The European Commission has brought the Kingdom of Spain before CJEU in corporate tax matter

The action was brought before the court on February 11 2011, and the issue at stake are valuation rules. According to the European Commission, Article 17(1) of Royal Legislative Decree 4/2004 of 5 March approving the consolidated text of the Law on Corporation Tax, the Kingdom of Spain has failed to comply with its obligations under Article 49 of the Treaty on the Functioning of the European Union and Article 31 of the Agreement on the European Economic Area.

The provision at issue introduces special treatment for unrealised capital gains on assets of companies that transfer their residence to another Member State of the European Union, cease their activity in Spain in order to continue it in another Member State or transfer their activities to another Member State. In those cases, Spain taxes the unrealised capital gains at the time of exit, so that the affected companies must settle a tax debt in respect of unrealised and hypothetical revenues which may never be realised. That regime amounts to an exception to the normal rule according to which tax is levied

on revenue actually obtained by the taxable person during the taxable period.


The Commission submits that that aspect of the Spanish legislation is incompatible with the TFEU and with the EEA Agreement, since it is a discriminatory measure, and in any event a disproportionate restriction on the freedom of establishment. The Spanish rule could discourage movements of companies or assets which would result in a better distribution of economic resources.

The Commission considers that companies must have the right to transfer their registered office or individual assets to another Member State without being subject to excessively complex and onerous procedures. According to the Commission, there is no justification for the immediate charging of taxes on unrealised capital gains when a Spanish company is transferred to another Member State or when a permanent establishment ceases activity in Spain or transfers its assets from Spain to another Member State, if that kind of taxation is not found in comparable national situations.

The case number is C-64/11. Keep you posted on this one.