Measures intagroup losses and reversal of community law: case Nordea Bank

Abstract

This paper is a brief commentary on the judgment of the Court of Justice of 17 July 2014, C-48/13, Nordea Bank Case, which deals with cross-border use of losses and its limits within the European Union Law framework.

Specifically, the aforementioned case analyzes the compatibility with European Union Law of a Danish domestic clawback provision that requires full recapture of losses previously offset against the profits of the Danish head office that had been incurred by permanent establishments abroad; the domestic provision referred to operated only when the taxpayer transferred the PE assets to an entity that was part of the same group of companies.

The Court held that a counterbalance clause requiring the full recapture of the losses previously offset against the profits of the head office applicable to intra-group transmissions of PE assets is contrary to European Union Law, considering that goes beyond what is necessary to protect the objective pursued by the measure (principle of territoriality in tax matters), inasmuch as less restrictive mechanisms (arm's length principle) can be implemented to achieve that legitimate goal.

The jurisprudence so established by this ruling is relevant not only to clarify the «EU standard for cross-border loss utilization», but also in order to determine the competence of the EU Member States to adopt measures that limit the deduction of cross-border losses, such as those being proposed under the OECD-G20 BEPS project (tax planning schemes on losses) or that have been articulated in our domestic legal system through Law 16/2013, of 29 October, relevantly changing the CIT Law.