4.2.2.1 Introduction

Corporate groups typically aim to achieve two tax objectives: (1) offsetting profits and losses of members of the group, and (2) deferral of the recognition of gains arising from asset transfers between the group members.1 The corporate income tax legislation of many Member States provides for group taxation regimes that allow resident companies to pool their results. Additionally, some of the regimes provide tax reorganization facilities for intra-group asset transfers. Being able to apply such a regime gives companies – depending on the scope of the regime – significant benefits, such as loss compensation, deferral of taxation of unrealized capital gains and a reduction of the administrative burden. As discussed in chapter 2, a group regime exists in various variants such as group contribution systems, group relief systems and partial or full consolidation systems.2 Issues regarding these group taxation regimes have been brought before the CJEU numerous times.3 In these cases the CJEU was confronted with the question whether the freedom of establishment requires a Member State to extend benefits of its group taxation system, or one specific element of it, to cross-border situations.

This section revolves around primary EU law and cross-border groups and tax groups. This topic is subdivided into two parts: loss compensation and other elements of group taxation regimes. As described above, reorganization facilities are an import topic for groups of companies as well. Based on the fundamental freedoms cross-border restructurings should be given the same tax treatment as domestic restructurings.4 They constitute a particular method of exercise of the freedom of establishment.5 Therefore, a national beneficial system may have to be extended to EU situations.6 However, according to the EC a simple extension of national deferral systems to cross-border reorganizations would not give the desired result, as the differences in the various systems in force in the Member States can lead to distortions.7 Therefore, the EC opted for positive harmonization in the field of cross-border reorganizations via the introduction of the MD. As cross-border restructurings are thus mainly governed by secondary EU law, this topic will be discussed in par. 4.3.4.