Opinion of the Advocate General — ECLI:EU:C:2008:742
Date: 2008-12-18
Language of the case: Finnish
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Right of establishment;Taxation;Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: Finland

Summary of the Judgment Freedom of movement for persons – Freedom of establishment – Tax legislation – Corporation tax – Taxation of dividends (Arts 43 EC and 48 EC; Council Directive 90/435, Art. 2(a)) Articles 43 EC and 48 EC must be interpreted as precluding legislation of a Member State which exempts from withholding tax dividends distributed by a subsidiary resident in that State to a share company resident in that State, but charges withholding tax on similar dividends paid to a parent company in the form of an open-ended investment company (SICAV) resident in another Member State which has a legal form unknown in the law of the former State, does not appear on the list of companies referred to in Article 2(a) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, as amended by Directive 2003/123, and is exempt from income tax under the law of the other Member State. Such a difference in tax treatment of dividends between parent companies based on the place where they have their seat constitutes a restriction of freedom of establishment, prohibited in principle by Articles 43 EC and 48 EC, in that it makes it less attractive for companies established in other Member States to exercise freedom of establishment and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the Member State which applies such different treatment. It is true that, in the context of measures laid down by a Member State in order to prevent or mitigate the imposition of a series of charges to tax on, or economic double taxation of, profits distributed by a resident company, resident shareholders receiving dividends are not necessarily in a comparable situation to that of shareholders receiving dividends who are resident in another Member State. However, once a Member State, unilaterally or by way of a convention, imposes a charge to income tax not only on resident shareholders but also on non-resident shareholders in respect of dividends which they receive from a resident company, the position of those non-resident shareholders becomes comparable to that of resident shareholders. Consequently, where a Member State has chosen to relieve resident parent companies of a series of charges to tax on the profits distributed by a resident subsidiary, it must extend that relief to non-resident parent companies which are in a comparable situation, since an imposition of that kind on those non-resident companies results from the exercise of its tax jurisdiction over them. The circumstance that in national law there is no type of company with a legal form identical to that of a SICAV resident in another Member State cannot in itself justify a difference in treatment, since, as the company law of the Member States has not been fully harmonised at Community level, that would deprive the freedom of establishment of all effectiveness. Furthermore, the circumstance that the income of a SICAV is not taxed in its Member State of residence does not create a difference between a SICAV and a resident share company which justifies different treatment as regards withholding tax on dividends received by those two classes of company, where the Member State of the company paying the dividend has chosen not to exercise its tax jurisdiction over such income where it is received by resident companies. There is also no merit in the argument that, because a Member State does not tax the income of a SICAV, the imposition of a series of charges to tax takes place not at the level of the SICAV but at that of its members and should be avoided by the Member State in which those members reside, since it is in fact the Member State concerned which, by subjecting to withholding tax income that has already been taxed at the level of the distributing company, creates the series of charges to tax, a series which that Member State chose to prevent in the case of dividends distributed to resident companies. In those circumstances, the differences between a foreign SICAV and a share company governed by national law are not sufficient to create an objective distinction with respect to exemption from withholding tax on dividends received. Such a tax system cannot be justified on grounds connected with the prevention of tax avoidance, in so far as it does not specifically aim at purely artificial arrangements which do not reflect economic reality and are created solely with a view to escaping the tax normally due on the profits generated by activities carried out on national territory. As regards the argument concerning the balanced apportionment of the power to tax, where a Member State has chosen not to tax recipient companies established in its territory in respect of this kind of income, it cannot rely on the argument that there is a need to safeguard the balanced apportionment of the power to tax between the Member States in order to justify the taxation of recipient companies established in another Member State. The restriction of freedom of establishment constituted by that legislation also cannot be justified by the need to preserve the coherence of the tax system. Since the exemption of dividends from withholding tax is not subject to the condition that the dividends received by the share company are distributed onward by it and that their taxation in the hands of the shareholders in the company allows the exemption from withholding tax to be offset, there is no direct link between the exemption from withholding tax and the taxation of those dividends as income of the shareholders in a share company. (see paras 41-44, 50-51, 54-56, 65-67, 73-76, operative part)