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News alert EU Direct Tax Group
NA 2013 - 002
News alert
22 February 2013
EU Direct Tax Group
CJEU decision in A Oy (C-123/11) on cross-border
merger and the utilization of final losses in Finland
EU Direct Tax Group
The EUDTG is one of PwC’s Thought Leadership
Initiatives and embedded in the International
Tax Services Network. The EUDTG is a panEuropean network of EU tax law experts and
provides assistance to organizations, companies
and private persons to help them to fully benefit
from their rights under EU law.
On 21 February 2013, the CJEU gave a decision in
the case A Oy (C-123/11) regarding a cross-border
merger and the utilization of foreign tax losses.
The case relates to a request for a preliminary
ruling made by the Finnish Supreme
Administrative Court (SAC) to the CJEU on 7
March 2011 and concerned a situation where a
Swedish company with tax losses was merged into
its Finnish parent company. The activities of the
Swedish company had ceased to exist. If the
Should you be interested in receiving the free bi- Swedish company had been a Finnish resident
monthly newsletter, then please send an e-mail company and the merger was not executed purely
for the reason to benefit from the tax loss carry
to [email protected], with “subscription EU
forwards, A Oy would have been entitled to take
Tax News”.
over the tax losses of its subsidiary in accordance
with Finnish legislation.
Decision of the CJEU
For more detailed information, please do not
hesitate to contact your local PwC contact
person or a member of the EUDTG.
Jarno Laaksonen
PwC Finland
+358 9 2280 1327
[email protected]
Heikki Lajunen
PwC Finland
+358 9 2280 1244
[email protected]
Jaana Mikkola
PwC Finland
+358 9 2280 1418
[email protected]
The CJEU held that Articles 49 and 54 TFEU do
not preclude the Finnish rules which deny the
transfer of losses in a cross-border merger.
However, the Finnish legislation is nonetheless
incompatible with European Union law insofar it
does not allow the parent company the possibility
of showing that the subsidiary has exhausted the
possibilities of taking those losses into account and
that there is no possibility of their being taken into
account in its state of residence in respect of future
tax years either by itself or by a third party.
The CJEU began by stating that the Merger
Directive does not discuss the question at hand.
The freedom of establishment, however, applies to
the situation.
The CJEU noted that the Finnish legislation
provides a tax advantage in a purely domestic
merger, and denying this advantage in crossborder merger makes the establishment in another
Member State less attractive. The purely domestic
situation must be regarded as objectively
comparable to a cross-border situation. However,
according to the CJEU, it is up to the national court
to assess whether the sole motive has been to
obtain tax advantages.
According to the CJEU, the restriction on the
freedom of establishment can nevertheless be
justified with a combination of justifications,
such as the need to safeguard the allocation of the
power to tax between Member States, the
prevention of the double use of losses and the
prevention of tax avoidance.
The Court then, however, referred to the case C446/03 Marks & Spencer and stated that the
restriction at hand goes beyond what is necessary
to attain the objectives insofar as it denies the
transfer of losses in a situation where the nonresident subsidiary has exhausted the
possibilities available in its state of residence of
having the losses taken into account (i.e. so called
‘final losses’). Therefore, in the case of such final
losses, the Finnish legislation is not in line with
the principle of proportionality and thus
incompatible with EU law.
The issue whether the losses are in fact final
should be determined by the national court on
the basis of the proof presented by the parent
As regards the calculation of the 'final losses', the
CJEU held that it must be assessed on a case-bycase basis. These rules, however, must not
constitute unequal treatment compared with the
rules of calculation which would be applied if the
merger were with a resident subsidiary.
In its decision, the CJEU upheld the Marks &
Spencer doctrine and therefore deviated
fundamentally from the AG Opinion given on 19
July 2012.
The CJEU left the important question of
determining whether the case at hand concerned
‘final losses’ to be dealt by the national court. It
can, however, be concluded from the reasoning of
the CJEU that the 'finality' of the losses does not
only relate to 'legal finality' but also to 'factual
finality’. It is expected that the SAC will give a
decision within the next six months.
PwC was assisting the Finnish tax payer in this
case. In the light of the CJEU decision, it should
be determined whether the decision provides any
tax planning opportunities for companies with
loss-making subsidiaries within the EU/EEA.
be reclaimed
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