On 6 October 2015, the Court of Justice of the European Union (CJEU) issued its judgment in the case of C-66/14, Finanzamt Linz/Bundesfinanzgericht. The Austrian Supreme Administrative Court had requested a preliminary ruling from the CJEU regarding the compatibility of the goodwill amortization within the Austrian tax group regime with the European Union (EU) freedom of establishment and State Aid rules. In the decision, the Court concluded that the regulation of the Austrian goodwill amortization infringes upon the freedom of establishment, while not ruling on the potential State Aid issue as this question was held inadmissible.
Background
In the Austrian group taxation regime, amortization of goodwill can be claimed for tax purposes on the acquisition of domestic participations in operating group members which have been acquired from a third party after 31 December 2004 and before 1 March 2014. According to the wording of the law, the goodwill amortization is applicable for participations in domestic group members only. This amortization leads to tax deductible costs and at the same time reduces the tax book value of the respective participation. The Austrian Supreme Administrative Court applied to the CJEU for a preliminary ruling regarding the conformity of the goodwill amortization with EU law. The Austrian Administrative Court submitted the following questions to the CJEU:
- Does the exclusion of foreign group members from the goodwill amortization infringe upon the freedom of establishment?
- Can the goodwill amortization be qualified as a prohibited State Aid, which benefits companies acquiring domestic participations?
Infringement upon freedom of establishment
With respect to the infringement upon the freedom of establishment by the legislation at issue, the Court first found that the legislation creates a tax advantage for a parent company acquiring a holding in a resident company, in cases of positive goodwill. By not granting that tax advantage to a parent company which acquires a holding in a nonresident company, the legislation introduces a difference in tax treatment to the detriment of parent companies acquiring holdings in a nonresident company. Such a difference in treatment is permissible only if it relates to situations which are not objectively comparable or if it is justified by an overriding reason in the public interest. However, even though many arguments were brought forward by the Austrian Tax Administration in this respect, for the Court a comparable situation was given and a justification could not be found to support the legislation as incompatible with the freedom of establishment.
State Aid
While the General Advocate Kokott concluded that the regulation of the goodwill amortization does not constitute a prohibited State Aid, the CJEU held this issue to be inadmissible. According to the court, in State Aid cases, the sole task of the national courts is to safeguard the rights of individuals until the final decision is taken by the Commission, pursuant to Article 108(3) Treaty on the Functioning of the European Union (TFEU). That is not the situation in the present case, since none of the parties to the dispute in the main proceedings had introduced a claim on the basis of Article 107 TFEU et seq. In addition, the Court pointed out that taxpayers cannot rely on the argument that a fiscal measure enjoyed by other businesses constitutes State Aid in order to avoid payment of the tax. Hence, the first question of the Austrian Court was inadmissible, which leaves it to the discretion of the European Commission to address this issue.
Impact
On the basis of the decision of the CJEU, taxpayers may claim goodwill amortization for foreign group members under the same requirements as for domestic ones. This outcome holds true irrespective of whether the sale of the foreign participation is tax neutral on the basis of the Austrian international participation exemption. Accordingly, taxpayers should review their facts to determine if a claim for goodwill amortization on foreign group members for past years is possible.
Concerning future periods, it has to be noted that the Austrian Parliament has abolished goodwill amortization for acquisitions made from 1 March 2014 onwards. Therefore, only acquisitions before that date qualify for goodwill amortization. In addition to this limitation, continuing goodwill amortization for acquisitions before 1 March 2014 in future periods is only possible under certain circumstances. In this respect, according to the explanatory remarks to the law on the abolishment of the goodwill amortization and the legal opinion of the Tax Administration, continuing the goodwill amortization is possible if inter alia the effect of the goodwill amortization has been considered by the taxpayer for determining the purchase price of the participation. As this criterion factually may not have been considered for acquisitions of foreign group members, this opinion of the Tax Administration again has raised doubts on the conformity with EU law. Therefore, if goodwill amortization for foreign group members can be obtained on the basis of the CJEU decision, the continuation rules also have to be considered in a non-restrictive way, otherwise again potentially they may not be in conformity with EU law.
Bron: EY
Informatiesoort: Nieuws
Rubriek: Europees belastingrecht
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