(February 26, 2015) 

On February 26, 2015 the opinion of Advocate General Jääskinen in Case C-657/13, Verder LabTec GmbH & Co. KG versus Finanzamt Hilden (ECLI:EU:C:2015:132) was published on the website of the European Court of Justice (CJEU).

 

The following question was referred to the CJEU for a preliminary ruling:

Is it consistent with the freedom of establishment under Article 49 of the Treaty on the Functioning of the European Union if, upon the transfer of an asset from a domestic to a foreign permanent establishment of the same undertaking, a national rule stipulates that there is a withdrawal for non-business purposes, with the result that the disclosure of hidden reserves leads to a profit upon the withdrawal, and another national rule provides the possibility of spreading that profit equally over 5 or 10 financial years?

 

Main proceedings, the referred question and the proceedings before the Court

·       Verder LabTec GmbH& Co KG (also referred to hereafter as ‘the limited partnership’) is a limited partnership whose registered office is in Haan, Germany. Verder LabTec Beteiligungs GmbH (the ‘general partner’), which is also based in Haan, is its general partner. Tarco BV and Labo-Tech BV, both of which have their registered office in the Netherlands, are the limited partners. From May 2005 the limited partnership dealt exclusively with the administration of its own patent, trademark and utility model rights. By a contract of 25 May 2005, it transferred those rights to its Dutch permanent establishment in Vleuten.

 

·       In the course of a fiscal audit, the financial administration (Finanzamt Hilden) came to the view that the transfer of the intellectual property rights was to take place with disclosure of any hidden reserves at their arm’s length value at the time of the transfer. All of the parties agreed on the value of the hidden reserves, and the financial administration acknowledged that this amount was not, however, to be immediately subject in full to taxation. Rather, it was to be neutralised for reasons of equity by a nominal figure of the same amount; that nominal figure was then to be amortised, with a profit increase, on a straight line basis over a period of 10 years. In other words, the Finanzamt Hilden deferred the collection on equitable grounds by spreading the hidden reserves over 10 years. In the notice for 2005 on the separate and uniform determination of bases of taxation of 17 August 2009, the Finanzamt Hilden assessed the income from the limited partnership’s business taking into account the hidden reserves. By decision of 19 September 2011, an objection against the notice was rejected as unfounded by Finanzamt Hilden.

 

·       The limited partnership contends before the national court that the German legislation infringes the principle of freedom of establishment under Article 49 TFEU. Moreover, the immediate collection of the tax at the time of the transfer of the assets was disproportionate, with collection of the tax at the time of the realisation of the capital gain supplying a less drastic alternative.

 

·       In the light of the above, the Finanzgericht Düsseldorf referred the following question for a preliminary ruling.

‘Is it consistent with the freedom of establishment under Article 49 of the Treaty on the Functioning of the European Union if, upon the transfer of an asset from a domestic to a foreign permanent establishment of the same undertaking, a national rule stipulates that there is a withdrawal for non-business purposes, with the result that the disclosure of hidden reserves leads to a profit upon the withdrawal, and another national rule provides the possibility of spreading that profit equally over 5 or 10 financial years?’

 

·       Verder Labtec GmbH & Co. KG, Finanzamt Hilden, the Belgian, Danish, German, Spanish, Italian, the Netherlands and Swedish Governments and the Commission have presented written observations. There has been no hearing.

 

In the opinion the Advocate proposes that the question put by the Finanzgericht Düsseldorf be answered as follows:

Freedom of establishment under Article 49 TFEU does not preclude a national rule leading to disclosure of hidden reserves contributing to taxable profits, upon the transfer of an asset from a domestic to a foreign permanent establishment of the same undertaking, when another national rule provides for the possibility of spreading that income equally over 10 financial years.

 

Click here to be forwarded to the full text of the opinion as published on the website of the CJEU, which will open in a new window.

 

 

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