Harmonised direct tax legislation at European level is extremely limited. With the exception of the Parent Subsidiary Directive and the Mergers Directive, enacted in 1990, the progress of other corporation tax harmonising measures is slow insofar as they provoke political controversy. In spite of this reality, the European Court of Justice (ECJ) appears to be acting as a driving force towards harmonisation of European corporation tax systems. The list of cross-border tax issues that the ECJ has tackled is rapidly expanding. The ECJ has not only rendered decisions on the interpretation of the two directives, but it has also issued decisions intended to form a body of case law in response to claims of discriminatory taxation brought by taxpayers.
The recent ECJ decision in favour of a Dutch company, Bosal Holding, on 18 September, 2003 is another example of this body of case law. Bosal is a Dutch holding company subject to corporation tax in The Netherlands. Under the participation exemption, Bosal was exempt from Dutch corporation tax on income from or capital gains deriving from the disposal of shares in subsidiaries resident in other European Union (EU) member states. However, costs (including interest) incurred by Bosal in relation to its subsidiaries resident in other member states were not tax deductible under the Dutch parent exemption, unless and to the extent that the subsidiaries generate taxable profits in The Netherlands. Nonetheless, Bosal claimed the deductibility of costs relating to EU subsidiaries.
