On 10 June 2016 the ECJ gave judgment in the case of X AB v Skatterverket and held that Swedish tax legislation, which provided that neither capital gains nor capital losses on the transfer of “holdings for business purposes” were to be taken into account for corporation tax purposes, was compatible with freedom of establishment. The Court noted that the legislation did not treat investments made in another Member State less favourably, because capital gains and capital losses, including currency losses, were in principle always disregarded, regardless of where the companies were established. However, according to the Court, even assuming that the non-deductibility of capital losses might be likely to disadvantage a company which has invested in foreign shares because of the exposure to currency losses, it follows from the Member States’ competence in tax matters that the provisions on freedom of establishment cannot be interpreted as requiring Member States to adapt their own tax systems in order to ensure that companies are taxed at the same level wherever they have chosen to establish, in order to take account of possible exchange risks.
In reaching this conclusion the Court distinguished this case from Deutsche Shell on the basis of the different legal context: unlike this case, the national legislation at issue in Deutsche Shell provided that, as a general rule, currency gains were taxed and currency losses were deductible.
This article appears in the JHA June 2015 Tax Newsletter, which also features:
