Case C‑388/14

Timac Agro Deutschland GmbH

v

Finanzamt Sankt Augustin

(Request for a preliminary ruling
from the Finanzgericht Köln)

(Reference for a preliminary ruling — Tax legislation — Corporation tax — Freedom of establishment — Non-resident permanent establishment — Avoidance of double taxation by exemption of the income of the non-resident permanent establishment — Taking account of losses incurred by that permanent establishment — Reincorporation of the losses deducted previously in the event that the non-resident establishment is transferred — Definitive losses)

Summary — Judgment of the Court (Third Chamber), 17 December 2015

1.        Freedom of establishment — Tax legislation — Corporation tax — Double taxation convention exempting the income of a permanent establishment situated in a Member State other than the Member State of residence of the company having that permanent establishment — National legislation enabling that resident company to take into account the losses incurred by the permanent establishment — Reincorporation of losses deducted previously in the event that the permanent establishment is transferred to a non-resident company of the same group — Lawfulness — Limits — Deduction of definitive losses

(Art. 49 TFEU)

2.        Freedom of establishment — Tax legislation — Corporation tax — Taking into account by a resident company of the losses incurred by a permanent establishment situated in a Member State other than that of the company — Double taxation convention conferring exclusive power to tax the permanent establishment’s profits on that other Member State — National legislation precluding such account from being taken in the event that that establishment is transferred in the State which has exclusive power of taxation — Situation not comparable to that of a permanent establishment situated in the Member State of residence of the resident company

(Art. 49 TFEU)

1.        Article 49 TFEU must be interpreted as not precluding a Member State’s tax regime under which, in the event of transfer by a resident company to a non-resident company within the same group of a permanent establishment situated in another Member State, the losses previously deducted in respect of the establishment transferred are reincorporated into the taxable profit of the transferring company where, under a double taxation convention, the income of such a permanent establishment is exempt from tax in the Member State in which the company to which that establishment belonged has its seat.

However, where the transferring resident company demonstrates that the reincorporated losses are definitive losses for the purposes of the judgment in Marks & Spencer, C‑446/03, it is contrary to Article 49 TFEU to preclude the possibility for that company of deducting from its taxable profits in the Member State of its residence the losses incurred by a non-resident establishment.

(see paras 53, 58, operative part 1)

2.        Article 49 TFEU must be interpreted as not precluding a Member State’s tax regime which, in the event of transfer by a resident company to a non-resident company within the same group of a permanent establishment situated in another Member State, excludes the possibility, for the resident company, of taking into account in its tax base the losses of the establishment transferred where, under a double taxation convention, the exclusive power to tax the profits of that establishment lies with the Member State in which the establishment is situated.

Since that company’s Member State of residence does not exercise any tax powers over the profits of such a permanent establishment, the situation of a permanent establishment situated in another Member State is not comparable to that of a permanent establishment situated in the first Member State in relation to measures laid down by that State in order to prevent or mitigate the double taxation of a resident company’s profits.

(see paras 65, 66, operative part 2)