CFE Tax Advisers Europe’s ECJ Task Force has issued an Opinion Statement on Case C-601/23, Credit Suisse Securities (Europe) Ltd v Diputación Foral de Bizkaia, in which the Court of Justice of the EU examined whether the denial of a withholding tax refund to a non-resident loss-making company infringes the free movement of capital. The Statement analyses the reasoning of the Court and reflects on the broader implications for EU tax law.
CJEU Clarifies Treatment of Non-Resident Loss-Making Companies in Credit Suisse Withholding Tax Decision
Credit Suisse concerned a UK-resident company that received dividends from a Spanish company without having a permanent establishment in Spain. Under domestic rules, resident companies could obtain a refund of withholding tax in years where they were loss-making; this relief was not available to non-residents. The Court of Justice of the EU in its decision confirmed the approach taken in Sofina, ruling that national legislation which does not allow reimbursement of withholding tax to non-resident companies in a loss-making position may infringe the free movement of capital under Article 63 TFEU.
The Court found that such differential treatment constituted a restriction on capital movement, as it was liable to dissuade investment across Member States. The CJEU held that the situations of resident and non-resident taxpayers were objectively comparable in this context, given that both were subject to tax on the same type of income. The Court reaffirmed that the potential for other tax advantages, such as a lower withholding rate under a double tax treaty, does not offset a less favourable treatment for non-residents.
Justifications and Legal Principles
In addressing the justifications advanced by the referring court and intervening governments, the CJEU accepted that the objective of securing effective tax collection is legitimate, but found that this aim could not justify the refusal to provide equal treatment to non-resident companies. The Court noted that the availability of administrative cooperation between Member States reduces the risk of non-payment. Similarly, arguments based on preserving a balanced allocation of taxing rights and the risk of double use of losses were not accepted, as resident companies in comparable situations were afforded more favourable treatment. The justification based on the coherence of the tax system was also found not to apply, as the Court did not identify a direct link between the advantage and a corresponding tax burden.
While the decision refers to earlier case law such as Futura, the judgment does not directly address the application of the territoriality principle or the conditions under which foreign losses must be taken into account. The CFE notes that no specific guidance was provided on whether the loss-making position of a non-resident company should be assessed under the law of the residence state, the source state, or both. That question is currently the subject of a reference to the CJEU in Société Générale.
Implications and Open Questions
CFE Tax Advisers Europe also notes that the implications of Credit Suisse may extend beyond dividend withholding taxes. While the decision is limited to the facts of the case, the reasoning could be relevant for other types of withholding taxes or source-based taxation of income. The potential interaction with group taxation regimes may also give rise to questions about how domestic loss-compensation mechanisms should apply in cross-border scenarios, particularly where profit and loss offsetting is permitted among domestic group members.
CFE Tax Advisers Europe observes that the Credit Suisse judgment did not introduce new legal reasoning beyond that set out in Sofina, and the Court did not address the broader academic and practical issues raised in response to that earlier decision. The scope of the case law remains to be further clarified, in particular in relation to the treatment of losses and the implementation of equivalent mechanisms for non-resident taxpayers. The CFE will continue to follow developments in this area closely.
We invite you to read the statement and remain available for any queries.