The proceedings before the Amsterdam Court of Appeals concerned an international group whose worldwide operations take place by way of a divisional structure.
The group also operates in the Netherlands, where it has set up operating, holding, and financing companies. The share capital of these companies is directly or indirectly held by the German resident parent company.
In 2007, the operating and holding companies suffered losses, while the financing companies held directly by the German parent generated a taxable profit.
To set off the losses suffered by one activity against the taxable profits generated by the other activity, a request to include the various sister companies in a fiscal unity (despite the fact that their parent company was resident elsewhere in the European Union) was filed for the year in question, and thus invoked the European principle of the freedom of establishment.
The Dutch tax authorities rejected this request, citing in part an alleged risk that losses could be deducted in both the Netherlands and Germany (i.e., an international double loss set-off).
However, the decision rendered by the CJEU in the UK Philips Electronic case shows that this argument is not regarded as an objective justification by the CJEU.
Request for preliminary ruling
The position of the Amsterdam Court of Appeals is that the conditions that a fiscal unity must satisfy under Dutch corporate income tax law may be contrary to European law, and thus, the court requested a preliminary ruling from the CJEU on four questions:
- Does the fact that the taxpayers are denied the right to apply the fiscal unity regime constitute a restriction of the freedom of establishment?
- If so, is it relevant whether the shares in the Dutch sister companies are held through intermediate holding companies resident in the EU?
- If the first question (above) is answered affirmatively, can the restriction be justified by overriding reasons of public interest—in particular to maintain the coherence of the tax system, which, in turn, requires the prevention of national and international double loss set-off?
- If so, can such a restriction be regarded as proportionate?
The Amsterdam Court of Appeals has stayed its proceedings in the case, pending the judgment of the CJEU.
Read a January 2013 report prepared by the KPMG member firm in the Netherlands: Amsterdam Court of Appeals requests preliminary ruling on Dutch refusal to allow a fiscal unity between sister companies of an EU parent