Tuesday, 30 April 2024

On April 26, 2024, the French Supreme Administrative Court (Conseil d'Etat) delivered a judgment (No. 466062) regarding the deductibility of losses incurred by a French company's Permanent Establishment (PE) in Luxembourg against its taxable profits in France. The French company, after closing its PE in Luxembourg, attempted to offset its losses against the profits of its tax-consolidated group in France. This approach was contested by the French tax authorities, leading to a legal battle.

While the lower court sided with the taxpayer, the Supreme Administrative Court ruled differently. It highlighted that under French domestic law and the France-Luxembourg tax treaty, losses from a PE abroad cannot be deducted, though losses from a domestic branch are deductible. The Court reasoned that this differential treatment does not infringe the EU's freedom of establishment principle, considering that the situations are not comparable — France only taxes profits from a Luxembourg PE, while it taxes all profits of a domestic branch.

The Court concluded that the rules were clear and there was no need to refer the case to the Court of Justice of the EU (CJEU). This decision is final and cannot be appealed, affirming that the company cannot deduct the Luxembourg PE's losses from its French taxable income.