non-resident branch of a company established in another Member State to a company of the same group established in the national territory — Not permissible — Justification — 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 — None

   (Art. 43 EC)

3. European Union law — Direct effect — Primacy — Conflict between European Union law and national legislation — Obligations and powers of a national court — Disapplication of national law

   (Arts 10 EC and 43 EC)

1.  See the text of the decision.

   (see paras 12-14)

2.  Article 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, such provisions constitute a restriction on the freedom of a non-resident company to establish itself in another Member State.

   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. Further, 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 concerning the transfer of losses, objectively comparable in so far as concerns the possibility of transferring by means of group relief losses sustained in that Member State to another company in that group.

   Such a restriction 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.

   In that regard, in relation to, first, the preservation of the allocation of the power to impose taxes between Member States, the power of the host Member State, on whose territory the economic activity giving rise to the losses of the permanent establishment is carried out, to impose taxes is not at all affected by the possibility of transferring, by group relief and to a resident company, the losses sustained by a permanent establishment situated in its territory, given that the power of that Member State to tax the profits (if any) arising from the activity, in its territory, of the permanent establishment is not affected.

   In relation to, secondly, the risk of the double use of losses, that has no effect on the power of the Member State where the permanent establishment is situated to impose taxes. The losses transferred by the permanent establishment of a non-resident company in that Member State to a resident company can be linked, in any event, to that State’s power of to impose taxes. That power to impose taxes is not at all impaired by the fact that the losses transferred might also, in appropriate circumstances, be used in another Member State.

   (see paras 16, 19, 20, 25, 26, 30, 31, 35, operative part 1, 2)

3.  A national court, hearing a case within its jurisdiction, has, as an organ of a Member State, the obligation, pursuant to the principle of cooperation set out in Article 10 EC, fully to apply the directly applicable European Union law and to protect the rights which the latter confers upon individuals, disapplying any provision of national law which may be contrary to a provision of European Union law.

   (see paras 38, 40, operative part 3)

Case C-18/11

The Commissioners for Her Majesty’s Revenue & Customs

v

Philips Electronics UK Ltd

(Reference for a preliminary ruling from the Upper Tribunal (Tax and Chancery Chamber))

‛Freedom of establishment — Tax legislation — Corporation tax — Group relief — National legislation excluding the transfer of losses incurred in the national territory by a non-resident branch of a company established in another Member State to a company of the same group established in the national territory’

Summary of the Judgment

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

   (Arts 43 EC and 48 EC)

2. Freedom of movement for persons — Freedom of establishment — Tax legislation — Corporation tax — Deduction of losses — Group relief — National legislation excluding the transfer of losses incurred in the national territory by a non-resident branch of a company established in another Member State to a company of the same group established in the national territory — Not permissible — Justification — 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 — None

   (Art. 43 EC)

3. European Union law — Direct effect — Primacy — Conflict between European Union law and national legislation — Obligations and powers of a national court — Disapplication of national law

   (Arts 10 EC and 43 EC)

1.  See the text of the decision.

   (see paras 12-14)

2.  Article 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, such provisions constitute a restriction on the freedom of a non-resident company to establish itself in another Member State.

   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. Further, 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 concerning the transfer of losses, objectively comparable in so far as concerns the possibility of transferring by means of group relief losses sustained in that Member State to another company in that group.

   Such a restriction 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.

   In that regard, in relation to, first, the preservation of the allocation of the power to impose taxes between Member States, the power of the host Member State, on whose territory the economic activity giving rise to the losses of the permanent establishment is carried out, to impose taxes is not at all affected by the possibility of transferring, by group relief and to a resident company, the losses sustained by a permanent establishment situated in its territory, given that the power of that Member State to tax the profits (if any) arising from the activity, in its territory, of the permanent establishment is not affected.

   In relation to, secondly, the risk of the double use of losses, that has no effect on the power of the Member State where the permanent establishment is situated to impose taxes. The losses transferred by the permanent establishment of a non-resident company in that Member State to a resident company can be linked, in any event, to that State’s power of to impose taxes. That power to impose taxes is not at all impaired by the fact that the losses transferred might also, in appropriate circumstances, be used in another Member State.

   (see paras 16, 19, 20, 25, 26, 30, 31, 35, operative part 1, 2)

3.  A national court, hearing a case within its jurisdiction, has, as an organ of a Member State, the obligation, pursuant to the principle of cooperation set out in Article 10 EC, fully to apply the directly applicable European Union law and to protect the rights which the latter confers upon individuals, disapplying any provision of national law which may be contrary to a provision of European Union law.

   (see paras 38, 40, operative part 3)