The Court of Justice of the European Union (CJEU) issued a judgment holding that the freedom of establishment does not preclude an EU Member State from restricting the use of tax losses in its jurisdiction when those losses were incurred in another EU Member State before the transfer of the taxpayer company’s place of effective management.
The case is: AURES Holdings a.s. v Odvolací finanční ředitelství (C-405/18 (27 February 2020))
The taxpayer (actually, a successor to a company) had its place of effective management in the Netherlands. The taxpayer incurred losses in the Netherlands in the 2007 tax year.
In 2009, the taxpayer transferred its place of effective management from the Netherlands to the Czech Republic. However, the taxpayer retained its registered seat and entry in the commercial register in the Netherlands.
The taxpayer sought to deduct losses generated in 2007 in the Netherlands against its Czech taxable profits for the 2012 tax period. Under Czech tax law, tax losses are available to be carried forward and offset against future profits in the five accounting periods immediately following the period in which the loss arose, and only with regard to losses incurred in the Czech Republic. The Czech tax authorities thus rejected the deduction and made a tax assessment. Eventually, the issue ended up before the Supreme Administrative Court in the Czech Republic, which referred the matter to the CJEU with a request whether the freedom of establishment covers a simple transfer of the place of a company’s effective management from one EU Member State to another Member State and whether it precludes the domestic law from disallowing the use of a tax loss incurred in another EU Member State prior to the relocation of its place of business or place of management.
The CJEU concluded that the freedom of establishment under the EU Treaty does not preclude the domestic law of an EU Member State from excluding the possibility for a company that transferred its place of effective management and, as a result, its tax residency to that EU Member State, from claiming a tax loss incurred before the transfer in another EU Member State where the taxpayer has retained its registered seat.
Read a March 2020 report prepared by KPMG’s EU Tax Centre
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.