C-141/99

AMID

OPINION OF ADVOCATE GENERAL ALBER delivered on 8 June 2000 *

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OPINION OF MR ALBER — CASE C-141/99

its 1981 Belgian losses from its 1982 the EC Treaty. It has therefore referred the taxable income, which would have reduced following question to the Court of Justice its tax burden. Nor could the 1981 losses for a preliminary ruling: incurred in Belgium be deducted, for the purposes of assessing the amount of cor- poration tax due in Luxembourg, from the profits made in Luxembourg. It was thus that the plaintiff's profits made in Belgium, as well as those made by the establishment 'Does Article 52 of the Treaty of 25 March in Luxembourg, were subject to corpora- 1957 establishing the European Commu- tion tax, without the plaintiff being given nity preclude the application of national the chance to deduct its Belgian losses from legislation of a Member State under which, its taxable profits. for the purposes of assessment to corpora- tion tax, a business loss incurred in that Member State during an earlier taxable period by a company established in that State can be offset against the profits made by that company during a later taxable period only to the extent to which that loss 5. Had the plaintiff opened an establish- cannot be attributed to the profit made by a ment not in Luxembourg but in Belgium, it permanent establishment of that company would have been perfectly able, according in another Member State during that earlier to the information provided by the refer- taxable period, with the result that the loss ring court, to deduct these losses from its thus attributed cannot be offset, in either of taxable income when assessing the corpora- the Member States concerned, against the tion tax due. Thus, by having a permanent taxable income of that company for the establishment in Luxembourg, the plaintiff purposes of assessment to corporation tax, has suffered tax disadvantages which it whereas if the permanent establishment would not have suffered if that permanent were located in the same Member State as establishment had been located in Belgium. the company, the business losses in ques- tion could certainly be set off against the taxable income of that company?'

8. Article 66(2)(c) of the Royal Decree sets out the order in which losses are to be offset. Firstly losses incurred in Belgium are 11. The plaintiff contends that such dis- to be offset against Belgian profits, then, if advantages are present in the matter at those profits are insufficient, against profits issue here. The plaintiff demonstrates, with taxable at a lower rate, and finally against numerous examples, how a company with profits exempted by treaty. an establishment in another Member State could be required, on the basis of the rules contested here, to pay more in taxes than it had even earned during the period con- cerned. According to the table submitted by 9. Pursuant to Article 69 of the Royal the plaintiff, that results from the fact that, Decree, the previous losses referred to in in the present case, the losses incurred in Article 114 of the Income Tax Code are Belgium can only be offset against the only to be offset in so far as those losses Luxembourg profits exempt from tax, and were not hitherto capable of being offset, not against the profits made and subject to or were not previously covered by profits tax in Belgium. That meant in practice that exempted by treaty. losses could not be offset against taxable income, which thus became higher than the company's actual earnings. The plaintiff maintains that this situation would be different if it had an establishment in Belgium. It thus feels it has suffered a disadvantage or penalty for having a per- III — Pleadings of the parties manent establishment in another Member State. Even where such discrimination is minimal, it still infringes the freedom of establishment. 10. The plaintiff contends that, although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence consis- tently with Community law. The plaintiff maintains that Belgium has failed to do so in the present case, because the disputed 12. Since Belgium has not suggested any rule violates Article 52 of the EC Treaty. It grounds in justification, the plaintiff argues holds that Article 52 of the EC Treaty that no examination need take place as to precludes discrimination on the ground of whether any such grounds exist. In any nationality in the area of freedom of event, the plaintiff argues that such grounds establishment, as well as laying down must fail because the contested rule is obligations not just for the host Member disproportionate.

13. The Belgian Government does not see overt or covert discrimination by reason of any restriction of the freedom of establish- nationality. The Belgian Government ment in the present case. It maintains that denies the existence of any such discrimi- the tax rule in question must be considered nation in this case, referring to the judg- in an overall context, in which Belgian ment in Schumacker, 4on the ground that a companies are taxed according to their Belgian company with operations abroad world-wide income, i.e. the totality of cannot be said to be in the same situation as profits and losses of all their operations an undertaking operating solely in Belgium. (both at home and abroad), pursuant to In the latter case, profits and losses from all Article 66 of the Royal Decree. The appli- operations would be grouped together on cation of this Article, in conjunction with one balance sheet, so that the problem of the double taxation treaties which Belgium offsetting the losses of one of the operations has entered into with all Member States, against the company would not arise. An leads, in most cases, to an advantageous establishment operating abroad on the outcome for companies, because losses other hand is treated, from the point of incurred abroad can be offset against view of taxation law, as a unit which is to profits made in Belgium. be taxed in accordance with the law of the host State or, where applicable, the relevant double taxation treaty. An objectively comparable situation between both com- 14. The Belgian Government maintains panies cannot — by definition — exist, that within the calculations necessary to because the permanent establishment sys- asses the amount of tax due, very complex tem does not exist in Belgium. questions arise, and thus it is unavoidable that, in certain rare cases, an undertaking may suffer disadvantages. Nevertheless the Belgian Government holds the view that Article 66 of the Royal Decree has no influence on the decision of an undertaking as to whether or not to open an establish- ment abroad. It holds that when a company decides to open an establishment in another Member State it is not capable of knowing 16. The Belgian Government further points in advance whether it will make losses and, out that there is no discrimination between if so, where. The difficulties experienced in Belgian and foreign companies and that all the present case may be attributed, in the Belgian companies with operations abroad opinion of the Belgian Government, to are subject to the same treatment. The differences between national taxation sys- Belgian Government contends that, should tems. it be necessary to amend the provisions in dispute here, the entire system of Belgian company taxation would have to be over- hauled. In such an eventuality, there could 15. It is settled case-law 3 that such be no certainty that the treatment accorded the offsetting of losses would remain as national taxation systems must avoid any favourable as is the case at present.

17. Finally the Belgian Government reiter- viewed less from the angle of non-deduct- ates its view that the present case does not ibility of losses than from that of inequality involve a restriction of the freedom of of treatment of Belgian companies wishing establishment and asks why, if the Com- to carry on business in another Member mission considers that there has been a State by opening an establishment there. clear infringement of Article 52 of the EC The Commission maintains that, pursuant Treaty, it has not previously brought an to Articles 66 and 69 of the Royal Decree, action against Belgium, for failure to fulfil companies with their tax domicile in its obligations. Belgium and which operate establishments in another Member State are no longer able to deduct, or at any rate fully to deduct, losses incurred in Belgium from profits made in Belgium. That is not the case for Belgian companies which do business only 18. The Commission considers that in this in Belgium, or which do business abroad case there is an obstacle to establishment in but not through a permanent establish- another Member State. The obstacle con- ment. Belgian companies with an establish- sists in the fact that a Belgian company ment in another Member State are thereby wishing to open an establishment must first disadvantaged. consider whether to do so in another Member State or in Belgium, because, in the event of it opening an establishment abroad and incurring losses in Belgium, it may in certain circumstances not be able to offset such losses. That would be so if its operations in the other Member State were to make profits, which, the Commission argues, is the purpose of opening an establishment. 20. With the help of a worked example, the Commission also comes to the conclusion that these companies are overtaxed and could thereby be dissuaded from opening an establishment in another Member State. In its view, that represents a restriction on 19. On the question of carrying forward the freedom of establishment. Such unequal losses itself, the Commission argues that, treatment results not from the double although Community law in its present taxation treaty but from the Belgian sys- state does not require that such an oppor- tem. The Commission disputes the Belgian tunity be given, where a Member State has Government's assertion that this is an provided in its tax system for the deduction isolated case. At issue here is the system, of losses, this must be permitted without which applies to all Belgian undertakings in discrimination and in accordance with the the same situation. Referring to the judgment in Daily Mail. 5The Commission Dassonville 6 case-law, the Commission considers that the reference should be argues that it is immaterial whether the restriction in question is potential or actual.

21. The Commission considers that this is 24. The Belgian Government — according not a problem of disparity between to the Commission — has argued that it national systems, because only Belgian was by means of the provisions at issue that taxpayers are concerned. As for the Belgian it wished to preclude the double offsetting Government's claim that the position of a of losses. However, whilst making this Belgian establishment is not comparable point, the Belgian Government has based with that of a foreign branch, the Commis- its argument upon precisely the opposite set sion argues that the present case does not of circumstances, namely that losses were concern the taxation of the profits of the incurred in Luxembourg but profits made foreign establishment. That is a matter for in Belgium. The Commission maintains the double taxation treaty. At issue here is that in the present case the double off- the question why it was not possible to setting of losses is completely out of the offset losses. The reason given here is the question, because Luxembourg, in applic- fact the profits were made in a branch in ation of the principle of territoriality, does another Member State. In the Commis- not permit the deduction of losses incurred sion's opinion that represents discrimina- in Belgium. The present case, therefore, tion. does not concern excluding double offset- ting of losses, but rather the double exclus- ion of the offsetting of losses. The Com- mission argues that, in addition to the measures taken, other means are available for excluding double offsetting. In this context the Commission refers to Art- 22. The Commission finally considers the icle 23(1)(5) of the double taxation treaty question of justification, but points out that which applies to the opposite case scenario the Belgian Government has itself failed to and demonstrates that the possibility of make any pleadings in that regard. In offsetting losses may be provided without particular, the Commission rejects any undermining the taxation system. justification on the basis of fighting tax evasion or tax fraud. The pursuit of an activity in another Member State by means IV — Legal analysis of a permanent establishment there cannot in itself be regarded as an indication of 25. Belgium is correct in pointing out that evasion or fraud. Moreover, the offsetting direct taxes fall under the competence of of losses, limited in time, only takes place Member States. That competence must, under Belgian sovereignty and can there- however, in accordance with the estab- fore easily be checked. lished case-law,7 be exercised consistently with Community law, in this case the freedom of establishment.

29. In this context, it is immaterial that the 'As far as the provisions concerning free- company — as has been argued by the dom of establishment are concerned, it Belgian Government — is not capable of must be pointed out that, even though, knowing in advance whether, and if so according to their wording, those provi- where, it will incur losses. When contem- sions are mainly aimed at ensuring that plating opening an establishment in foreign nationals and companies are treated another Member State the company must in the host Member State in the same way consider and weigh up all possible contin- as nationals of that State, they also prohibit gencies. In doing so it is certainly plausible the Member State of origin from hindering that the possibility of not being able to the establishment in another Member State offset losses, which would not apply to an of one of its nationals or of a company establishment in Belgium, would cause the incorporated under its legislation which company to distance itself from the idea of comes within the definition contained in opening an establishment in another Mem- Article 58 of the Treaty'. 8 ber State. Even if Belgium argues that the circumstances at the heart of the present dispute arise only very rarely, because establishments located abroad often, unlike 28. That is the case here. At issue is the present case, incur losses, that is also whether Belgium is hindering the establish- immaterial here. First it must be assumed— ment of a Belgian company in another as the Commission has pointed out — that Member State by refusing it the possibility, a company opens an establishment in under certain circumstances, of offsetting another Member State in order to make a its losses. A Belgian company that is profit. Thus, when planning on doing so, it contemplating opening a permanent estab- will invariably envisage this eventuality as lishment in another Member State must possible or desirable. Moreover, the extent take into account the fact that under to which the freedom of establishment has certain circumstances — e.g. profits in been infringed is of no consequence. As the Luxembourg, losses in Belgium — it may Court has stated, 'Article 52 prohibits all not be able to offset its losses. It would not discrimination, even if only of a limited nature'. 9 Even if this case did concern a special and very rare set of circumstances, 8 — Judgment of 18 November 1999 in Case C-200/98 X AD. Y AB v Riksskattcivrket [1999] ECR I-8261. paragraph 26, with further reference to the judgmcnt in Case 81/87 Daily Mail tind General Trust, cited in footnote 5, and to the judgment in C-264/96 ICI, cited in footnote 7, para- 9 — Judgment of 28 January 1986 in Case 27G7S3 Commission graph 2 1 . v Fumee [1986] ECR 273, paragraph 2 1 .

that would not alter the fact that an present case, Belgium offsets the losses with infringement of the freedom of establish- the tax-exempted profits made by the ment is at issue. Luxembourg establishment instead of deducting them from profits made in Belgium. Even the provisions of the double taxation treaty are of no relevance in this 30. In any event, the case is not purely context. hypothetical, because the plaintiff actually finds itself in this — albeit very particu- lar — situation. Any analysis must be 32. Basing its reasoning upon the Court's made on the basis of the concrete circum- judgment in Schumacker, 12 the Belgian stances of any given situation, even if these Government additionally contends that do not correspond to the 'regular case Belgian companies operating exclusively scenario'. It is sufficient that any national in Belgium and those operating an estab- measure may potentially result in funda- lishment in another Member State do not mental freedoms being restricted. As the find themselves in a similar situation. Even Court of Justice has stated: 10 'Article 52 if, under Belgian tax law, business opera- preclude(s) any national measure, tions in Belgium are taxed as a whole in (which)... even though it is applicable Belgium, and it is thereby impossible, by without discrimination on grounds of definition, for a Belgian company to have nationality, is liable to hamper or to render an establishment within the meaning of a less attractive the exercise, by Community foreign establishment, that does not change nationals... of fundamental freedoms guar- the fact that a Belgian company, with anteed by the Treaty'. business operations at various places within Belgium, may make unlimited use of the possibility of offsetting losses. If the Belgian Government now maintains that individual 31. In the Belgian Government's view, the establishments, although they are not con- disadvantage of the tax provisions at issue sidered as such in Belgium, are subject to a is a result of the differences between the common assessment and no distinction is individual national taxation systems which made between them, that nevertheless are still in existence at the current, still means that losses incurred by the individual uncompleted, state of harmonisation. Belgian 'establishments' are taken into However, the causes of the disadvantage account when taxing the company as a experienced here are not differing rates of whole. Belgian companies which operate at taxation in the individual Member States, least one establishment in another Member or diverging assessments of the personal State are not able fully to offset any losses situation of the party required to pay tax, they incur. To conclude therefrom that the such as was the case in Gilly. 11 The plaintiff is in an objectively different situa- disadvantage experienced by the plaintiff tion from other Belgian companies is incor- is due much more to the fact that, in the rect.

a Member State. In the Gschwind 13 case, The fact that one company may not do so, which concerned the taxation of non- because it has an establishment in residents, the Court concluded that 'the Luxembourg which, during the period of situations of residents and of non-residents time in question, made a profit, represents in a given State are not generally compar- an obstacle to the freedom of establish- able, since income received in the territory ment. of a State by a non-resident is in most cases only a part of his total income, which is concentrated at his place of residence, and a non-resident's personal ability to pay tax, determined by reference to his aggregate income and his personal and family cir- cumstances, is easier to assess at the place where his personal and financial interests are centred, which in general is the place 35. In this context the fact that in Belgium where he has his usual abode...'. Belgian and foreign companies are treated equally — as the Belgium Government contends — is irrelevant. The present case does not concern discrimination against a foreign company, but rather the hindrance of a Belgian company, which has an establishment in another Member State. Of equally little importance is the fact that 34. The present case, however, concerns all Belgian companies with a foreign estab- residents who are taxed at their 'place of lishment are treated equally, so long as all residence', whereby the taxation differs such Belgian companies are treated differ- according to the seat of the individual ently from Belgian undertakings which do branches. Beyond that, no objective differ- business only in Belgium. ence is evident between those companies exclusively active in Belgium and those operating an establishment in another Member State. Nor is such a difference grounded in the fact that part of the revenues of a Belgian undertaking operat- ing an establishment abroad are taxed abroad and the losses incurred there may sometimes also be offset there. Precisely 36. In its judgment in Gebhard, the Court because, in the present case, the losses of Justice stated that, in order to be incurred in Belgium may not be offset justified, restrictive national measures against the profits made in Luxembourg, likely to transfer the exercise of funda- the situation of both companies is compar- mental freedoms guaranteed by the Treaty able. Both wish to offset the losses incurred or make such exercise less attractive had to in Belgium against the profits made there. fulfil four conditions: 'They must be applied in a non-discriminatory manner; they must be justified by imperative 13 —Judgment of 14 September 1999 in Case C-391/97 Frans Gschwind v Finanzamt Aachen-Außenstaat [1999] requirements in the general interest; they HCR I-5451, paragraph 22 with further reference to the must be suitable for securing the attainment judgment in Schumacker, cited in footnote 4, para- graph 31 et seq. of the objective which they pursue; and

39. The Belgian Government has not expli- citly mentioned the coherence of the Bel- gian tax system as grounds for justification 41. The costs incurred by the Commission, which has submitted observations to the 14 — Judgment in Case C-55/94 Gebhard, cited in footnote 10, Court, are not recoverable. Since these patagtaph 37. proceedings are, for the parties to the main 15—Judgment in Case C-264/96 ICI, cited in footnote 7, paragtaph 29, with further reference to the judgment of proceedings, a step in the proceedings 28 January 1992 in Case C-204/90 Bachmann v Belgian State [1992] ECR I-249, and to the judgment in Case pending before the national court, the C-300/90 Commission v Belgium [1992] ECR I-305. decision on costs is a matter for that court.

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AMID

VI — Conclusion

42. In light of the foregoing considerations, I recommend that the Court answer the question referred to it in the following terms: