By Amita Chohan
Advocate-General Kokott’s opinion in Nordea Bank was delivered on 13 March 2014.
Danish rules provide that a company resident in Denmark can deduct the losses of branches permanently established in another member state and that the losses of a foreign branch can be recaptured in the event of a ‘partial’ or complete transfer of the activities of the foreign branches to an associated company, which is also established in the same member state as the permanent establishment.
Nordea Bank Danmark A/S (Danish company) is the legal successor to a Danish bank, which held permanently established bank ‘branches’ in Sweden, Finland and Norway. These branches made losses, which were set off against Danish profits. The branches were closed following the creation of Nordea Group. Around half of the employees of the closed branches were taken over by the Swedish, Finnish and Norweigan banks that took part in the merger that formed Nordea Group. The acquiring banks could not deduct the losses of the closed branches from their profits. The Danish tax authorities regarded this event as a ‘partial’ transfer and consequently sought to recapture the loss relief granted.
The A-G opined that the Danish rules in question were incompatible with EU law. Notably, she considered that the prevention of tax evasion could not justify the way in which the Danish rules restricted the freedom of establishment and that these rules were unnecessarily excessive. Key features of the A-G’s opinion included: (1) the observation that the Danish rules are disproportionate as they would also apply to cases where a foreign permanent establishment is in liquidation; and (2) the rules fail to acknowledge the possibility that companies may have reasonable commercial grounds for transferring activities.
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