The Court finds that a provision of national law not allowing companies whose seat is located in Member States other than the State of taxation to claim possible tax allowances is discriminatory and contrary to the principle of freedom of establishment
Société Baxter, B. Braun Médical SA, Société Fresenius France and Laboratoires Bristol-Myers-Squibb SA are undertakings whose business is exploiting proprietary medicinal products. They are all subsidiaries of companies whose seat is located in Member States other than France.
On 24 January 1996, an Order of the French Government introduced "urgent measures for restoring financial stability in the social security system".
That Order provides, in particular, that pharmaceutical laboratories must pay a special levy based on the pre-tax turnover achieved in France between 1 January 1995 and 31 December 1995 in reimbursable proprietary medicinal products and medicinal products approved for use by public authorities.
Article 12 of that Order allows the undertakings concerned to deduct from the amount of that levy the costs corresponding for the same period to expenditure on scientific and technical research carried out in France.
Baxter and other undertakings challenged that provision before the Conseil d'Etat. The national court referred a question to the Court of Justice on the compatibility of such a provision with Community law.
The Court observes first of all that the principle of freedom of establishment enables business to be carried on through branches, agencies or subsidiaries whose seats are situated in other Member States. It refers also to its case-law which prohibits, in the name of equality of treatment, all forms of discrimination by reason of nationality or, in the case of a company, its seat.
The allowance in question takes account only of expenditure on research carried out in the Member State of taxation. The French authorities justify that rule by the need to enable the tax authorities to ascertain the nature and genuineness of the research expenditure alleged. The Court does not accept the argument of the French Government: effectiveness of fiscal supervision capable of justifying a restriction on the exercise of fundamental freedoms, as the Court has already held, cannot be relied on in this case. National legislation which absolutely prevents the subsidiaries concerned from submitting evidence that their research carried out in other Member States was actually undertaken, when relevant documentary evidence could be produced, cannot be justified in the name of effectiveness of fiscal supervision.
The Court thus holds that a tax provision granting to undertakings an allowance which takes account only of research expenditure incurred in the Member State of taxation is not in accordance with Community law.
Unofficial document for media use, which is not binding on the Court of Justice. Languages available: French and English.
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