EU Court of Justice rules in favour of taxpayer in group relief case

Kromann Reumert's tax group represents the Danish company NN A/S in a preliminary reference to the EU Court of Justice concerning the possibility of NN A/S using, through group relief, losses sustained by a Danish branch of a non-resident group company. The Court has just issued its judgment in favour of the company.

The case before the Danish High Court
The Danish rules in the matter apply only to Danish losses sustained by Danish permanent establishments (PE) in relation to the calculation of Danish mandatory joint taxation. Such losses may only be included when calculating the joint taxation income if they cannot be included in the foreign company's income calculation. The rules are meant to prevent double loss deduction ("double-dip").

The main proceedings concern the offsetting of the losses of a PE situated in Denmark, owned by a company which is resident in Sweden and is a member of a Danish group of companies. The Danish authorities did not allow the deduction of those losses for the purposes of calculating the corporation tax payable by the group in Denmark. The losses suffered could still be carried forward as isolated “branch losses” in Denmark.

The preliminary ruling 
The EU Court of Justice determined that the Danish rules will in some respects constitute a restriction, namely when loss relief is not allowed in the foreign company's member state. Such restriction is justified by the aim of preventing double-dip. However, in the main proceedings, the loss is due to the merger of two Danish branches in the group and the group's choice – which is allowed under Swedish law – to treat this merger for Swedish tax purposes as a tax-free restructuring of its operations. Consequently, offsetting the loss against the Swedish company's income will not be possible in practice.

In such case, the Court of Justice rules, the Danish provisions at issue are incompatible with the principle of proportionality.

Read the full ruling here (several language versions available).

Next steps
It is now for the Danish Eastern High Court to decide the matter, taking into account the guidance from the EU Court of Justice.

Taxpayers who have been denied deduction of losses in circumstances comparable to those in the NN judgment may want to consider filing a request for reassessment, possibly going back 10 years. Prudently, requests should be filed not later than 6 months after the date of the preliminary ruling (4 July 2018). The Danish Revenue may subsequently issue guidance on requests for reassessment for groups with companies and branches in Denmark.

We are available for further guidance on the preliminary ruling and its implications.

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