(April 16, 2015) 

Failure of a Member State to fulfil obligations — Tax legislation –Deferral of taxation of capital gains realised on the sale of certain capital assets — Recovery of the tax — Freedom of establishment — Article 49 TFEU — Article 31 of the EEA Agreement — Difference in treatment between permanent establishments located within the territory of a Member State and permanent establishments located within the territory of another Member State of the European Union or of the European Economic Area — Proportionality

On April 16, 2015 the European Court of Justice (CJEU) ruled in Case C‑591/13 European Commission versus Federal Republic of Germany (ECLI:EU:C:2015:230).

By its application, the European Commission asks the Court to declare that, by adopting and maintaining in force provisions under which the tax on capital gains realised upon the sale of certain capital assets (‘the replaced assets’) is deferred by ‘transferring’ those capital gains to newly acquired or newly produced capital assets (‘the replacement assets’) until the sale of those replacement assets, on condition, however, that the latter form part of the assets of a permanent establishment of the taxable person located within the national territory, whereas such a deferral is not possible in the case where those assets form part of the assets of a permanent establishment of the taxable person located in another Member State of the European Union or in another State which is a party to the Agreement on the European Economic Area of 2 May 1992 (OJ 1994 L 1, p. 3; ‘the EEA Agreement’), the Federal Republic of Germany has failed to fulfil its obligations under Article 49 TFEU and Article 31 of the EEA Agreement.

The CJEU:

1. Declares that, by adopting and maintaining in force the tax scheme provided for in Paragraph 6b of the Law on Income Tax (Einkommensteuergesetz), which makes the benefit of the deferral of taxation of the capital gains realised on the sale of a capital asset forming part of the assets of a permanent establishment of the taxable person located within German territory subject to the condition that those capital gains are reinvested in the acquisition of replacement assets forming part of the assets of a permanent establishment of the taxable person located within that territory, the Federal Republic of Germany has failed to fulfil its obligations under Article 49 TFEU and Article 31 of the Agreement on the European Economic Area of 2 May 1992;

2. Orders the Federal Republic of Germany to pay the costs.

For further information click here to be forwarded to the text of the ruling.

Interested in more CJEU rulings regarding the freedom of establishment? Then click here to be forwarded to the section CJEU where we amongst others have a section in which we have included a selection of CJEU rulings regarding the freedom of establishment.

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