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Brussels, 19 December 2006

Direct Taxation: The European Commission proposes an EU co-ordinated approach on relief for losses incurred in other Member States (cross-border loss relief)

(see MEMO/06/499)

In the framework of an EU-coordinated approach in direct taxation (IP/06/1827), the European Commission invites Member States to explore ways of allowing companies to set off losses incurred in other Member States. In most Member States, domestic losses may be set-off against other profits in the same Member State. However, there is only limited availability for such relief for losses incurred in other Member States. The lack of cross-border relief for losses in the Member States' legislations creates a barrier to entering other markets and therefore undermines the international competitiveness of European companies. The Communication examines several solutions aiming at removing these obstacles.

"No company shall refrain from investing in another Member States for the simple reason that losses from domestic investments are immediately taken into account, whereas losses incurred in another Member State are excluded from such relief" said Taxation and Customs Commissioner László Kovács. "Especially Small and Medium Enterprises will more easily extend their activities to other Member States and reap the full benefits from the internal market."

Lack of availability of cross-border loss relief impacts on competitiveness

Relief for losses resulting from investments within the EU is generally limited to the amount of profits generated in the same Member State in which the investment is made. The lack or limited availability of cross-border loss relief results in distortions in business decisions within the internal market.

These distortions lead to less efficient companies and represent a major impediment to the emergence of more competitive EU firms on the world market. This also compares unfavourably with the USA, where the federal tax base is larger than that of any individual Member State and loss relief is provided for any investment made anywhere in the USA.

Solutions proposed by the Commission

A lack of cross-border loss relief leads to a situation where losses become stranded in different entities. This leads to "overtaxation", since other profitable entities will be taxed on their gross profits without a taking into account of the losses.

The Communication therefore suggests ways in which Member States may allow the cross-border relief of losses which are sustained either:

  • within a company (i.e. losses incurred by a branch or "permanent establishment" of the company situated in another Member State);
  • within a group of companies (i.e. losses incurred by a group member in another Member State).

The Commission urges Member States to explore ways of allowing companies to set off losses incurred in other Member States. The response should be coordinated in order to maximise the benefits for the internal market and reduce unnecessary duplication of effort in the 25 (soon 27) Member States.


In its Communication "Towards an Internal Market without tax obstacles" from October 2001 the European Commission identified the lack of cross-border loss relief as one of the most important obstacle to cross-border activities. Within the framework of the two-track strategy, the Commission committed itself to address the issue by a "targeted measure" in the short- to medium-term. In the longer-term, it would work towards providing companies with a Common Consolidated Corporate Tax Base (CCCTB) to deal with the tax obstacles comprehensively. After the introduction of the CCCTB, a targeted measure for cross-border loss relief would be complementary for all situations, where, for example, certain types of companies are not covered by the scope of the CCCTB.

The issue of cross-border loss relief has gained widespread attention by the judgement from the European Court of Justice in the "Marks & Spencer"[1] case rendered in December 2005. In this decision the Court obliges, under certain conditions, the Member State of a parent company to grant relief for definitive losses of a subsidiary established in another Member State.

More information on the tax treatment of losses in cross-border situations is available on the Europa internet site:

For more information on the EU Tax Policy strategy, see:

[1] See

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