An Ever Distant Union: The Cross-border Loss Relief Conundrum in EU Law Articles uri icon

publication date

  • October 2010

start page

  • 476

end page

  • 501


  • 10


  • 38

International Standard Serial Number (ISSN)

  • 0165-2826

Electronic International Standard Serial Number (EISSN)

  • 1875-8347


  • Cross-border loss relief may well be the last milestone, barring total tax consolidation, in the European Union (EU) market integration from a tax law perspective. As the Commission's Communication on the Tax
    Treatment of Losses in Cross-Border Situations demonstrates, there is
    yet a lot of ground to be covered in harmonizing this aspect of
    corporate income taxes (CITs). While the Common Consolidated Corporate
    Tax Base (CCCTB) proposal seems to be stalled, a series of relatively
    recent European Court of Justice (ECJ) cases (among others, X Holding
    BV) may be tilting the balance in the interest of Member States, for the
    first time allowing the safeguard of revenues, or the 'balanced
    allocation of taxing powers' to be the deciding argument in allowing
    restrictions on the offsetting of losses. Losses cannot be analysed in
    isolation of the rules to determine the taxable base, as they are one
    more piece in the tax base puzzle. In this article, I focus on two
    issues: multinational groups and permanent establishments (PEs), as they
    comprise the main problems arising in cross-border loss relief. The
    different methods employed to grant loss relief are assessed, as well as
    the new Organisation for Economic Co-operation and Development (OECD)
    proposals on the taxation of PEs. My main argument is that restrictions
    of loss relief have an effect that go beyond discriminating or
    restricting &- that is, beyond making it 'less attractive' to move around
    the EU. Such restrictions touch the core of taxation of income. If no
    loss relief is provided, the tax is not reflecting the real ability to
    pay, thus not only is it not being neutral and inefficient, it is also
    creating a fictional tax debt.