The French Council of State posed limits on the tax consolidation of multinational companies

Conseil d’État, 9ème et 10ème sous-sections réunies, 15/04/2015, 368135, Inédit au recueil Lebon

The present case concerns taxation of multinational groups.

A French parent company had a subsidiary in Poland, which had a lower-tier subsidiary in Italy. These last companies made losses. Polish and Italian legislation did not allow them to impute their losses. As a consequence, the parent company, which was normally taxed in France, requested from French tax authorities to calculate its taxes by taking into account the losses made by the Polish and Italian subsidiaries. The French fiscal administration did not grant the request. The parent company’s request was also dismissed, in first instance, by the Administrative court of Montreil (Tribunal administratif de Montreil) and, in appeal, by the Administrative appeal court of Versailles (Cour administrative d’appel de Versailles).

The company referred the matter before the Supreme Court (Consil d’Etat) pretending to form a single tax entity with its subsidiaries. The company also alleged a violation of the freedom of establishment (Article 49 TFEU).

The Supreme Court (Conseil d’Etat) rejected the claim.

According to the judges, Article 223-A of the French General Tax Code may be applied only if the subsidiaries are established and therefore taxed in France. In fact, the French supreme judges referred to the European Court of Justice case-law (X Holding BV, Case C-337/08) according to which a parent company may not form a single tax entity with non-resident subsidiaries given the fact that the latter are not subject to the fiscal legislation of the state competent to tax the parent company.

Therefore, this judgement follows the doctrine of fiscal sovereignty and clear distribution of tax prerogatives between Member States.

The full text is available on EuroCases

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