Opinion of the Advocate General — ECLI:EU:C:2018:650
Date: 2018-08-07
Language of the case: French
Subject matter: Right of establishment;Free movement of capital
Procedure: Reference for a preliminary ruling
Origin: France

Summary — Judgment of the Court (Fifth Chamber), 22 November 2018 Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends – Taxation of dividends received by resident companies under general rules allowing a deferral of or a definitive exemption from taxation – National legislation requiring a definitive withholding tax on dividends paid to non-resident companies — Not permissible — Absence of justification (Arts 63 TFEU and 65 TFEU) Articles 63 and 65 TFEU must be interpreted as precluding the legislation of a Member State, such as that at issue in the main proceedings, pursuant to which the dividends paid by a resident company are subject to a withholding tax when they are received by a non-resident company, whereas, when such dividends are received by a resident company, under the general corporation tax rules they are subject to taxation at the end of the financial year in which they were received only if the latter company was profitable in that financial year, and such taxation may, where applicable, never be levied if that company ceases trading without becoming profitable after receiving those dividends. In that connection, the Court has accepted that the preservation of the balanced allocation of taxation powers between Member States constitutes a legitimate objective and that, in the absence of any unifying or harmonising measures adopted by the European Union, the Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation (judgment of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraph 35). Such a justification can be accepted where, inter alia, the rules at issue are intended to prevent behaviour capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried on in its territory (judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 77). Admittedly, if the non-resident company were to fail to become profitable prior to ceasing trading, this would result in an effective exemption of the income generated by the dividends and give rise to tax losses for the Member State of taxation. However, it is settled case-law of the Court that a reduction in tax revenue cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is, in principle, contrary to a fundamental freedom (judgment of 20 October 2011, Commission v Germany, C‑284/09, EU:C:2011:670, paragraph 83). Further, where Member States make use of the freedom to tax revenue generated on their territory, they are required to respect the principle of equal treatment and the freedoms of movement guaranteed by primary EU law (see, to that effect, judgment of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraph 36). The withholding tax to which the dividends paid to non-resident companies are subject serves, it is argued, to minimise the administrative formalities associated with the obligation on those companies to submit a tax return to the French tax authority at the end of the financial year. In that connection, the Court has held that the need to ensure the effective collection of tax is a legitimate objective capable of justifying a restriction on fundamental freedoms, provided, however, that that restriction is applied in such a way as to ensure achievement of the aim pursued and not go beyond what is necessary for that purpose (see, to that effect, judgment of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraph 39). Furthermore, the Court has previously held that retention at source is a legitimate and appropriate means of ensuring the tax treatment of the income of a person established outside the State of taxation (judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 39). In that connection, it should be recalled that the restriction on the free movement of capital arising from the national legislation at issue in the main proceedings rests, as is clear from paragraph 34 of the present judgment, in the fact that, unlike loss-making resident companies, non-resident companies which are also loss-making do not benefit from the deferral of taxation on the dividends which they receive. Granting the benefit of that deferral to non-resident companies, while necessarily eliminating that restriction, would not undermine the achievement of the aim of the effective collection of the tax owed by those companies when they receive dividends from a resident company. Accordingly, if the advantage associated with the deferral of taxation on dividends distributed were also granted to loss-making non-resident companies, that would have the effect of eliminating any restriction on the free movement of capital, but would not thereby impede the achievement of the aim pursued by the national legislation at issue in the main proceedings. (see paras 56, 57, 60-62, 66-70, 77, 79, operative part)