The “final” nature of crossborder costs in CJEU case law: Principle of symmetry applied to permanent establishment and subsidiaries

Abstract

Regarding the so-called ‘final’ nature of cross-border losses incurred in the subsidiaries and permanent establishments of companies headquartered in other Member States, as well as the possibility of their transferability within EU Member States, the CJEU has established a consistent case law based on two lines of analysis: the first, which compares the application of national tax regimes for groups of companies with the principle of freedom of establishment³, as well as the justifications for the resulting restrictions; the second, which considers the least restrictive alternatives to the impossibility of carrying forward losses incurred by permanent establishments and branches situated in another (European) jurisdiction. This study argues, based on the CJEU judgment in Marks & Spencer of 13 December 2005 (Case C-446/03)4, that the balanced allocation of taxing powers among Member States is not compromised by the possibility of cross-border loss relief. This second point highlights that the least harmful option would be for this facility to operate through a mechanism of temporary allocation of losses to the parent company, followed by their recapture upon the repatriation of profits from permanent establishments or branches.