CELEX: 62004CJ0039
Restrictions on the freedom to provide services
Tax legislation
Corporation tax
Tax credit for research

The reference for a preliminary ruling concerns the interpretation of Article 49 EC in relation to national legislation providing
for a a tax credit for research available solely for research activities carried out in France.
The reference was made in the context of proceedings between Laboratoires Fournier SA (‘Fournier’), a company governed by
French law, and the Direction des vérifications nationales et internationales de la direction générale des impôts du ministère
de l’Économie, des Finances et de l’Industrie (National and International Audit Directorate, Ministry of the Economy, Finance
and Industry) (‘Direction des vérifications’) concerning adjustments, which had been notified by the latter and resulted from
the fact that a tax credit for research which Fournier had received in respect of corporation tax had been challenged.
National legislation
Article 244(c)B of the French Code général des impôts (General Tax Code) (‘Code général’), in the version in force at the
time of the facts giving rise to the main proceedings, provided:
‘I.
Industrial and commercial or agricultural undertakings assessed on their actual profit may receive a tax credit equal to 50%
of the amount by which research expenditure in the course of a year exceeds the average expenditure of the same nature, recalculated
in line with any increase in the retail price index excluding tobacco, incurred in the course of the two preceding years ...’
Article 49(g)H of Annex III to the Code général provided, in the version in force at the time of the facts giving rise to
the main proceedings:
‘Expenditure relating to activities carried out in France gives rise to entitlement to the tax credit mentioned in Article
244(c)B of the Code général des impôts.’
The main proceedings and the questions referred for a preliminary ruling
The order for reference indicates that Fournier, which manufactures and sells pharmaceuticals, subcontracted to research centres
based in various Member States numerous research projects and took the resultant expenditure into account in calculating its
tax credit for research for the years 1995 and 1996.
In 1998 Fournier was audited for those years.
Following that audit, tax adjustment notices were issued to Fournier, pursuant to Article 244(c)B of the Code général and
Article 49(g)H of Annex III to that code, as the Direction des vérifications had disallowed the aforementioned expenditure
for the calculation of the tax credit for research claimed by Fournier. The resultant additional tax assessments were levied
on Fournier for the period at issue in the main proceedings.
Fournier lodged an objection against those assessments. That objection was rejected on 25 July 2001.
Fournier brought proceedings before the Tribunal administratif (Administrative Court), Dijon, on 8 September 2001. By that
application it seeks the discharge of the additional assessments to corporation tax resulting from the adjustments notified
to it, together with interest for late payment.
The national court states that Fournier submits that Article 244(c)B of the Code général and Article 49(g)H of Annex III to
that code are contrary to Article 49 EC.
According to the national court, the Direction des vérifications maintains that, by its judgment in Case C-204/90
Bachmann
[1992] ECR I-249, the Court accepted that the requirements of Article 49 EC may be restricted with the aim of preserving
the coherence of the domestic tax system in each Member State.
In those circumstances, the Tribunal administratif, Dijon, decided to stay proceedings and to refer the following questions
to the Court for a preliminary ruling:
‘Are the provisions mentioned in Article 244(c)B of the Code général des impôts and in Article 49(g)H of Annex III to the
said code, in so far as they restrict the benefit of the tax credit for research to research activities performed in France,
contrary to the provisions of Article 49 [EC]?
If the answer to that question is in the affirmative, is the condition that the research activities be performed in France
laid down by those tax provisions partaking of the principle of coherence of corporation tax and thus allowing restriction
of the requirements of Article 49 [EC]?’
On the questions referred for a preliminary ruling
By its two questions, which it is appropriate to consider together, the national court asks essentially whether Article 49
EC precludes legislation of a Member State which restricts the benefit of a tax credit for research only to research carried
out in that Member State.
Although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence
consistently with Community law (see, inter alia, Case C-80/94
Wielockx
[1995] ECR I‑2493, paragraph 16, and Case C-242/03
Weidert and Paulus
[2004] ECR I-0000, paragraph 12).
Moreover, the legislation of a Member State, such as that at issue in the main proceedings, by restricting the benefit of
a tax credit for research only to research carried out in that Member State, makes the provision of services constituted by
the research activity subject to different tax arrangements depending on whether it is carried out in other Member States
or in the Member State concerned (see, to that effect, Case C-55/98
Vestergaard
[1999] ECR I-7641, paragraph 21).
Such legislation differentiates according to the place where the services are provided, contrary to Article 49 EC.
The French Government submits, however, that that difference of treatment flows directly from the principle of fiscal territoriality,
which the Court expressly recognised in Case C-250/95
Futura Participations and Singer
[1997] ECR I‑2471, paragraph 22, and hence cannot be regarded as giving rise to overt or covert discrimination prohibited
by the EC Treaty.
In that case, however, the Court was considering the compatibility with the Treaty provisions on the freedom of establishment
of national tax rules applying to resident and non-resident undertakings, whereas the main proceedings in the present case
involve an assessment of the compatibility with the Treaty of national tax provisions which confer a benefit on companies
established in a Member State in return for the provision of services provided on their behalf in that Member State alone.
Such provisions are contrary to Article 49 EC because they are, albeit indirectly, based upon the place of establishment of
the provider of services and are consequently liable to restrict its cross-border activities.
It is however necessary to determine whether the unequal treatment under such provisions may be justified having regard to
the Treaty provisions on the freedom to provide services.
Although it is true that It is true that in
Bachmann
(paragraph 28) and Case C-300/90
Commission
v
Belgium
[1992] ECR I‑305, paragraph 21, the Court accepted that the need to safeguard the coherence of the tax system could justify
a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty. Subsequently, however, it has stated that,
in
Bachmann
and
Commission
v
Belgium
, there was a direct link, with respect to the taxpayer subject to income tax, between the deductibility of the insurance
contributions from taxable income and the later taxation of the sums paid by the insurers under pension and life assurance
contracts, and that link had to be maintained in order to preserve the coherence of the tax system concerned (see, inter alia,
Case C-484/93
Svensson and Gustavsson
[1995] ECR I‑3955, paragraph 18, and Case C-319/02
Manninen
[2004] ECR I-0000, paragraph 42). Where there is no such direct link, the argument based on the need to safeguard the coherence
of the tax system cannot be relied upon (see, inter alia,
Weidert and Paulus
, paragraphs 20 and 21).
In a situation such as that in the main proceedings, there is no such direct link between general corporation tax, on the
one hand, and a tax credit for part of the research expenditure incurred by a company, on the other.
The French Government submits, however, that the national legislation in question in the main proceedings is justified by
the objective of promoting research and by the need to ensure effective fiscal supervision.
Although the promotion of research and development may, as argued by the French Government, be an overriding reason relating
to public interest, the fact remains that it cannot justify a national measure such as that at issue in the main proceedings,
which refuses the benefit of a tax credit for research for any research not carried out in the Member State concerned. Such
legislation is directly contrary to the objective of the Community policy on research and technological development which,
according to Article 163(1) EC is, inter alia, ‘strengthening the scientific and technological bases of Community industry
and encouraging it to become more competitive at international level’. Article 163(2) EC provides in particular that, for
this purpose, the Community is to ‘support [undertakings’] efforts to cooperate with one another, aiming, notably, at enabling
[them] to exploit the internal market potential to the full, in particular through … the removal of legal and fiscal obstacles
to that cooperation.’
Effectiveness of fiscal supervision constitutes an overriding requirement of general interest capable of justifying a restriction
on the exercise of the fundamental freedoms guaranteed by the Treaty (see, inter alia,
Futura Participations and Singer
, paragraph 31). A Member State may therefore apply measures which enable the amount of costs deductible in that State as
research expenditure to be ascertained clearly and precisely (Case C-254/97
Baxter and Others
[1999] ECR I-4809, paragraph 18).
However, national legislation which absolutely prevents the taxpayer from submitting evidence that expenditure relating to
research carried out in other Member States has actually been incurred and satisfies the prescribed requirements cannot be
justified in the name of effectiveness of fiscal supervision. The possibility cannot be excluded a priori that the taxpayer
is able to provide relevant documentary evidence enabling the tax authorities of the Member State of taxation to ascertain,
clearly and precisely, the nature and genuineness of the research expenditure incurred in other Member States (see
Baxter and Others
, paragraphs 19 and 20).
Accordingly, the answer to the questions referred must be that Article 49 EC precludes legislation of a Member State which
restricts the benefit of a tax credit for research only to research carried out in that Member State.
Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court,
the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs
of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) rules as follows:
Article 49 EC precludes legislation of a Member State which restricts the benefit of a tax credit for research only to research
carried out in that Member State.
[Signatures]
–
Language of the case: French.