The Finnish Supreme Administrative Court decided on 7 March 2011 (KHO 2011:21) to request for a preliminary ruling from the Court of Justice of the European Union (ECJ) concerning the question whether a Finnish parent company may deduct the final tax losses of its Swedish subsidiary after a cross-border merger.
The Swedish subsidiary which had incurred substantial losses was wholly owned by the Finnish parent company. The tax losses in question could not be utilized in Sweden because the operations of the Swedish company were shut down and all the other Swedish group companies were unprofitable as well.
The tax burden of the Finnish parent company could be substantially reduced if the losses of its Swedish subsidiary could be reduced from the profits of the parent company. The Finnish Central Tax board had denied the right of the Finnish parent company to deduct the losses of its Swedish subsidiary due to the fact that the losses were calculated in accordance with the Swedish tax legislation.
In a comparable situation, if the subsidiary was a Finnish company the tax losses would be transferred to the Finnish parent company. Therefore, in principle, a cross-border merger should be treated in the same way as a purely domestic merger.
The Finnish Supreme Administrative Court presented the following questions to the ECJ:
- Do articles 49 and 54 of the TFEU require that the receiving company may deduct the tax losses of the merging company which resides in another Member State in a situation where no permanent establishment is constituted for the receiving company in the residence state of the merging company and where the receiving company may under national legislation deduct the tax losses of the merging company, if the merging company is domestic or the tax losses have incurred in a permanent establishment situated in the Member State where the receiving company resides?
- If the answer for the first question is affirmative, do the articles 49 and 54 of the TFEU influence whether the amount of deductible tax loss should be calculated in accordance with the legislation of the residence state of the receiving company or should the deductible tax loss be calculated in accordance with the legislation of the residence state of the merging company?
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