Opinion of the Advocate General — ECLI:EU:C:2007:403
Date: 2007-07-03
Language of the case: Dutch
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Right of establishment
Procedure: Reference for a preliminary ruling
Origin: Netherlands

Summary of the Judgment 1. Free movement of capital – Restrictions – Tax legislation – Corporation tax – Taxation of dividends received by collective investment enterprises (Arts 56 EC and 58 EC) 2. Free movement of capital – Restrictions – Tax legislation – Corporation tax – Taxation of dividends received by collective investment enterprises (Arts 56 EC and 58 EC) 3. Free movement of capital – Restrictions – Meaning – Same interpretation with regard to relations with third countries and within the Community – Limits (Art. 56(1) EC) 4. Free movement of capital – Restrictions on movements of capital to or from third countries – Restrictions on capital movements involving direct investment which existed on 31 December 1993 – Meaning of ‘direct investment’ (Art. 57(1) EC) 1. Articles 56 EC and 58 EC do not preclude legislation of a Member State which grants a concession to fiscal investment enterprises established in that Member State on account of tax deducted at source in another Member State from dividends received by those enterprises, and restricts that concession to the amount which a natural person resident in the first Member State could have had credited, on account of similar deductions, on the basis of a double taxation convention concluded with that other Member State. It is true that, by excluding from the concession (relating to the taxation at source of dividends received abroad) dividends originating in certain Member States, such legislation makes investment in those Member States less appealing than investment in the Member States in which the taxation at source of those dividends gives rise to that concession. The legislation in question is therefore liable to deter a collective investment enterprise from investing in the Member States in which the taxation of dividends does not give rise to the concession and accordingly constitutes a restriction on the free movement of capital prohibited in principle by Article 56 EC. Nevertheless, such legislation seeks to make dividends received by a shareholder investing directly subject as far as possible to the same treatment for tax purposes as those received by a shareholder investing through the intermediary of a fiscal investment enterprise, so as to prevent investments abroad by such an enterprise from being regarded as less appealing than direct investments. However, under that legislation, where a fiscal investment enterprise receives dividends from Member States with which the Member State in which that enterprise is established has concluded a convention providing for shareholders who are natural persons to be entitled to credit the tax which those Member States have deducted from the dividends to the income tax for which those shareholders are liable in the Member State of establishment, the situation of that enterprise is different from that in which it finds itself when receiving dividends from Member States with which no such convention has been concluded, as there is no such entitlement in respect of those dividends. In fact, it is only as regards investments in the Member States with which such a bilateral tax convention has been concluded that, without the concession granted, the decision to invest through the intermediary of a fiscal investment enterprise runs the risk of being less advantageous to a shareholder who is a natural person than direct investment. By contrast, as regards the Member States with which the Member State of establishment of such an enterprise has not concluded such a convention, the decision, by a natural person, to invest through the intermediary of such an enterprise does not involve the risk of losing a benefit which he could have enjoyed if he had chosen to invest directly in those Member States. Accordingly, that situation is not objectively comparable to the situation in which the Member State of establishment of that enterprise has concluded such a tax convention. It follows that, in the case of legislation pursuant to which – in order to make the tax treatment of direct investments the same, as far as possible, as that of investments made through the intermediary of investment enterprises – a Member State has decided to grant those enterprises a concession in respect of tax deducted at source on dividends from Member States vis-à-vis which it has undertaken, under the terms of bilateral agreements, to allow natural persons to credit those deductions to the income tax for which they are liable under national law, Articles 56 EC and 58 EC do not preclude that Member State from withholding that concession in respect of dividends from other Member States with which it has not concluded bilateral agreements containing such provisions, as these are not objectively comparable situations. (see paras 56, 60-65, operative part 1) 2. Articles 56 EC and 58 EC preclude legislation of a Member State which grants a concession to fiscal investment enterprises established in that Member State on account of tax deducted at source in another Member State or third country from dividends received by those enterprises, and reduces that concession where and to the extent to which the shareholders of those enterprises are natural or legal persons resident or established in other Member States or in third countries, since such a reduction adversely affects all the shareholders of those enterprises without distinction, because it has the effect of reducing the total amount of profit for distribution. Such a reduction of the concession in proportion to the interest held by shareholders resident or established in another Member State creates a restriction on the free movement of capital, which is prohibited in principle by Article 56 EC, in so far as it is liable to impede the raising of capital by a fiscal investment enterprise in Member States other than that in which that enterprise is established, and is also liable to deter investors from those other Member States from acquiring shares in that enterprise. The exercise by a Member State of its fiscal sovereignty over the dividends paid by the fiscal investment enterprises established in that Member State both to shareholders resident or established in that Member State and to shareholders resident or established in other Member States – where such a concession is provided for – justifies the need to extend it to the fiscal investment enterprises that include shareholders who are not resident or established in that Member State. Even though such legislation seeks to distinguish between shareholders of collective investment enterprises according to whether they are resident and non-resident, so that the concession granted to them by means of a profit distribution by those enterprises corresponds to the rates of taxation to which those shareholders are respectively subject in the Member State of establishment of those enterprises, it must be noted that that objective cannot be achieved by a reduction of that concession in proportion to the interest in those enterprises held by shareholders resident or established in other Member States. Such a reduction adversely affects all the shareholders of fiscal investment enterprises without distinction, as it has the effect of reducing the total amount of profit for distribution. A reduction in tax revenue in relation to dividends paid by companies established in other Member States cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is contrary to a fundamental freedom. The approach in relation to situations in which shareholders of a fiscal investment enterprise are resident or established in another Member State can apply equally to situations in which shareholders of a collective investment enterprise are resident or established in third countries. In so far as, on the one hand, a Member State taxes dividends distributed by a fiscal investment enterprise established in that Member State to shareholders who are resident or established in third countries and, on the other hand, the concession granted to such an enterprise is reduced in proportion to the interest in that fiscal investment enterprise held by shareholders resident in third countries, without the fiscal treatment of those shareholders in the third countries being relevant in that regard, the need to guarantee the effectiveness of fiscal supervision cannot justify such a restriction on the movement of capital to or from third countries. On the assumption that the avoidance of a reduction in tax revenue may be relied upon as justification for a restriction on the movement of capital to or from third countries, such a justification cannot be taken into consideration inasmuch as that reduction affects all shareholders of the collective investment enterprise concerned without distinction, whether resident or established in the Member States or in third countries. In respect of such legislation, whether the foreign shareholders of a fiscal investment enterprise are resident or established in a State with which the Member State of establishment of that enterprise has concluded a convention providing for reciprocal crediting of tax deducted at source from dividends is irrelevant. (see paras 72, 74, 79, 82, 84, 92-97, 108, 113-114, operative part 2) 3. The concept of restrictions on movement of capital must be interpreted in the same manner with regard to relations between Member States and third countries as it is with regard to relations between Member States. Even if the liberalisation of the movement of capital with third countries may pursue objectives other than that of establishing the internal market, such as, in particular, that of ensuring the credibility of the single Community currency on world financial markets and maintaining financial centres with a worldwide dimension within the Member States, when the principle of free movement of capital was extended, pursuant to Article 56(1) EC, to movement of capital between third countries and the Member States, the latter chose to enshrine that principle in that article and in the same terms for movements of capital taking place within the Community and those relating to relations with third countries. However, movements of capital to or from third countries take place in a different legal context from that which occurs within the Community, since, because of the degree of legal integration that exists between Member States of the European Union, in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities, the taxation by a Member State of economic activities having cross-border aspects which take place within the Community is not always comparable to that of economic activities involving relations between Member States and third countries. It may also be that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States. (see paras 87-90) 4. A restriction is covered by Article 57(1) EC as being a restriction on the movement of capital involving direct investment in so far as it relates to investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity. (see para. 102, operative part 3)