The case is: A Oy C-123/11 (19 July 2012)
A Finnish company owned 100% of a Swedish company that had incurred losses over a six-year period.
The Finnish parent company merged with its Swedish subsidiary. The tax law in Finland does not allow for a deduction of losses of a merged company having a registered office in another country, whereas if the losses were from a Finnish resident company, they would be deductible.
The Finnish company asserted that this provision was not compatible with the freedom of establishment. The matter was referred to the CJEU from the Korkein hallinto-oikeus (Finland).
Advocate General’s opinion
Previous CJEU case law (Marks & Spencer, C-466/03) allows for use of cross-border losses in situations when the non- resident subsidiary has exhausted all possibilities within its Member State to use the accumulated losses (referred to as the “Marks & Spencer exception”). This case law was re- examined in the pending case, in light of the fact that the Swedish subsidiary ceased to exist as a result of the merger.
The Advocate General found that while the Finnish law constituted a restriction on the freedom of establishment, it was justified because it was necessary to preserve the allocation of taxing rights.
The Advocate General’s opinion also provides that either the Marks & Spencer exception no longer applies, or if it does, that it ought to be applied restrictively—which would effectively reverse the Marks & Spencer judgment.
The Advocate General’s opinion is not binding on the CJEU; rather, the role of the Advocates General is to propose to the court, in complete independence, a legal solution to the cases for which they are responsible. With this opinion, the judges can begin their deliberations in this case, with judgment to be given at a later date.
Read a July 2012 report [PDF 53 KB] prepared by KPMG’s EU Tax Centre: AG Opinion in A Oy case—deductibility of cross-border losses