Marks & Spencer applied to cross border definitive losses

31 January 2018
Author: JHA

AG Opinion in Bevola case C-650/16

Twelve years after the judgment in Marks & Spencer, the CJEU is once more called upon to give a decision on a dispute which has arisen in relation to company taxation. In this case, the national court asked the CJEU whether, in conditions equivalent to those in Marks & Spencer, the freedom of establishment precludes a national provision pursuant to which a Danish company may not deduct the losses of a PE situated in another Member State, unless it opts into the ‘international joint taxation’ scheme.

The case involves Bevola, a company registered in Denmark and is a subsidiary and sub-subsidiary of other Danish companies and which held subsidiaries and PEs in a number of Member States, such as Finland. The Finish PE ceased trading and relief could not be claimed in Finland for its losses and Bevola applied to deduct those losses from its taxable income for the purposes of Danish corporation tax. The Danish tax authorities refused on the ground that revenue or expenditure attributable to a PE situated in a foreign country cannot be included in the tax base, unless the company had opted for the international joint taxation scheme. Bevola appealed.

The AG left it to the national courts to assess whether the Finish losses in this case were definitive and concentrated on two other aspects of the case that were not analysed in the judgment in Marks & Spencer. First, the losses which Bevola sought to deduct in Denmark did not come from a subsidiary but from a non-resident PE in Denmark. Second, the Danish tax system did not absolutely preclude the deduction of those losses, and allowed it if a resident company opts for the international joint taxation scheme.

The AG concluded that that legislation was not compatible with the freedom of establishment. The fact that the parent company may opt into an ‘international joint taxation scheme’, which requires it to group together, for the purposes of the same tax, all its subsidiaries and all its PEs situated outside Denmark for a period of 10 years, is not proportionate and is incompatible with EU law.


This article appears in the JHA January 2018 Tax Newsletter, which also features:

  1. Brexit Negotiation Directives on the EU-UK Transition Period
  2. C-504/16 and C-613/16 Deister Holding and Juhler Holding – Anti-Treaty Shopping rules breach EU law
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