Bosal is a company which carries on 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 in relation to the financing of its holdings in companies established in nine other Member States. In an annex to its declaration concerning that financial year, Bosal claimed that those costs should be deducted from its own profits.
The inspector refused to allow the deduction sought, and the Gerechtshof te Arnhem (Netherlands), before which Bosal brought an action against the dismissal of its claim, confirmed the inspector’s position. It is in those circumstances that Bosal appealed on a point of law to the referring court.
Taking the view that an interpretation of Community law was necessary in order to resolve the dispute before it, the Hoge Raad der Nederlanden decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:
1. Does Article 52 of the EC Treaty, read in conjunction with Article 58 thereof …, or any other rule of EC law, preclude a Member State from granting a parent company subject to tax in that Member State a deduction on costs relating to a holding owned by it only if the relevant subsidiary makes profits which are subject to tax in the Member State in which the parent company is established?
2. Does it make any difference to the answer to Question 1 whether, where the subsidiary is subject to tax based on its profits in the Member State concerned but the parent company is not, the relevant Member State takes account of the abovementioned costs in levying tax on the subsidiary?
Judgement of the Court
The court ruled in favor of Bosal. Not allowing deductions of costs related to participations in foreign subsidiaries is contrary to EC law.
“Council Directive 90-435-EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, interpreted in the light of Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes a national provision which, when determining the tax on the profits of a parent company established in one Member State, makes the deductibility of costs in connection with that company’s holding in the capital of a subsidiary established in another Member State subject to the condition that such costs be indirectly instrumental in making profits which are taxable in the Member State where the parent company is established.”CELEX_62001CJ0168_EN_TXT