The Case

Article 49 of the EC Treaty (formerly art59 EC) did not preclude national legislation which made repayment of corporation tax deducted at source on the income of a taxpayer with restricted liability, subject to the condition that the operation expenses in respect of which a deduction was claimed for that purpose had a direct economic connection to the income received from activities pursued in the member state concerned, on condition that all the costs that were inextricably linked to that activity were considered to have such a direct connection, irrespective of the place and time at which those costs had been incurred. By contrast, art59 of the Treaty precluded such national legislation in so far as it made repayment of that tax to that taxpayer subject to the condition that those same operating expenses exceeded half of that income.