Hornbach-Baumarkt AG („Hornbach AG”)Consumer Products
Case C-382/16 – European Court of Justice
Hornbach-Baumarkt AG (“Hornbach AG”)
Against Finanzamt Landau (Tax Administration Landau, Germany)
The case concerns the interpretation of Article 43 EC (now Article 49 TFEU) in conjunction with Article 48 EC (now Article 54 TFEU) following a dispute between Hornbach AG, a joint-stock company based in Germany, on the one hand, and the Landau Tax Administration, Germany, on the other hand, in relation to the latter’s determination of the company’s profit tax and business tax base for the year 2003.
In short, during 2003, Hornbach AG held indirectly, through its subsidiary Hornbach International GmbH and the latter’s Dutch subsidiary Hornbach Holding BV, a shareholding representing 100% of the capital of two companies based in the Netherlands. The latter had negative equity and needed, for the continuation of their activities, as well as for the financing of a project, bank loans in the amount of 10,057,000 euros and 14,800,000 euros, respectively. The banking institution providing the financing of these companies had conditioned the granting of the loans on the presentation by Hornbach AG of comfort letters containing a statement of guarantee, letters issued by Hornbach AG in September 2002, without requesting any remuneration in return.
The tax administration, as it considered that third parties independent of each other would have agreed in identical or similar circumstances a remuneration in exchange for the guarantees thus granted, decided that the income of Hornbach AG had to be increased, in accordance with paragraph (1) and (4) of AStG1 and changed the profit tax and the tax base for the commercial tax of this company for the year 2003, thereby correcting the amount of taxable income of Hornbach AG by the amount of 15,253 euros and the amount of 22,447 euros, respectively, as a result of the guarantees granted to foreign companies.
Hornbach AG argued that paragraph 1 of the AStG led to a discriminatory treatment of cross-border situations since, in purely domestic situations, no rectification of the amount of income was made to take into account the presumed amount of remuneration for guarantees granted to subsidiaries.
According to the Finanzgericht Rheinland Pfalz (Rhineland Palatinate Tax Court, Germany), the tax administration rightly considered that the terms agreed between Hornbach AG and the foreign group companies were different from those they would have agreed to in identical or similar circumstances, third parties independent of each other. However, the fiscal court raises the question of the compatibility of a regulation such as the one under discussion in the litigation with the freedom of establishment. Consequently, the Court considers that it is necessary to clarify whether a provision such as Article 1 paragraph 1 of the AStG in conjunction with the third assumption provided for in this Article 1 paragraph 2 point 1 corresponds to the requirements of Union law regarding the possibility of invoking the commercial reasons for which persons who are in interdependent relationships concluded a transaction under conditions that are not usual between third parties.
The European Court of Justice declared that art. 43 EC (became art. 49 TFEU) in conjunction with article 48 EC (became art. 54 TFEU) must be interpreted in the sense that it is not opposed in principle to a national regulation, such as the one at issue in the litigation, pursuant to which the income of a company resident in a member state that has granted a company established in another member state, to which it is linked by interdependence relations, advantages under conditions that differ from those that would have been agreed, in identical or similar circumstances, between independent third parties by others must be calculated in the same way as they would have been calculated if the terms agreed between such third parties had been applicable and must be subject to rectification, although no such rectification of taxable income is made when the same advantages were granted by a resident company to another resident company, to which it is linked by interdependence relations. However, it is up to the national court to verify whether the regulation in question in the litigation offers the resident taxpayer the opportunity to prove that the respective conditions were agreed for commercial reasons arising from his position as an associate of the non-resident company.