Opinion of the Advocate General — ECLI:EU:C:2005:785
Date: 2005-12-15
Language of the case: German
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Free movement of capital
Procedure: Reference for a preliminary ruling
Origin: Germany

summary, it should therefore be stated that the tax rules in question cannot be described as cohesive under either a narrow or a broad interpretation of the cohesion principle. c) The lack of adequate means of supervision and verification 108. The tax office and the German Government, supported in this respect by the Government of the United Kingdom and the Chief State Solicitor of Ireland, suggest that German authorities do not have adequate means of supervision and verification with regard to foreign foundations. Problems may arise in particular because the German fiscal administration may not restrict the verification only to the foundation’s activity that is relevant for tax purposes, but must, in order to establish that the foundation has acquired and retained charitable status, be able to conduct a thorough check on all the foundation’s activities. 109. The practical difficulties that accompany a thorough verification of foundations which pursue cross-border activities cannot be denied. The necessity – indeed the indispensability – of such means of supervision and verification are undisputed in the light of growing concerns over public safety. 110. However, this argument fails to recognise that in the main proceedings the Bundesfinanzhof does not express any doubts as to the foundation’s charitable status and therefore evidently takes the view the German financial authorities’ means of verification are sufficient. (43) 111. In its case-law the Court states that the effectiveness of fiscal control may in principle justify an infringement of fundamental freedoms, but in most cases rejects such a justification with reference to existing means of mutual assistance. (44) (45) 112. With reference to the Mutual Assistance Directive, the Court has ruled on several occasions that a Member State is in a position to verify whether the conditions laid down in the relevant tax rules have been met. (46) 113. In any case, however, the abovementioned difficulties concern the recognition of the charitable status of a foundation with its seat abroad and do not justify for tax purposes any discrimination against foundations whose charitable status is not in doubt. As a result, the exclusion of charitable foundations with limited tax liability from tax exemption cannot be justified on grounds of effective fiscal supervision either. d) Other possible justifications 114. It is not possible either to concur with the argument made by the Chief State Solicitor of Ireland that the difference in treatment is justified on grounds of prevention of tax abuse. 115. The prevention of abuse and tax evasion do constitute a recognised justification. However, since in this case such a presumption of abuse is based only on the foreign connection and generally excludes all foreign foundations from the tax advantage, as the Commission rightly observes in its observations, it is in any case clearly to be regarded as disproportionate. 116. The German Government, the Government of the United Kingdom and the Chief State Solicitor of Ireland lastly rely on considerations of reciprocity, potential losses of tax revenue and the possibility of avoiding the discrimination at issue. 117. With regard to the risk of loss of tax revenue, the Court has stated, in Verkooijen for example, that the reduction in tax revenue ‘cannot be regarded as an overriding reason in the public interest.’ (47) 118. In its ‘avoir fiscal’ judgment (48) the Court held with regard to the reciprocity argument that the fundamental freedoms apply unconditionally and, in particular, do not permit the rights based on them to be made subject to a condition of reciprocity imposed for the purpose of obtaining corresponding advantages in other Member States. 119. With regard to the supposed possibility of avoiding the discrimination in question – for example by relocating – the Court ruled, in the same judgment, that the fundamental freedoms ‘expressly [leave] traders free to choose the appropriate legal form in which to pursue their activities in another Member State …’ (49) 120. In summary it must be stated that national rules of the kind at issue, under which a tax exemption is denied to institutions whose charitable status is recognised under national law, but which are subject to limited tax liability because their seat is abroad, constitute an unjustifiable restriction on the free movement of capital. V – Conclusion 121. It is therefore suggested that the question referred by the Bundesfinanzhof be answered as follows: Articles 736 and 73d of the EC Treaty (now Articles 56 EC and 58 EC) on the free movement of capital in the Community preclude national rules under which a charitable foundation – recognised under national law – established under private law in another Member State, with limited liability to tax on its rental income in Germany, unlike a charitable foundation established in Germany, with unlimited liability to tax and receiving similar income, is not entitled to exemption from corporation tax. Articles 736 and 73d of the EC Treaty (now Articles 56 EC and 58 EC) on the free movement of capital in the Community do not preclude national rules which treat institutions having their seat abroad, whose charitable status is not recognised under national law, differently from charitable institutions having their seat in Germany. 1 – Original language: German. 2 1996 Körperschaftsteuergesetz as published on 22 February 1996 (Bundesgesetzblatt I, p. 240, Bundersteuerblatt I, p. 166). 3 – See in particular Case C‑279/93 Schumacker [1995] ECR I‑225, paragraph 21, and Case C‑319/02 Manninen [2004] ECR I‑7477, paragraph 19. 4 – Case C‑120/95 Decker [1998] ECR I‑1831, paragraph 22 et seq. 5 – C‑158/96 Kohll [1998] ECR I‑1931, paragraph 18 et seq. 6 – Point 65 of that Opinion (judgment of 8 September 2005 in Case C‑512/03 Blanckaert [2005] ECR I-7685). 7 – The Court evidently took this view when, in its judgment in Case C‑355/00 Freskot [2003] ECR I‑5263, it ruled that the possible undermining of freedom to provide services on the basis of a compulsory insurance scheme may possibly be justified by the social policy objectives of that scheme. See also, most recently, the Opinion of Advocate General Poiares Maduro of 10 November 2005 in the pending Case C‑205/03 P (FENIN) concerning the application of the concept of undertaking to organisations managing a national health system. 8 – OJ 1988 L 178, p. 5. 9 – C‑174/00 Kennemer [2002] ECR I‑3293. 10 – C‑172/98 Commission v Belgium [1999] ECR I‑3999. 11 – Case C‑204/90 Bachmann [1992] ECR I-249, paragraph 34, and Case C‑484/93 Svensson and Gustavsson [1995] ECR I‑3955. 12 – See, for example, Case C‑35/98 Verkooijen [2000] ECR I‑4071, and Case C‑251/98 Baars [2000] ECR I‑2787. 13 – See, for example, Case C‑302/97 Konle [1999] ECR I‑3099. See Case C‑423/98 Albore [2000] ECR I‑5965, where the motives of the purchaser of the property were of minor importance. 14 – See Case C‑222/97 Trummer and Mayer [1999] ECR I‑1661, paragraph 21: ‘inasmuch as Article 73b of the EC Treaty [now Article 56 EC] substantially reproduces the contents of Article 1 of Directive 88/361, and even though that directive was adopted on the basis of Articles 69 and 70(1) of the EEC Treaty, which have since been replaced by Article 73b et seq. of the EC Treaty, the nomenclature in respect of movements of capital annexed to Directive 88/361 still has the same indicative value, for the purposes of defining the notion of capital movements, as it did before the entry into force of Article 73b et seq., subject to the qualification, contained in the introduction to the nomenclature, that the list set out therein is not exhaustive’. 15 – Case C‑423/98 Albore (cited in footnote 13), paragraph 14. This probably supersedes in this respect the judgments in Case 63/86 Commission v Italy [1988] ECR 29 and Case 305/87 Commission v Greece [1989] ECR 1461, which concerned national rules prohibiting nationals of other Member States from acquiring real property in certain areas of the country. The Court found that such rules were in breach of the principle of freedom of establishment, but this was at a time when the Treaty provisions on free movement of capital were not yet directly applicable. 16 – Case C‑302/97 Konle (cited in footnote 13, paragraphs 16 and 22). This was also the conclusion reached by Advocate General Alber in his Opinion in Baars (judgment cited in footnote 12), points 26 to 30, where the Advocate General considered direct investment and investment in real property together in that case and thus introduced the criterion of direct applicability. See also: Christoph Ohler, Europäische Kapital- und Zahlungsverkehrsfreiheit, Artikel 56 EG, paragraphs 126 to 129; Bernadette Schäfer, Die steuerliche Behandlung gemeinnütziger Stiftungen in grenzüberschreitenden Fällen, 316; Jurgen Bröhmer in Christian Calliess/Matthias Ruffert (ed.): Kommentar zu EU-Vertrag und EG-Vertrag, Artikel 56 EG, paragraphs 22 to 25, and Randelzhofer/Forsthoff in Grabitz/Hilf, EGV, Artikel 43 EG, paragraphs 28 to 31. 17 – See, most recently, Case C‑512/03 (cited in footnote 6), paragraph 30 et seq.: the applicant in the main proceedings in that case had acquired a holiday home abroad. The taxation of notional rental income from that property was assessed with reference to the free movement of capital, and not freedom of establishment. 18 – See point 38 above. 19 – In its settled case-law, the Court has defined establishment as the actual pursuit of a profit-making activity through a fixed establishment in another Member State for an indefinite period (for example Case C‑221/89 Factortame [1991] ECR I‑3905, paragraph 20). 20 – In Case C‑302/97 Konle (cited in footnote 13), on the other hand, the plaintiff in the main proceedings planned to use the real property – a cross-border acquisition – as a principal residence in order to operate a business from there in the framework of his undertaking, which already existed in Germany. 21 – See, for example, Case 36/74 Walrave and Koch [1974] ECR 1405, paragraph 4. 22 – Case 221/85 Commission v Belgium [1987] ECR 719, and Case C‑70/95 Sodemare and Others [1997] ECR I‑3395. 23 – Case 205/84 Commission v Germany [1986] ECR 3755, paragraph 21. 24 – See in this regard the arguments made by Tiedje and Troberg in: von der Groeben and Schwarze, Artikel 43 EG, paragraphs 44 to 46, and by Randelzhofer and Forsthoff in: Grabitz and Hilf, Artikel 43 EG, paragraph 59 with further references. 25 – Unlike in other economic sectors, insurance brokers generally play a key part in designing the insurance product, 26 – Case C‑364/01 Erben von Barbier [2003] ECR I‑15013. 27 – Cited in footnote 3. 28 – Case C-376/03 D [2005] ECR I-5821. 29 – With regard to direct taxation, the Court’s case-law deals with both natural and legal persons. The case-law on both groups generally follows the same principles, although there are some substantive differences which also have implications for the legal treatment of the two groups, such as the link between residence and the applicable law (see Case 270/83 Commission v France ECR 273, paragraph 18 ‘avoir fiscal’. 30 – See Schumacker (cited in footnote 3). 31 – See Case C‑35/98 Verkooijen (cited in footnote 12), paragraph 34 et seq. 32 – Case C-307/97 [1999] ECR I-6161. 33 – Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, certain excise duties and taxation of insurance premiums (OJ 1977 L 336, p. 15), as amended by Council Directive 2004/106/EG of 16 November 2004 (OJ 2004 L 359, p. 30, hereinafter ‘the Mutual Assistance Directive’). 34 – With regard to the system of the free movement of capital reference is made to Case C‑319/02 Manninen (cited in footnote 3), paragraphs 28 and 29. 35 – The reference to the Communication from the Commission on services of general interest in Europe of 20 September 2000, COM (2000) 580 (OJ 2001, C 17, p. 4) is mistaken because the Treaty makes a fundamental distinction between services of general economic interest (see, for example, Article 86(2) EC) and non-economic activities. 36 – Cited in footnote 28. 37 – Cited above, paragraph 61. 38 – Cited in footnote 11. 39 – Case C-300/90 [1992] ECR I-305. 40 – Case C-107/94 Asscher [1996] ECR I‑3089. 41 – Judgment cited in footnote 12. 42 – Cited above, paragraph 58. 43 – As is also shown by the grant of a similar tax exemption for foreign foundations in the double taxation conventions concluded with the United States on the one hand and France on the other. 44 – Particular mention should be made of the Mutual Assistance Directive (cited in footnote 33). 45 – See, for example, Case C-422/01 Skandiaand Ramstedt [2003] ECR I-6817, paragraph 42 et seq. 46 – Case C-422/01 Skandia and Ramstedt, cited above, paragraph 42 et seq., with further references. 47 – Judgment cited in footnote 12, paragraph 59. 48 – Cited above in footnote 29. 49 – Cited above, paragraph 22.