Markus Hämäläinen, Tatu Manninen & Veli-Jussi Vuorinen Case: Denkavit BV Markus Hämäläinen, Tatu Manninen & Veli-Jussi Vuorinen

Facts Denkavit Internationaal BV, Netherlands (Parent company) Denkavit France SARL (+Agro Finance SARL) (Subsidiaries) France, the Netherlands, EU-Comission, EFTA The French subsidiaries paid dividends (14,5M French francs) to Denkavit in 1987– 1989. Tax officers of France taxed these dividends, based on tax treaty between France (FR) and the Netherlands (NL) with amount of 5% (725t French francs)

Facts Denkavit Internationaal BV & France filed a lawsuit against the government of France The national law of France (CGI) stands; a parent company who is resident in France and gains dividends from its French subsidiary -> The dividends are tax exempt Denkavit protested: The national tax law of France is in conflict with the freedom of establishment because a parent company which is resident in another member state – is tax liable of subsiadary’s dividends Whereas the French parent company is not The tax treaty between FR & the NL admits; a host state of subsidiary can tax these dividends by 5% But the resident state of the parent company – must deduct these paid taxes in parent company’s final taxes

Facts The government of France claims: CGI is not against the freedom of establishment because a foreign parent company can attain the very same tax benefits - it only needs to have a PE in France And if there is no PE in France and France don’t have a justification to tax these dividends -> There may be situations where it is possible that these dividends are entirely tax exempt Additionally, the tax treaty between France and the Netherlands allows the taxation If the taxation is denied by CJEU, the EU intervenes the right of France and the Netherlands to determine their own tax laws

Source: Tomi Viitala / Aalto

Issues to CJEU stated by Conseil d´État (1/2) 1) Is the tax system of France against the freedom of establishment? In case where a parent company is a resident in another member state and based on the CGI – the parent company is tax liable of obtained dividends from its subsidiaries – whereas a parent company which is resident in France is exempt of these taxes 2) Is the described tax system against the Freedom of Establishment (Article 43 EC) Or does the tax treaty between France & the Netherlands, which allows French tax authorities to tax these dividends and in the same time the very same tax treaty; determines these parent companies to deduct these paid taxes in their resident state

Issues to CJEU stated by Conseil d´Ètat (2/2) 3) If the second question is accepted; Is the fact that the tax treaty is valid; enough to justify the taxation? Is it just a way to distribute the taxable incomes between France and the Netherlands or should that fact be taken in to account that in some cases the parent company which is taxed in France, cannot deduct the paid taxes in its resident state The case can be realised in situations, where the resident state have a legislation, which gives the tax exemption to obtained dividends which the parent company receives from abroad

The judgement of CJEU / Question 1 The national legislation is incompatible with the Articles 43 and 48 EC. The national legislation discriminates the freedom of establishment For example if the parent company has residence abroad (in this case in the Netherlands) it would be responsible of the taxation of dividends even though the French parent companies are exempted

The judgement of CJEU / Question 2 The national legislation is incompatible with the Articles 43 and 48 EC Only parent companies residenced abroad are tax liable of subsidiaries’ dividends - whereas parent companies which have a PE are not The tax treaty between the two member states (France and the Netherlands) says that there is a possibility to deduct taxes paid in another member state Overall, in this case because of the national legislation the parent company in another member state is incapable to do this, because these (dividends obtained from foreign subsidiaries) incomes are tax exempted already in the Netherlands.