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Europe: Freedom of establishment

On 27 February 2014, the Advocate General (AG) of the European Court of Justice (ECJ) issued her opinion on the cases C-39/13, C-40/13 and C-41/13. These three cases were directed to the ECJ by the Dutch court in the light of prejudicial questions. 

The issue at hand in these three cases is the potential restriction of the freedom of establishment in relation to the Dutch fiscal unity regime. In order to be able to establish a fiscal unity with a subsidiary, the parent company should be a Dutch resident entity (or a Dutch permanent establishment of a foreign entity) which holds at least 95% of the shares in a subsidiary.

In the first case, a German parent company holds two Dutch subsidiaries. Since the Dutch entities are sister companies, the Dutch tax authorities declined the request for the establishment of a fiscal unity.

The second and third cases are identical: a Dutch parent company indirectly holds the shares in a Dutch subsidiary through a German holding company. In these cases, a request to establish a fiscal unity consisting of the Dutch parent company and the Dutch subsidiary was denied by the Dutch tax authorities. Dutch tax law not only requires the ownership of at least 95% of the shares, the subsidiaries must in principle also be located in the Netherlands. Since the intermediate holding company was located in Germany, the Dutch tax authorities could not allow the establishment of a fiscal unity consisting of the Dutch parent company and the Dutch subsidiary.

The AG with the ECJ concludes that declining the application for a fiscal unity constitutes a restriction of the freedom of establishment in all three cases. According to the AG, this refusal puts the concerned parties in a disadvantageous situation compared to the companies that are situated in the Netherlands. The AG found that this adverse treatment cannot be justified by reasons of public interest.

This opinion precedes the verdict of the ECJ which is in no way bound by this opinion. This means the eventual verdict of the ECJ and therefore the verdict by the Dutch court may differ from the AG’s opinion.

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