The plaintiff, a Belgian limited partnership (Columbus Container Services) with German resident partners, dealt with financing of subsidiaries and branches. Its profits and losses were assessed as foreign branch profits and assets of the German partners under German domestic law. According to the double tax treaty between Germany and Belgium, profits from and net assets of a Belgian partnership are exempt in Germany (both for income and wealth tax purposes). However, the German International Transactions Tax Act provides for a switch from the exemption to the credit method in respect of certain passive branch profits and assets. This treaty override was introduced to prevent circumvention of the CFC rules, which apply only to foreign subsidiaries. Doubting the compatibility with Community Law, the Tax Court of Münster referred the case to the ECJ.

The AG gave his opinion on March 29, 2007. With reference to the ECJ decision in Cadbury Schweppes (C-196/04), the AG executed a comparison on a horizontal level, thereby comparing the treatment of a German resident with a low-taxed Belgian branch as opposed to with a high-taxed branch in another Member State. In applying different methods...