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ECJ: Advocate General finds French legislation on group consolidation excluding lower-tier subsidiaries indirectly owned through companies in other Member States justifiable restriction on EC freedom of establishment

On 4 September 2008, Advocate General (AG) Juliane Kokott of the European Court of Justice (ECJ) gave her opinion in the case of Société Papillon v. Ministère du budget, des comptes publics et de la fonction publique (C-418/07). The French Supreme Court (Conseil d'Etat) had requested a preliminary ruling from the ECJ on 12 September

In this case, the AG concluded that the French legislation on group consolidation (régime d'intégration fiscale), contained in Art. 223 A et seq. of the Code général des impôts (CGI), under which a French parent company cannot include in the group for tax consolidation purposes a French lower-tier subsidiary held indirectly by a subsidiary established in another Member State, while it can include a lower-tier subsidiary held indirectly by a subsidiary established in France, constitutes a restriction on the freedom of establishment (Art. 43 of the EC Treaty).

The AG, however, opined that this restriction could be justified by the need to preserve the coherence of the tax system, as an imperative requirement in the general interest, if the measure is suitable for preventing a double deduction of losses as a result of consolidation in question and does not go beyond what is necessary for attaining that objective. It is for the national court to verify whether these conditions are met.

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