established the ECJ view that residents (subject to unlimited or worldwide taxation)
and non-residents (subject only to limited or source taxation) do not normally find
themselves in comparable situations, as a result of which they do not have to be
treated in the same way. 5
The issue of whether companies are in ‘objectively comparable situations’ is
somewhat different however and the comparison has tended to focus on whether a
non-resident company is granted the same beneficial tax treatment as a resident
company. For example, in the case of the Royal Bank of Scotland the ECJ ruled that a
higher rate of tax could not be imposed on the profits of a branch of a foreign
company as opposed to that applied to domestic companies. This was seen as an
example of direct discrimination.6
The ECJ has also compared and provided equal treatment to:
• Two resident subsidiaries, one with a resident parent company and the other
with a parent company resident in another EU Member State.7
• Two resident parent companies, one with domestic subsidiaries and the other
with foreign subsidiaries.8
• Two resident companies, one with a domestic branch and the other with a
foreign branch.9
2.2 Fundamental Freedoms
Apart from the prohibition against discrimination, the ECJ has held that any measures
which apply without distinction but which restrict the exercise of the fundamental
freedoms are also prohibited. These are known as non-discriminatory restrictions and
are often referred to as hindrances, obstacles or barriers. In the context of corporation
tax, the most important of the freedoms are the freedom of establishment provisions
contained in Articles 43 and 48 and the free movement of capital provisions in
Articles 56 and 58.
Freedom of Establishment
Article 43 of the EC Treaty provides that restrictions on the freedom of establishment
of nationals of a Member State in the territory of another Member State are prohibited.
Article 43 includes the right to set up companies (primary establishments) and
agencies, branches or subsidiaries (secondary establishments) in any of the Member
States. Article 48 provides that companies or firms formed in accordance with the
law of a Member State and having their registered office, central administration or
principal place of business within the Community must be treated in the same way as
natural persons who are nationals of Member States.
The question of what level of holding or participation in a company is required for the
freedom of establishment provisions to apply was considered in Baars.10 The Court
indicated that a national of a Member State who had a holding in the capital of a
5 (Case C-279/93) [1995] ECR I-225.
6 Royal Bank of Scotland plc v Ellinko Dimosio (Greek State) (Case C-311/97) [1999] ECR I-2651.
7 See Lankhorst (Case C-324/00) [2002] ECR I-11779 and Metallgesellschaft Ltd. and Others (Case
C-397/98) & Hoechst AG, Hoechst UK Ltd. (Case C-410/98) [2001] ECR I-1727.
8 See Bosal (Case C-168/01) [2003] ECR I-9409
9 See AMID (Case C-141/99) [2000] ECR I-11619.
10 C. Baars v Inspecteur der Belastingdienst (Case C-251/98) [2000] ECR I-2787.