CFE ECJ Task Force: Opinion Statement ECJ-TF 4/2022 on the ECJ Decision of 22 September 2022 in W AG (Case C-538/20) on the Deductibility of Foreign Final Losses

The CFE ECJ Task Force acknowledges the different views on the Court of Justice of the European Union’s (ECJ) “final loss” doctrine previously established in Lidl Belgium (Case C- 414/06) for treaty-exempt permanent establishments (PEs), but also notes that the reasoning of that case was implicitly renounced by the Court in Timac Agro (Case C-388/14) and in W AG (Case C-538/20). The W AG decision makes it clear that comparability should be examined differently depending on whether the tion is granted by domestic or tax treaty law. The CFE ECJ Task Force has reservations regarding this distinction. For the taxpayer, an exemption has the same economic effects regardless of whether it is adopted through domestic law or tax treaty law. Moreover, W AG departs from the Court’s reasoning and thinking in Lidl Belgium, which also concerned Germany and the same rules. Ideally, the Court should have made this explicit. Finally, it remains to be seen whether Marks and Spencer (Case C-446/03) is still “good law” or if W AG was one of the final nails in the coffin of the “final loss” doctrine.