EU Advocate General clarifies when sub-subsidiary losses are final for tax deduction

By Davide Anghileri, University of Lausanne

The Advocate General of the EU Court of Justice on 10 January gave her opinion in the Holmen case (C-608/17), yet another case involving whether foreign losses of a foreign subsidiary can be deducted the State of the parent company.

The topic is important as, under EU case law, a parent company can use foreign losses only if its foreign subsidiary has exhausted all possibilities of having the losses taken into account and it is no longer otherwise possible to use the losses.

In her opinion, the Advocate General (AG) Juliane Kokot concluded that it was not possible to assume the existence of final losses in the case at stake as final losses in relation to the parent company were precluded in principle in the context of an indirect participation (that is, in the case of a sub-subsidiary), as the use of the losses in the sub-subsidiary made in the foreign country over the years would undermine the fiscal autonomy of the Member States, and as the condition of losses which are usable in law and in fact was not satisfied.


In the Holmen case, the parent company, a Swedish resident company, intended to set off losses from its profits made in Sweden not from its subsidiary but from an indirectly and wholly owned subsidiary, a sub-subsidiary.  Both the subsidiary and the sub-subsidiary were resident in Spain.

Since 2003, the Spanish companies had formed a tax grouping and were taxed in accordance with the Spanish tax consolidation system.

Under that system, the profits and losses of the entities which are members of the grouping can, without restriction, be set off against each other. That is achieved by the grouping drawing up a joint consolidated tax declaration for revenue. Unused losses may, without limit in time, be carried forward and deducted against any profits in future years.

However, beginning in 2011, the Spanish rules were amended to provide that only a portion of profits may be set off against previous years’ losses. Losses not deducted are carried forward, in the same way as other unused losses, to the following year.

If a tax group is dissolved because the entities in the grouping are liquidated any outstanding losses are allocated to the companies in which they arose. In the year of liquidation, only the entity that generates a loss can use the loss.

Holmen case conclusions

In her opinion in the Holmen case, the AG affirms states that losses in an indirectly owned company, like a sub-subsidiary, do not in principle constitute final losses in relation to the parent company of the subsidiary.

In fact, a different approach would result in the group having the right to choose whether the Member State of the subsidiary or the Member State of the parent company can use the final losses in the sub-subsidiaries.

Therefore, in accordance with article 49 in conjunction with article 54 TFEU, for losses to be set off transnationally for the parent company, the loss-making subsidiary should be, in principle, directly owned.

Moreover, a loss carried over is not regarded as a final loss even if it is not possible to set it off against earlier profits as a result of a restriction on loss relief in the subsidiary’s State, the AG said.

So, if the use of losses is precluded by law in the State of the sub-subsidiary, there are no final losses. The existence of that loss depends solely on the organisation of Spanish tax law and Sweden cannot be compelled to recognise that loss as reducing the tax burden.

Hence, Sweden’s preclusion of setting off of losses in a sub-subsidiary resident abroad and not taxed in national territory is not disproportionate, the AG said.

In fact, there is neither a general principle of tax law or EU law to the effect that relief should somehow be granted for all losses at the end of a life cycle of a legal entity, the AG reasoned.


AG Kokott added that, in assessing whether there are final losses in the sub-subsidiary, only restrictions in respect of the sub-subsidiary are significant.

If it is possible for the sub-subsidiary to transfer the losses to a third party (a subsidiary for example), final losses in the sub-subsidiary are ruled out.

It is therefore immaterial whether third parties were able to use the loss in the specific case. This is relevant at most for the question whether for such third parties there are final losses in relation to their parent companies.

Davide Anghileri

Davide Anghileri

Researcher and lecturer at University of Lausanne

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.

Davide can be reached at

Davide Anghileri
Davide Anghileri
Davide can be reached at

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