Bosal Holding BV v Staatssecretaris van Financien
Bosal Holding BV is a Dutch company active in holding, financing and licensing/royalty
related activities and which, as a taxpayer, is subject to corporation tax in
the Netherlands. For the 1993 financial year, it declared costs amounting to NLG
3,969,339 (EUR 1,801,287) in relation to the financing of its holdings in companies
established in nine other Member States. Bosal has claimed that those costs should
be deducted from its own profits.
The inspector of the Belastingdienst (Tax Office) refused to allow the deduction sought.
The Gerechtshof te Arnhem, before which Bosal brought an action against that refusal,
confirmed the inspector's position. The Hoge Raad der Nederlanden (Supreme Court of the
Netherlands), to which Bosal appealed on a point of law, has asked the
Court of Justice of the EC whether Community law precludes the Netherlands legislation.
The Court finds that the limitation laid down by the Netherlands law constitutes
an obstacle to setting up subsidiaries in other Member States and is therefore
contrary to Community law. A parent company might be dissuaded from carrying on
its activities through a subsidiary established in another Member State since, normally, such
subsidiaries do not generate profits that are taxable in the Netherlands.
The Netherlands Government has relied on three arguments to justify the provisions in
question:
1. the need to ensure the coherence of the national tax system;
2. an argument based on the territoriality principle. According to the Netherlands Government, subsidiaries
which make profits taxable in the Netherlands and those which do not are
not in a comparable situation; and
3. the need to preserve the tax base of the Member State.
The Court finds those arguments unconvincing.
As regards the need to preserve the coherence of the national tax system,
the Court points out that, in order to benefit from such justification, a
direct link must exist between the grant of a tax advantage and the
offsetting of that advantage by a fiscal levy, both of which related to
the same tax. In this case, however, there is no direct link between
the grant of a tax advantage to parent companies established in the Netherlands
and the tax system relating to the subsidiaries of parent companies where the
latter are established in that Member State. Parent companies and their subsidiaries are
distinct legal persons, each being subject to a tax liability of its own.
Moreover, the limitation on the deductibility of costs incurred by a parent company
in connection with its holdings in subsidiaries is not compensated for by a
corresponding advantage. The coherence of the tax system cannot therefore be pleaded in
argument.
Concerning the argument based on the principle of territoriality, the Court states that
the difference in tax treatment in question concerns parent companies according to whether
or not they have subsidiaries making profits taxable in the Netherlands, even though
those parent companies are all established in that Member State.
As for the need to preserve the tax base of the Member State,
the Court points out that the need to prevent the diminution of tax
receipts is not a reason which can justify a restriction on the freedom
of establishment.
Available languages: DE, EN, ES, FR, IT, NL. The full text of the judgment can be found on the internet (www.curia.eu.int ). In principle it will be available from midday CET on the day of delivery. For additional information please contact Christopher Fretwell Tel: (00352) 4303 3355 Fax: (00352) 4303 2731 |