4.2.1 Introduction

For the purposes of national corporate tax laws, a company is generally considered to be a separate entity. Legal entities can be part of a group of companies. The existence of such a group relationship is often taken into account for purposes of the national corporate income tax legislation. For instance, it is possible in many EU countries to request for some variant of a group taxation regime that can give various benefits, ranging from the possibility to pool results to the fact that certain transactions within the tax group are non-existent for tax purposes.1

Member States must ensure that national rules are in accordance with the fundamental freedoms: the free movement of goods, the free movement of persons, the free movement of capital and the freedom to provide services. The free movement of persons is sometimes subdivided into the free movement of workers and the freedom of establishment. No restrictions to those freedoms are allowed. The CJEU relies in its case law on the fundamental freedoms to determine whether or not national tax systems are compatible with primary EU law. For situations with groups of companies the freedom of establishment or the free movement of capital will be the relevant treaty freedoms. For intra-EU situations it is in essence not relevant which of those two treaty freedoms is applied. However, for situations involving third countries this is of importance, as solely the freedom of capital is extended to third country situations.

To determine whether the freedom of establishment or the freedom of capital should be applied, first of all the purpose of the legislation concerned must be taken into consideration.2 If the legal provision refers to a specific fundamental freedom, this freedom should be applied. If this is not the case, as a second step the legal requirement used in the national legislation should be analysed. National legislation that is intended to apply solely to those shareholdings which enable the holder to have the definite influence in the decision-making of another company3 falls within the scope of the freedom of establishment. Yet, national provisions that apply to shareholdings acquired solely with the intention to make a financial investment without the intention to influence the management and control of the undertaking must be examined solely via the free movement of capital.4 If the national provision applies regardless of whether there is definite influence, the factual situation should be examined.5 If there is factual definite influence, the freedom of establishment applies for intra-EU situations, while the freedom of capital is applicable if no such definite influence is in place. For third country situations, the free movement of capital principles apply, also if there is factually definite influence.6

To determine whether or not a domestic rule is incompatible with EU law, a four-step decision tree is used: (1) does the taxpayer have access to EU law, (2) is EU law being infringed, (3) can this infringement be justified, and (4) are the conditions of proportionality and subsidiarity satisfied.7 Domestic law provisions should be appropriate to justify the objective set by them, and not go beyond what is necessary to attain the objective. To determine whether EU law is being infringed (question 2) in essence the question needs to be answered whether a cross-border situation is treated less favourably than a domestic situation. There is a different treatment when comparable situations are not treated the same or when different situations are treated the same.8

For multinational groups of companies there are many situations in which a potential infringement of EU law exists. If losses from domestic group companies can be pooled, should such a treatment be extended to cross-border situations? Should benefits that are granted to companies that apply a tax consolidation regime on a national level be extended to foreign entities that would have had the possibility to join the consolidated group had they been established in the other state? This section briefly addresses various CJEU judgments. In this regard the focus is on judgments that deal with issues that exist within groups of companies. Two main topics will be addressed. First, the case law that deals with cross-border groups and tax groups will be elaborated upon (par. 4.2.2). Second, the extent to which the EU anti-abuse provisions entail a group approach is evaluated (par. 4.2.3). This second topic can be seen as a bit of an ‘outlier’, as anti-abuse rules are not at the heart of the tax system but are intended to safeguard that system. However, as anti-abuse provisions can be seen as a precondition of an effectively functioning tax system, they should also be addressed. After discussing the topics, a link with the OECD MTC is made: is this topic covered by the OECD MTC and if not, should it be covered by the model given its scope and objective? This section is concluded with an interim conclusion (par. 4.2.4).

It should be emphasised that it is not the intention to derive some sort of European group concept from the CJEU’s case law. After all, the CJEU does not introduce or explain a European group concept: the Court solely explains the fundamental freedoms. In this regard, it takes a national group concept and looks at whether that concept on its own or in combination with other regulations leads to an infringement of EU law. The term group approach solely refers to consideration being given to the fact that an entity is not a standalone entity, but is part of a group of companies.9

Moreover, as the objective of the discussion in this section is merely to reveal topics that are relevant in group situations and to derive the conceptual approach the CJEU takes with a view to stimulate cross-border investments, an extensive analysis of CJEU case law goes beyond the scope of this research.