JUDGMENT OF THE COURT (Fourth Chamber)
REQUEST for a preliminary ruling under Article 267 TFEU
AURES Holdings a.s.
Odvolací finanční ředitelství
1. This request for a preliminary ruling concerns the interpretation of Articles 49, 52 and 54 TFEU.
2. The request has been made in proceedings between AURES Holdings a.s. and the Odvolací finanční ředitelství (Appellate Tax Directorate, Czech Republic) concerning the latter’s refusal to allow that company to deduct a tax loss which it incurred in a Member State other than the Czech Republic.
The case in the main proceedings and the questions referred for a preliminary ruling
3. AURES Holdings, ), a company incorporated under Netherlands law whose registered seat and place of effective management were in the Netherlands, by virtue of which it was a tax resident of the Netherlands.
4. In the 2007 tax year, Aures incurred a loss of EUR 2 792 187 in the Netherlands, which was determined by the Netherlands tax authorities in accordance with the tax legislation of that Member State.
5. On 1 January 2008, Aures set up a branch in the Czech Republic which, under Czech law, constitutes a permanent establishment of that company without legal personality and whose activity is taxable in that Member State.
6. On 1 January 2009, Aures transferred its place of effective management from the Netherlands to the Czech Republic and, more specifically, that branch’s address. Following that transfer, Aures also transferred its tax residence from the Netherlands to the Czech Republic with effect from the same date. It now carries on all its activities through that branch.
7. However, Aures retained its registered seat and its entry in the commercial register in Amsterdam (Netherlands). Thus, it continues to be governed, as regards its internal relations, by Netherlands law.
8. In the light of that transfer of place of effective management and, consequently, of its tax residency, Aures applied to the Czech tax authorities for deduction of the loss which it had incurred in the Netherlands on the basis of the 2007 tax year from the corporation tax base for which it was liable on the basis of the 2012 tax year.
9. Following an investigatory review procedure, initiated on 19 March 2014, the Czech tax authorities considered that that loss could not be invoked as a deductible element of the tax base on the basis of Paragraph 38n of the Law on income tax. According to those authorities, Aures is, as a Czech tax resident, taxable on its worldwide income under Czech tax law. However, it can deduct from the tax base only a loss arising from an economic activity in the Czech Republic determined in accordance with the Law on income tax, since that law does not govern the deduction of a tax loss in the event of a change in tax residency and does not provide for the transfer of such a loss from any Member State other than the Czech Republic.
10. Accordingly, in a tax notice of 11 September 2014, the Czech tax authorities assessed the corporation tax payable by Aures for the 2012 tax year without deducting from that corporation tax base the loss incurred in the 2007 tax year.
11. Aures lodged an objection against that tax notice, which was rejected by the Appellate Tax Directorate, and then brought an action before the Městský soud v Praze (City Court, Prague, Czech Republic), which was dismissed.
12. The Czech tax authorities, considered, first, that neither the Law on income tax nor the Convention concluded on 22 November 1974 between the Czechoslovak Socialist Republic and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of tax evasion with respect to taxes on income and capital, in the version in force on 31 May 2013, provided for the cross-border transfer of a tax loss upon the transfer of a company’s place of effective management, save in specific circumstances which are not relevant in the present case. The general rules in Paragraphs 34 and 38n of that law do not allow for the deduction of a loss that has not been determined in accordance with Czech law.
13. Second, those authorities and that court took the view that, contrary to the arguments put forward by Aures, the impossibility of deducting the loss in question was not contrary to freedom of establishment.
14. Aures brought an appeal that by the cross-border transfer of its place of effective management it exercised the freedom of establishment and that the impossibility for it to deduct the 2007 tax loss in the Czech Republic, which it can no longer claim in the Netherlands, amounts to an unjustified restriction on that freedom.
15. The referring court notes that the Law on income tax does not allow a company which, like Aures, has transferred its place of effective management to the Czech Republic from another Member State to claim a tax loss suffered in that Member State. The transfer of a tax loss is possible only in the context of cross-border transactions specifically covered by that law, which are not relevant to the case in the main proceedings.
16. The Supreme Administrative Court therefore decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
17. (1) Can the concept of freedom of establishment within the meaning of Article 49 [TFEU] be held [prima facie] to cover a simple transfer of the place of a company’s management from one Member State to another Member State?
18. (2) If so, is it contrary to Articles 49, 52 and 54 [TFEU] for national law not to allow an entity from another Member State, when relocating its place of business or place of management to the Czech Republic, to claim a tax loss incurred in that other Member State?
On those grounds, the Court (Fourth Chamber) hereby rules:
1. Article 49 TFEU must be interpreted as meaning that a company incorporated under the law of a Member State, which transfers its place of effective management to another Member State without that transfer affecting its status as a company incorporated under the law of the first Member State, may rely on that article for the purposes of contesting a refusal in the second Member State to defer losses prior to that transfer.
2. Article 49 TFEU must be interpreted as not precluding legislation of a Member State which excludes the possibility for a company, which has transferred its place of effective management and, as a result, its tax residency to that Member State, from claiming a tax loss incurred, prior to that transfer, in another Member State, in which it has retained its registered seat.
If you want to work with professionals who provide exceptional quality standards of services in Cyprus, the simplest way is to fill in this contact form.
We will analyze your case and advice you on:
- What company structure suits you best,
- What is the best Tax solution(s) for your business,
- What Banking and cash flows arrangements available.
We will take you through a step by step process from A to Z in creating the perfect business in Cyprus.
Can’t wait any longer? Fill in the form and submit your inquiries make your first step and we will deal with the rest.
Become even more successful by working with accountants you can count on and be among the thousands that already did.
If you want to work with professionals who provide exceptional quality standards of services in Cyprus, the simplest way is to fill in the contact form below.
We will take you through a step by step process from A to Z in creating the perfect business structure in Cyprus.
Can’t wait any longer? Become even more successful by working with accountants you can count on and be among the thousands business that already did.