Judgment — ECLI:EU:C:2011:273
Date: 2011-05-05
Language of the case: Portuguese
Court formation: Fourth Chamber
Subject matter: Free movement of capital
Procedure: Action for failure to fulfil obligations - successful;Action for failure to fulfil obligations - unfounded
Origin: Portugal

summary of the pleas in law on which the application is based and that that statement must be sufficiently clear and precise to enable the defendant to prepare its defence and the Court to rule on the application. It is therefore necessary for the essential points of law and of fact on which a case is based to be indicated coherently and intelligibly in the application itself and for the heads of claim to be set out unambiguously so that the Court does not rule ultra petita or indeed fail to rule on a claim (see, inter alia, Case C‑343/08 Commission v Czech Republic [2010] ECR I‑0000, paragraph 26). 26 By the present action the Commission, according to the terms of its application, seeks a declaration that the Portuguese Republic has failed to fulfil its obligations under Articles 18 EC and 56 EC and the corresponding articles of the EEA Agreement. 27 In this case it must be observed, first, that it is clear from the pleas in law and the arguments put forward in the Commission’s application that the Commission criticises the Portuguese Republic for maintaining in force legislative provisions which are alleged to be contrary to the principle of freedom of movement enshrined in the articles of the EC Treaty and the EEA Agreement cited. 28 Second, as regards the argument concerning the EEA Agreement, it must be observed that it is true that the application was a little unclear in that respect in confining itself, having pleaded a breach of Articles 18 EC and 56 EC, to observing that there was a breach of the ‘corresponding articles’ of that agreement. However, it is common ground, first, that the Commission made clear in its reply that it intended to rely on breach of Article 40 of that agreement alone. Second, and in any event, it must be observed that, as is apparent from paragraph 59 of the defence of the Portuguese Republic, it is clear that the latter cannot reasonably be in any doubt that the Commission’s ground of challenge regarding the EEA Agreement in fact referred to Article 40 of that agreement. Accordingly, the Portuguese Republic was in a position to avail itself of its right to defend itself. 29 Third, although the Portuguese Republic maintains that the arguments presented by the Commission in its reply render its reasoning incoherent and uncertain, that assessment relates to the question whether the argument is well founded and does not call into question the admissibility of the action, since the grounds of challenge put forward are clear. 30 Finally, in raising, in its reply, the discriminatory nature of the disputed measure also as regards residents who exercise their right to freedom of movement temporarily, the Commission confined itself to replying to the argument submitted in its defence by the Portuguese Republic alleging that the appointment of a tax representative was required of both residents and non-residents. That response cannot, therefore, be analysed as a new plea of the Commission. 31 It is apparent from the foregoing considerations that the present action must be declared admissible. The alleged failure to fulfil obligations 32 It must be considered whether, as the Commission maintains, Article 130 of the CIRS constitutes a restriction on the free movement of capital provided for by Article 56 EC and Article 40 of the EEA Agreement, and on the freedom of movement for persons, provided for by Article 18 EC. – Breach of Article 56(1) EC 33 It is common ground that Article 130 of the CIRS lays down an obligation to appoint a tax representative both for non-residents in receipt of income subject to income tax and for residents who leave Portugal for more than six months. As to the question whether a rule of that nature is such as to cover situations falling within the scope of Article 56 EC, it must be observed that the Portuguese Republic does not dispute that the obligation laid down by Article 130 of the CIRS applies in the case cited by the Commission of capital movements related to investments in immovable property. 34 According to settled case-law, capital movements include investments in immovable property on the territory of a Member State by non-residents, as is clear from the nomenclature of capital movements set out in Annex I to Council Directive 88/361/EEC, that nomenclature retaining the same indicative value for the purposes of defining the notion of capital movements (see Case C-370/05 Festersen [2007] ECR I-1129, paragraph 23, and Case C-451/05 ELISA [2007] ECR I-8251, paragraph 59). 35 Accordingly, Article 130 of the CIRS falls within the scope of both Article 56(1) EC, which prohibits, generally, restrictions on capital movements between the Member States, and Article 40 of the EEA Agreement, which contains an identical prohibition as regards relations between the States party to that agreement, whether they are Members of the European Union or of EFTA (see, as regards the latter article, Case C-72/09 Établissements Rimbaud [2010] ECR I-0000, paragraph 21). 36 Consequently, it must be considered whether the obligation laid down in Article 130 of the CIRS constitutes a restriction on capital movements. 37 In that regard it cannot be disputed that, in obliging the taxpayers in question to appoint a tax representative, Article 130 of the CIRS requires them to take action and, in practice, to bear the cost of remunerating that representative. Such constraints create for those taxpayers a difficulty liable to discourage them from investing capital in Portugal and, in particular, from investing in property. It follows that that obligation must be regarded as a restriction on the free movement of capital which is generally prohibited by Article 56(1) EC and Article 40 of the EEA Agreement. 38 However, by arguing that the aim pursued by the obligation to appoint a tax representative is to ensure the effectiveness of fiscal supervision and the prevention of tax avoidance in the context of income tax for natural persons, the Portuguese Republic is relying on an overriding requirement of general interest capable of justifying a restriction on the exercise of freedom of movement guaranteed by the Treaty, and the Commission does not dispute that (see, inter alia, ELISA, paragraph 81; Case C-101/05 A [2007] ECR I‑11531, paragraph 55, and Joined Cases C-155/08 and C-157/08 X and Passenheim-van Schoot [2009] ECR I-5093, paragraph 45). 39 According to the Commission, the requirement laid down by the national legislation at issue is, however, disproportionate in view of the objective pursued, since the mechanisms offered both by Directive 2008/55 and by Directive 77/799 are sufficient for the achievement of that objective. 40 As regards Directive 77/799, it must be recalled that, under the combined provisions of Article 1(1), (3), and (4) thereof, the competent authorities of the Member States are to exchange any information which may enable them to effect a correct assessment of income taxes in particular. Article 2 of Directive 77/799 provides that this exchange of information is to occur at the request of the competent authority of the Member State concerned. As is clear from Article 3 of that directive, the competent authorities of the Member States are also to exchange information without prior request, automatically, in respect of certain categories of cases referred to in the directive or even, in accordance with Article 4 thereof, spontaneously. Lastly, Article 11 of Directive 77/799 states that the provisions of the directive are not to impede the fulfilment of any wider obligations to exchange information which might flow from other legal acts (ELISA, paragraphs 39, 40 and 42). 41 The Portuguese Republic maintains, however, that it may submit a request for information under Article 2 of Directive 77/799 only if it has sufficient information at its disposal beforehand, which would entail the presence of a tax representative resident in Portugal of whom the tax authorities could require directly and in person the completion of all the relevant obligations as to tax returns on behalf of the non-resident taxpayer. 42 In that regard it must be recalled that, in accordance with settled case-law, the prevention of tax evasion can be accepted as justification only if the legislation is aimed at wholly artificial arrangements the objective of which is to circumvent the tax laws, which precludes any general presumption of tax evasion. Consequently, a general presumption of tax avoidance or tax evasion cannot justify a fiscal measure which compromises the objectives of the Treaty (ELISA, paragraph 91 and the case-law cited). 43 In so far as it particularly concerns all non-resident taxpayers in receipt in Portugal of income requiring the submission of a tax return, the obligation to appoint a tax representative imposes in respect of an entire category of taxpayers, solely by reason of the fact that they are not residents, a presumption of tax avoidance or tax evasion which cannot on its own justify the compromising of the objectives of the Treaty by such an obligation. 44 Furthermore, where taxable items have been concealed from the tax authorities of a Member State and they have no evidence allowing them to initiate an investigation, it does not appear that the obligation to appoint a tax representative would, in itself, lead to the disclosure of such evidence and make good the alleged insufficiency of the mechanisms for the exchange of information under Directive 77/799. 45 Thus, it is not established that, in the event that a taxpayer who is not resident in Portugal fails to fulfil his obligations concerning tax returns and the tax due proves not to have been paid, the mechanisms of mutual assistance between the competent tax authorities of the Member States, relied on by the Commission and as provided for in the field of direct taxation by Directive 77/799, are not sufficient for the effective recovery of tax. There is therefore no need to ascertain whether the same is true of the mechanisms provided for as regards recovery of those taxes by Directive 2008/55, even if it were applicable ratione temporis in the present case. 46 It follows that the obligation to appoint a tax representative goes beyond what is necessary to achieve the objective of preventing tax evasion and that, consequently, the Commission’s assertion that such an obligation constitutes an unjustified restriction on the free movement of capital provided for by Article 56 EC is well founded. 47 Moreover, the obligation to appoint a tax representative is not an appropriate or necessary measure to deal with the ‘practical problem’ identified by the Portuguese Republic, which lies in the fact that it is impossible to have direct contact with non-resident taxpayers because of the physical distance between them and the administrative bodies concerned, which slows down the operation of those bodies. With modern communication methods, it is possible to oblige non-resident taxpayers to give an address in another Member State for all notifications from the Portuguese tax authorities. As the Commission points out, in cases where the physical presence of the taxpayer is essential, it is sufficient to give him the option of being represented by a tax representative, rather than imposing a general obligation. 48 On the other hand, it must be found that, as the Portuguese Republic maintains, the obligation to appoint a tax representative laid down by Article 130 of the CIRS in order, as that article states, to represent non-residents in dealings with the Directorate-General for Taxation and to ensure their compliance with their obligations as regards taxation is not imposed on taxpayers in receipt only of income subject to deduction of tax at source, who do not have to submit a tax return. 49 It is common ground that, under the combined provisions of Article 3(5) of Decree-Law No 463/79 and Decree No 21 305/2003, tax consultants, which are the entities which deduct the tax, pay the tax due on income subject to such deduction in the name and for the account of those taxpayers. They are required, in that capacity, to register with the tax authorities themselves and thus already represent those taxpayers in dealings with those authorities and accordingly complete the formalities as regards tax returns in relation to that income. The Commission may not, therefore, effectively maintain that such an arrangement is only apparent from circular No 14/93, which, given its legal status, does not allow the taxpayers concerned to ascertain clearly their position as regards the obligation laid down by Article 130 of the CIRS. Accordingly, the failure to fulfil obligations found in paragraph 46 of this judgment in the light of the provisions of Article 56 EC cannot be considered to be established as regards those non-residents in receipt only of income subject to deduction of tax at source. – Breach of Article 40 of the EEA Agreement 50 One of the principal aims of the EEA Agreement is to provide for the fullest possible realisation of the free movement of goods, persons, services and capital within the whole European Economic Area, so that the internal market established within the European Union is extended to the EFTA States. From that angle, several provisions of the abovementioned Agreement are intended to ensure as uniform an interpretation as possible thereof throughout the EEA (see Opinion 1/92 of 10 April 1992, [1992] ECR I‑2821). It is for the Court in that context to ensure that the rules of the EEA Agreement which are identical in substance with those of the Treaty are interpreted in a uniform manner within the Member States (Case C‑452/01 Ospelt and Schlössle Weissenberg [2003] ECR I‑9743, paragraph 29, and Case C-540/07 Commission v Italy [2009] ECR I‑10983, paragraph 65). 51 It follows that, if restrictions on the free movement of capital between nationals of States party to the EEA Agreement must be assessed in the light of Article 40 of and Annex XII to that Agreement, those stipulations have the same legal scope as those of the substantially identical provisions of Article 56 EC (Case C‑521/07 Commission v Netherlands [2009] ECR I-4873, paragraph 33, and Commission v Italy, paragraph 66). 52 Consequently, and for the reasons set out when examining the Commission’s action in the light of Article 56(1) EC, the obligation to appoint a tax representative which the Portuguese legislation imposes on non-residents constitutes a restriction on the free movement of capital within the meaning of Article 40 of the EEA Agreement. 53 It must, however, be held that, as is apparent from paragraphs 43 to 46 of the present judgment, that restriction could not be regarded as justified in the light of Article 56 EC by the overriding requirement of general interest of ensuring the effectiveness of fiscal supervision and the prevention of tax avoidance, since it goes beyond what is necessary to achieve that objective and given that it has not been established that the mechanisms of mutual assistance between the competent tax authorities of the Member States in the field of direct taxation available to the Portuguese Republic under Directive 77/799 are not sufficient for the achievement of that objective. 54 None the less, as the Court has already held, the case-law concerning restrictions on the exercise of freedom of movement within the Union cannot be transposed in its entirety to movements of capital between Member States and non-member countries, since such movements take place in a different legal context (see A, paragraph 60, and Commission v Italy, paragraph 69). 55 In this case, it should first be noted that the framework of cooperation between the competent authorities of the Member States established by Directive 77/799 does not exist between the latter and the competent authorities of a non-Member State when the latter has not entered into any undertaking of mutual assistance. 56 In that regard, in confining itself, in its reply to the observations submitted by the Spanish Government in its statement in intervention in support of the forms of order sought by the Portuguese Republic, to mentioning in a very general way the agreements linking it to the States belonging to the EEA which were not Members of the Union, the Commission failed to establish that those agreements actually included sufficient mechanisms for the exchange of information to verify and monitor the returns submitted by taxable persons residing in those States. 57 Accordingly, it must be considered that, in so far as it concerns taxpayers residing in States party to the EEA Agreement which are not Members of the Union, the obligation to appoint a tax representative does not go beyond what is necessary to achieve the objective of ensuring the effectiveness of fiscal supervision and preventing tax avoidance. 58 The action must therefore be dismissed in so far as it claims infringement by the Portuguese Republic of its obligations under Article 40 of the EEA Agreement. – Breach of Article 18 EC 59 In addition, the Commission seeks a declaration from the Court that the Portuguese Republic has failed to fulfil its obligations under Article 18 EC. 60 Since the provisions of the Treaty and the EEA Agreement on the free movement of capital preclude the contested legislation, there is no need for a separate examination of that legislation in the light of Article 18 EC concerning freedom of movement for persons (see, by analogy, Case C-345/05 Commission v Portugal [2006] ECR I-10633, paragraph 45). 61 It follows from all the foregoing considerations that it must be declared that by adopting and maintaining in force Article 130 of the CIRS which requires non-residents to appoint a tax representative in Portugal if they are in receipt of income requiring the submission of a tax return, the Portuguese Republic has failed to fulfil its obligations under Article 56 EC. Costs 62 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Under Article 69(3) of those rules, where each party succeeds on some and fails on other heads, or where the circumstances are exceptional, the Court may order that the costs be shared or that the parties bear their own costs. 63 In this dispute, account must be taken of the fact that the Commission’s grounds of challenge regarding taxpayers in receipt only of income subject to deduction of tax at source and to the requirements of the EEA Agreement have not been upheld. 64 Therefore, the Portuguese Republic must be ordered to pay three-quarters of the costs, and the Commission to pay the remaining quarter. 65 Under the first subparagraph of Article 69(4) of those rules Member States which intervene in the proceedings are to bear their own costs. The Kingdom of Spain must accordingly bear its own costs. On those grounds, the Court (Fourth Chamber) hereby: 1. Declares that by adopting and maintaining in force Article 130 of the Personal Income Tax Code (Código do Imposto sobre o Rendimento das Pessoas Singulares), which requires non-residents to appoint a tax representative in Portugal if they are in receipt of income requiring the submission of a tax return, the Portuguese Republic has failed to fulfil its obligations under Article 56 EC; 2. Dismisses the action as to the remainder; 3. Orders the Portuguese Republic to pay three-quarters of the costs. Orders the Commission to pay the remaining quarter; 4. Orders the Kingdom of Spain to pay its own costs. [Signatures] * Language of the case: Portuguese.