1. JUDGMENT OF THE COURT (Fourth Chamber)
6 October 2015
Case C-66/14
Lorenzo De Gasperis Sotirios Papasotiriou

2. Who Finanzamt Linz («Tax Office») v
Bundesfinanzgericht, Außenstelle Linz (Federal Finance court)
parties concerned:
IFN-Holding AG
IFN Beteiligungs GmbH

3. Austrian law on corporation tax:
PARAGRAPH 9
In a group of companies with unlimited tax liability the group member with the direct holding of a group can depreciate the goodwill: maximum of 50% of the acquisition costs allocated over 15 years.- If goodwill is negative, it must be recognized in the profit and loss account. - The fifteenth parts allowable for tax purposes shall reduce or increase the book value for tax purposes
PARAGRAPH 10
Profit shares of any kind from international inter-company holdings shall be exempt from corporation tax. An international inter-company holding exists where it is established that taxable entities or other foreign corporations with unlimited tax liability comparable to a domestic taxable entity have held a stake of at least 10%, in the form of holdings, for a continuous period of at least one year

4. Aids granted to Member States
Request for a preliminary ruling concerning the interpretation of:
Artt (3)
TFEU
Aids granted to Member States
Artt
Freedom of establishment and equal treatment in the European Community

5. Description of the relevant articles:
Art. 107 TFEU
It constitutes of three paragraphs:
- 1st lays down the definition of "incompatible" State Aid;
- 2nd provides for cases of “de iure” derogations to the incompatibility;
- 3rd provides for cases of discretionary derogation to the incompatibility.
Art 108 TFEU
The Commission shall be informed, in sufficient advance, of any plans to grant or alter aid. If plans are not compatible with Article 107, the Commission shall, without delay, decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.
The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.

6. Description of the relevant articles:
Art 49 TFEU
Freedom of establishment of nationals of a Member State in the territory of another Member State cannot be hindered (also applicable to restrictions on the setting-up of agencies in the territory of another Member State).
Art 54 TFEU
Companies or firms having their registered office within the Union shall be treated in the same way as natural persons who are nationals of Member States.
"Companies or firms" means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making.

7. The initial condition :
In 2005 CEE Holding GmbH (“CEE”) acquired 100% of the shares of HSF s.r.o. Slowakei (“HSF”), a company established in Slovakia. In so doing they became members of a group of companies within the meaning of Paragraph 9 of the Law on Corporation Tax of WHICH SAYS THAT… In 2006 and 2007 IFN-Holdings AG (“IFN”) held 100% of the shares of CEE Holding GmbH which also included CEE’s rights and obligations in law, including the holding in HSF.
The initial condition :
IFN Beteiligungs Gmbh (IFN)
Holds 99,71% of ...
IFN-Holdings AG (“IFN Holding”)
Merged in 2006
CEE Holding GmbH (“CEE”)
Bought 100% of the shares in 2005
HSF s.r.o. Slowakei (“HSF”)

8. The facts IFN-Holdings' request to Tax Office Tax office’s answer
Following Austrian law on corporation tax IFN asks the Finanzamt Linz (“Tax Office”) to allow the depreciation of the goodwill of HSF (the Slovakian company) following art. 9(7) of the Austrian Law on Corporation Tax. Tax Office refused to allow the depreciation of goodwill on the grounds that, under Paragraph 9(7) of the Law of Corporation Tax 1988, only holding companies with unlimited tax liability were entitled to depreciation of that kind. On first judgment the holding company appealed to the Bundesfinanzgericht, Außenstelle Linz (“The Court”) which annulled the decision of the Tax Office asserting that it was at variance with the freedom of establishment and not in conformity with EU Law.
The facts
IFN-Holdings' request to Tax Office
IFN-Holdings and CEE claimed depreciation of
1/15 of 50% of the acquisition cost as stated in Par 9
Tax office’s answer
Such depreciation is allowed only in companies with unlimited tax liability
IFN-Holdings' appealed before the Bundesfinanzgericht, Außenstelle (Austrian court)
Hence Tax Office appealed that decision before the referring court (Administrative Court) who questions whether the depreciation of goodwill under Paragraph 9(7) was compatible with certain articles of the TFEU:
Artt. 107 in conjunction with 108(3) regarding AIDS GRANTED BY STATES
Artt. 49 in conjunction with 54 regarding the FREEDOM OF ESTABLISHMENT and equal treatment between companies in EU community.
Annulled the decision of Tax Office
Tax Office remits the case to the Administrative Court for preliminary ruling with regard to:
Artt. 107 and 108(3) TFEU
Artt. 49 and 54 TFEU

9. Admin. Court questions if…
(profits and losses) is attributed in full to the ultimate holding company, whereas, for non-resident companies, only losses are attributed and, moreover, only in proportion to the size of the holding,
In the context of a group of companies, goodwill can be depreciated in respect of holdings regardless of whether the subsidiary makes a profit or incurs a loss and also regardless of whether or not the value of the holding has changed.
Admin. Court questions if…
Profits and losses attributed to the “parent”
RESIDENT COMPANIES
PARENT COMPANY
Only losses are attibuted to the “parent”
NON RESIDENT COMPANIES
… the refusal based on that difference.

10. Observations: Depreciation Cash flow advantage
It is more favourable to acquire a resident company
According to Paragraph 10(3) of Austrian Law, the taxable entity can choose ONLY ONCE whether the result coming from a holding is being taxed or not. However this is not permissible for holdings in non-resident companies.

11. The question referred for a preliminary ruling:
Does Article 107 TFEU, in conjunction with Article 108(3) TFEU,
Is it in conformity with the TFEU that the depreciation of goodwill to ease tax burden is only allowed when a holding is acquired in a domestic company whereas this depreciation is not permitted in other cases concerning income and corporation tax?
Do these artt include restriction to Member States in the regulatory procedures is this matter?
The question referred for a preliminary ruling:
Following Paragraph 9(7):
can we assert that this kind of tax ease is in compliance with artt. 107 and 108 TFEU…
… or does it limit a national measure with regard to this issue?

12. The question referred for a preliminary ruling:
Does Article 49 TFEU, in conjunction with Article 54 TFEU,
preclude a general measure in which depreciation of goodwill is accepted for parent companies acquiring holdings in resident companies whereas in case of non-resident companies this is not contemplated?
The question referred for a preliminary ruling:
…moreover, does Paragraph 9(7) follow the principles of artt. 49 and 54 TFEU with regard to freedom of establishment? Is the depreciation in this case justified?

13. Consideration on the questions referred
Q1: is the depreciation compatible with artt. 107 and 108(3) TFEU?
It considers that that depreciation creates an advantage for the beneficiary but questions whether that advantage must be regarded as favoring certain undertakings or the production of certain goods

14. Consideration on the questions referred
Q2: is the depreciation compatible with artt. 49, 54 TFEU?
It wishes to know whether that measure, which it considers to be a restriction on the freedom of establishment, may nevertheless be justified either on the ground that it relates to situations that are not objectively comparable or by an overriding reason in the general interest.

15. The Commission answers
- The first QUESTION
-> The arguments brought forth are unclear and not relevant for the interpretation of the main proceedings. -> It concerns the applicability of a fiscal measure (to depreciate the goodwill). However those liable to pay a tax cannot rely on the argument that a fiscal measure enjoyed by other businesses constitutes a State aid to avoid paying taxes. -> moreover it bears no relation to the subject-matter of the main proceedings… HENCE… THE FIRST QUESTION IS CONSEQUENTLY INADMISSIBLE

16. The Commission answers
- The first QUESTION
Not relevant for interpretation
Cannot avoid paying taxes
Not relevant in resolution
No party referred to the articles
IFN-Holding + EU Commission
NOT admissible because:

17. The Commission answers
Legislation such as the one under consideration in the main proceedings creates a tax advantage for a parent company acquiring a holding in a resident company.
Under these circumstances, legislation allows for a difference in tax treatment.
The Commission answers
- The second QUESTION
Freedom of establishment is hindered if, under a Member State’s legislation, a resident company having a subsidiary in another Member State, suffers a disadvantage in treatment for tax purposes compared with a resident company.
Advantage -> when acquiring a holding in a resident company
Disadvantage -> on holdings in a non-resident companies.

18. The Commission answers
When comparing a cross-border situation with an internal one, we should refer to the aim pursued by the applicable national provisions.
The Commission answers
- The second QUESTION
Such a difference in treatment is permissible only if it relates to situations which are not objectively comparable or if justified by an overriding reason in the public interest.
DIFFERENCE ONLY ALLOWED IF:
Comparability
Justification by an overriding reason in the public interest
Austrian legislation does not take into account whether the company made profits or incurred into losses to allow the parent company to depreciate the goodwill.
Therefore, this cannot be regarded as a relevant criterion in order to compare the situation of the two parent companies in relation to the issue at stake.
With regard to the
aim pursued by the national
provisions
Group of companies:
both resident and non-resident companies
The cases are objectively comparable

19. The Commission answers
The profits and losses are not relevant when considering comparability.
ADVOCATE GENERAL
The argument of the Rep. of Austria in which “share deal” is more favourable in this case does not call into question the comparability of the cases.
There is a difference in treatment that can only be justified by an overriding reason in the public interest
Purchase of the establishment (‘asset deal’);
The purchase of the holding in the company that owns the establishment (‘share deal’).

20. Series of events
In the absence of EU measures, Member States shall define the criteria to allocating the power of taxation
REP. OF AUSTRIA
The difference in treatment is to ensure the cohesion of the tax system
Justifies the restriction of the Freedom Of Establishment only if there is a link between:
the tax advantage
offsetting of such tax advantage by a tax levy
COURT

21. Series of events REP. OF AUSTRIA
There IS a direct link but it cannot be accepted.
The holding is fiscally neutral, no taxation applied, no tax advantage is justified.
Goodwill has an immediate effect on the “parent” while capital gains are remote and uncertain.
Taxing capital gain realised upon disposal does not justify a refusal to the tax advantage.
COURT
First
As the Advocate General stated national law prohibits the depreciation on the goodwill even if the results (profits and losses) are attributed for tax purposes.
Second
There is no direct link

22. The ECJ ruled as follows:
Article 49 TFEU precludes legislation of a Member State, such as the one addressed in the main proceedings, which, in the context of the taxation of a group of companies, allows a parent company, in the case of the acquisition of a holding in a resident company which becomes a member of such a group, to depreciate the goodwill up to a maximum of 50% of the purchase price of the holding, while such depreciation is prohibited in the case of the acquisition of a holding in a non- resident company.

23. THANK YOU FOR YOUR ATTENTION!!