Opinion of the Advocate General — ECLI:EU:C:2016:52
Date: 2016-01-27
Language of the case: Portuguese
Subject matter: Association Agreement;Right of establishment;External relations;Free movement of capital
Procedure: Reference for a preliminary ruling;Reference for a preliminary ruling - decision unnecessary
Origin: Portugal

Summary — Judgment of the Court (Fifth Chamber), 24 November 2016 1. Freedom of establishment — Free movement of capital — Scope — Tax legislation — Corporation tax — Taxation of dividends — Tax treatment of dividends distributed by a company resident in a third country — Tax treatment based on national legislation not intended to apply exclusively in the event of a decisive influence exerted by the recipient company on the distributing company — Provision governing freedom of establishment not applicable — Applicability of the provisions governing the free movement of capital (Arts 49 TFEU, 63 TFEU and 65 TFEU) 2. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Corporation tax — Taxation of dividends — National legislation allowing for the full or partial deduction by a company resident in a Member State of dividends distributed by a company which is a resident of the same Member State — Legislation not permitting such deduction in the case of a distributing company resident in a non-member State — Unlawful — Justification — Effectiveness of fiscal supervision and the fight against tax evasion — Conditions — Assessment by the national court (Arts 63 TFEU and 65 TFEU) 3. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Corporation tax — Taxation of dividends — National legislation allowing for the full or partial deduction by a company resident in a Member State of dividends distributed by a company which is a resident of the same Member State — Legislation not permitting such deduction in the case of a distributing company resident in a non-member State — Unlawful — Absence of justification based on the prevention of tax evasion (Arts 63 TFEU and 65 TFEU) 4. Free movement of capital and liberalisation of payments — Restrictions on movements of capital to and from non-member States — Restrictions on capital movements involving direct investments existing on 31 December 1993 — Concept of direct investment (Art. 64 TFEU) 5. Free movement of capital and liberalisation of payments — Restrictions on movements of capital to and from non-member States — Restrictions on capital movements involving direct investments which existed on 31 December 1993 — Concept of a restriction which existed on 31 December 1993 — Conclusion of an international agreement amending the legal framework, without formally repealing or amending the existing national legislation — Deemed to amount to the introduction of new national legislation (Art. 64 TFEU) 6. International agreements — Community agreements — Direct effect — Conditions — Article 34(1) of the Euro-Mediterranean EC-Tunisia (Euro-Mediterranean EC-Tunisia Association Agreement, Art. 34(1)) 7. International agreements — Euro-Mediterranean EC-Tunisia Association Agreement — Free movement of capital — Restrictions — Tax legislation — Corporation tax — Taxation of dividends — National legislation allowing for the full or partial deduction by a company resident in a Member State of dividends distributed by a company which is resident of the same Member — Legislation not permitting such deduction in the case of a distributing company resident in a non-member State — Unlawful — Justification — Effectiveness of fiscal supervision and the fight against tax evasion — Conditions — Assessment by the national court (Euro-Mediterranean EC-Tunisia Association Agreement, Arts 34(1) and 89) 8. International agreements — Community agreements — Direct effect — Conditions — Article 31 of the Euro-Mediterranean EC-Lebanon Association Agreement (Euro-Mediterranean EC-Lebanon Association Agreement, Art. 31) 9. International agreements — Euro-Mediterranean EC-Lebanon Association Agreement — Free movement of capital — Restrictions — Tax legislation — Corporation tax — Taxation of dividends — National legislation allowing for the full or partial deduction by a company resident in a Member State of dividends distributed by a company which is resident of the same Member — Legislation not permitting such deduction in the case of a distributing company resident in a non-member State — Unlawful — Justification — Effectiveness of fiscal supervision and the fight against tax evasion — Conditions — Assessment by the national court (Euro-Mediterranean EC-Lebanon Association Agreement, Arts 31 and 85) 1. Articles 63 TFEU and 65 TFEU must be interpreted as meaning that a company established in a Member State which receives dividends from companies established in non-member States may rely on Article 63 TFEU in order to challenge the tax treatment of dividends in that Member State based on legislation which is not intended to apply exclusively to situations in which the beneficiary company has a decisive influence on the distributing company. National legislation intended to apply only to those shareholdings which enable the holder to exert a definite influence on a company’s decisions and to determine its activities falls within the scope of Article 49 TFEU on freedom of establishment. By contrast, national provisions which apply to shareholdings acquired solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking must be examined exclusively in light of the free movement of capital. In that regard, legislation which provides no threshold in respect of the shares held in the company distributing the dividends, in respect of partial deduction, and establishes a threshold, fixed at 10% of the share capital of that company or an acquisition value of EUR 20 000 000 in order to be eligible for full deduction applies both to dividends received by a resident company on the basis of a shareholding that confers definite influence over the decisions of the company distributing the dividends and enables its activities to be determined, and to dividends received on the basis of a shareholding which do not confer such influence. As regards, in particular, the conditions relating to obtaining the full deduction, a threshold of 10% indeed serves to exclude from the scope of the fiscal advantage shareholdings acquired solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking, but does not in itself make the deduction applicable only to those shareholdings which enable the holder to exert a definite influence on a company’s decisions and to determine its activities. A holding of such a size does not necessarily imply that the owner of the holding exerts a definite influence over the decisions of the company in which it is a shareholder. (see paras 32, 33, 39, 40, 44, 72, operative part 1) 2. Articles 63 TFEU and 65 TFEU must be interpreted as meaning that legislation according to which a company which is a resident of a Member State may deduct in full or in part, from its taxable amount, dividends received where the dividends are distributed by a company which is resident in the same Member State, but cannot make such a deduction where the distributing company is resident in a non-member State, constitutes a restriction on the movement of capital between Member States and non-member States which is in principle prohibited by Article 63 TFEU. That difference in treatment may discourage companies resident in that Member State from investing their capital in companies established in non-Member States. To the extent that the income from capital originating in non-member States receives less favourable tax treatment than dividends distributed by companies established in a Member State, the shares of companies established in non-member States are less attractive to investors residing in the Member State than those of companies with their seat in that Member State. However, the refusal to grant a full or partial deduction from the taxable amount in respect of the dividends received, pursuant to national legislation, according to which the benefit of such a deduction depends satisfaction of the condition relating to the tax liability of the distributing company, which the tax authorities must be in a position to verify, may be justified by overriding reasons in the public interest based on the need to ensure the effectiveness of fiscal supervision where it proves impossible, for the tax authorities of the Member State in which the beneficiary company is resident, to obtain information from the non-member State in which the company distributing those dividends is resident, allowing those authorities to verify whether the condition that the latter company be subject to tax is satisfied. However, the refusal to grant a partial deduction in accordance with national legislation, which provides that that deduction is reduced by 50% when the income comes from profits that have not actually been taxed, unless the beneficiary is a capital share management company, cannot be justified by overriding reasons in the general interest based on the need to ensure the effectiveness of fiscal supervision where that provision may be applied to situations in which the tax liability of the distributing company in the State in which it is resident cannot be verified, a matter which it is for the referring court to determine. (see paras 50, 66, 70, 72, operative part 1 and 5) 3. See the text of the decision. (see paras 59-62) 4. See the text of the decision. (see paras 75-80) 5. The concept of a ‘restriction which existed on 31 December 1993’ presupposes that the legal provisions relating to the restriction in question have formed part of the legal order of the Member State concerned continuously since that date. If that were not the case, a Member State could, at any time, reintroduce restrictions on the movement of capital to or from non-member States which existed as part of the national legal order on 31 December 1993 but had not been maintained. Consequently, in the framework of national legislation, adopted in 1988, according to which a company which is a resident of a Member State may deduct in full or in part dividends from its taxable amount where the dividends are distributed by a company which is resident in the same Member State, but cannot make such a deduction where the distributing companies are resident in a non-Member State, Article 64(1) TFEU must be interpreted as meaning that the adoption of a new system for the treatment of dividends, in so far as it has not changed the legal framework for the treatment of dividends from Tunisia and Lebanon does not affect the classification as an existing restriction of the exclusion of dividends paid by companies established in those non-member States from the possibility of benefiting from a full or partial deduction By contrast, a Member State waives the power provided for in Article 64(1) TFEU also where, without formally repealing or amending the existing rules, it concludes an international agreement, such as an association agreement, which provides, in a provision with direct effect, for a liberalisation of a category of capital referred to in Article 64(1). Such a change in the legal framework must therefore be deemed to amount, in its effects on the possibility of invoking Article 64(1) TFEU, to the introduction of new legislation, since in it is based on a logic different from that of the existing legislation. A liberalisation of the movement of capital provided for by an international agreement would be devoid of any useful effect if, in situations where that agreement precludes legislation of a Member State, that Member State could continue to apply that legislation pursuant to Article 64(1) TFEU. (see paras 81, 84, 89, 90, 92, operative part 2 and 5) 6. Article 34(1) of the Euro-Mediterranean Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Tunisia, of the other part, must be interpreted as having direct effect and may be relied on in a situation in which a company resident in a Member State receives dividends from a company resident in Tunisia as a result of the direct investment which it has made in the distributing company, in order to challenge the tax treatment reserved for the those dividends in that Member State. Article 34(1) lays down, in clear, precise and unconditional terms, an obligation on the part of the Community and the Republic of Tunisia to ensure, with regard to transactions on the capital account of balance of payments and from the entry into force of the agreement, that capital relating to direct investments in Tunisia in companies formed in accordance with the laws in force can move freely and that the yield from such investments and any profit stemming therefrom can be liquidated and repatriated. That provision lays down a precise obligation to produce a specific result, which may be relied on by an individual to apply to a national court to set aside the provisions at the origin of an obstacle to the free movement of capital or to apply, in its regard, the rules whose non-application is at the origin of that obstacle to the free movement of capital, without any further implementing measures being required for that purpose. The finding that the principle of the free movement of capital relating to direct investment in Tunisia, enshrined in Article 34(1) of the EC-Tunisia Agreement, is capable of directly governing the situation of individuals is not invalidated by in Article 34(2) of that agreement. Article 34(2) of that agreement, according to which the parties are to consult each other with a view to facilitating, and fully liberalising when the time is right, the movement of capital between the Community and Republic of Tunisia, must be interpreted as referring to subsequent liberalisation of movements of capital not referred to in Article 34(1) of that agreement. Moreover, such a finding regarding the direct effect of Article 34(1) of the EC-Tunisia Agreement is not at odds with the object and purpose of that agreement. Article 1(1) of that agreement establishes an association between the Community and its Member States, on the one hand, and the Republic of Tunisia, on the other hand, which aims, in particular, as set out in Article 1(2) of that agreement, to establish the conditions for the gradual liberalisation of capital, supports the interpretation that, on the one hand, the movements of capital referred to in Article 34(1) of that agreement have been liberalised as from the entry into force of that agreement and, on the other hand, the other movements are to be gradually liberalised, in accordance with Article 34(2) of that agreement. In those circumstances, Article 34(1) of the EC-Tunisia Agreement must be regarded as having direct effect and is being capable of being relied on by an individual before a court. Moreover, according to its terms, Article 34(1) of the EC-Tunisia Agreement refers to the transactions on the capital account of balance of payments and covers the direct investments in Tunisia, made in companies formed in accordance with the laws in force, and the liquidation and repatriation of the yield from such investments and any profit stemming therefrom. The fact that a company resident in a Member State receives dividends from a company which is a resident of Tunisia by virtue of holding shares equal to 98.72% of the share capital of the distributing company falls within the scope of that provision. Such a shareholding can be regarded as direct investment and the receipt of dividends as a result of that shareholding falls within the concept of ‘repatriation of the profits’ arising therefrom. Consequently, that situation falls within Article 34(1) of the EC-Tunisia Agreement. (see paras 99-104, 106-109, operative part 3) 7. Article 34(1) of the Euro-Mediterranean Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Tunisia, of the other part, must be interpreted as meaning that legislation according to which a company which is a resident of a Member State may deduct in full or in part, from its taxable amount, dividends received where the dividends are distributed by a company which is resident in the same Member State, but cannot make such a deduction where the distributing company is resident in Tunisia, constitutes a restriction on the free movement of capital, prohibited in principle as regards direct investment and, in particular, the repatriation of the proceeds of those investments, by Article 34(1) of the EC-Tunisia Agreement. This difference in treatment is liable to discourage companies resident in that Member State from making direct investments in companies established in Tunisia. In so far as the capital income originating in that third State is subject to less favourable tax treatment than that reserved for dividends distributed by companies established in a Member State, the shares of companies established in Tunisia are less attractive to investors resident in Portugal than those of companies with their seat in that Member State. In that regard, the effect of that provision is not limited, in a situation, concerning the tax treatment of dividends stemming from direct investments in a third State by a person resident in a Member State, by Article 59 of that agreement. As regards the first indent of Article 89 of the EC-Tunisia Agreement, according to which nothing in that agreement is to have the effect of extending the fiscal advantages granted by a party in any international agreement or arrangement by which that party is bound, the prohibition of the restriction found follows from the EC-Tunisia Agreement itself and does not result from the extension of advantages provided for by another international agreement or arrangement. Next, as regards the second indent of Article 89 of the EC-Tunisia Agreement, according to which the agreement does not have the effect of preventing the adoption or application by either party of any measure aimed at preventing fraud or the evasion of taxes, in order to allow Article 34(1) of the EC-Tunisia Agreement to retain its practical effect, the second indent of Article 89 of that agreement must be interpreted as meaning that the measures falling within the scope of that provision are those which are specifically aimed at preventing fraud or the evasion of taxes. The tax legislation at issue excludes in general terms the possibility of obtaining a tax advantage consisting of avoiding or mitigating the economic double taxation of dividends, where such dividends are distributed by companies established inter alia, in Tunisia, and does not seek specifically to prevent conduct involving the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due or to obtain a tax advantage. In so far as, subject to verification by the referring court, the legislation at issue does not fall within the scope of measures designed to prevent fraud or the evasion of taxes, the situation at issue in the main proceedings does not fall within the situation referred to in the second indent of Article 89 of the EC-Tunisia Agreement. Finally, the third indent of Article 89 of the EC-Tunisia Agreement provides that that agreement does not have the effect of opposing the right of a party to apply the relevant provisions of its tax legislation to taxpayers who are not in an identical situation as regards their place of residence. In that regard, the legislation at issue makes a distinction not on the basis of the residence of the taxpayer, namely the company receiving the dividends, but on the basis of the place of residence of the company distributing the dividends and hence the place where the taxpayer’s capital is invested. Consequently, the situation at issue in the main proceedings does not also fall within the situation referred to in the third indent of Article 89 of the EC-Tunisia Agreement. Nevertheless, the refusal to grant, pursuant to a provision of national legislation, according to which entitlement to a full or partial deduction is dependent on satisfaction of the condition of tax liability of the distributing company, which the tax authorities must be in a position to verify, such a deduction of the dividends received from the beneficiary company’s taxable amount may be justified by overriding reasons in the public interest relating to the need to preserve the effectiveness of fiscal supervision where it is impossible for the tax authorities of the Member State in which the beneficiary company is resident to obtain information from the Republic of Tunisia, where the company distributing such dividends is resident, in order to allow it to be verified that the condition relating to the tax liability of the company distributing those dividends is satisfied. However, the refusal to grant such a partial deduction in accordance with a provision of national legislation, according to which the deduction referred to in that legislation is reduced by 50% when the income comes from profits that have not actually been taxed, unless the beneficiary is a capital share management company, cannot be justified by overriding reasons in the public interest relating to the need to preserve the effectiveness of fiscal supervision, where that provision can be applied in situations where the distributing company’s tax liability in Tunisia, in which that company is resident, cannot be verified, a matter which it is for the referring court to determine. It seems inconceivable, having regard to the purpose and context of the EC-Tunisia Agreement, that the parties to that agreement wished to grant full freedom of movement of capital between the Union and Tunisia, given that restrictions may be imposed both on relations between Member States and on relations between Member States of the Union and the other parties to Agreement on the European Economic Area. (see paras 66, 70, 113, 116-121, 127, 129, operative part 3 and 5) 8. Article 31 of the Euro-Mediterranean Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Lebanon, of the other part, must be interpreted as meaning that it has direct effect and a situation, concerning the tax treatment of dividends stemming from direct investments in Lebanon by a person resident in a Member State, falls within the situation referred to in Article 33(2) of that agreement; consequently, Article 33(1) of that agreement does not preclude Article 31 thereof from being relied on in the such a situation. By providing that, in the framework of the provisions of EC-Lebanon Agreement and subject to Articles 33 and 34 thereof, there are to be no restrictions between the Community, on the one hand, and the Republic of Lebanon, on the other hand, no restrictions on the movement of capital and no discrimination based on the nationality or on the place of residence of their nationals or on the place where such capital is invested, Article 31 of that agreement lays down, in clear and unconditional terms, a specific obligation as to the result to be achieved which may be relied on by an individual to request a national court to disapply the discriminatory provisions which impede the free movement of capital or to apply, in its regard, the rules whose non-application is at the origin of that obstacle to the free movement of capital, without any further implementing measures being required for that purpose. The scope of the obligation under Article 31 of the EC-Lebanon Agreement is, admittedly, limited by the safeguard clause in Article 33(1) of that agreement. However, such an exception cannot preclude Article 31 from conferring on individuals rights which they may rely on before the courts. The finding that Article 31 of the EC-Lebanon Agreement has direct effect is not at odds with the object and purpose of that agreement. Article 1(1) of that agreement establishes an association between the Community and its Member States, on the one hand, and the Republic of Lebanon, on the other hand. The objective of the EC-Lebanon Agreement, which aims in particular, as set out in Article 1(2) thereof, to establish the conditions for the gradual liberalisation of capital, supports the interpretation that the movements of capital which do not fall within the safeguard clause in Article 33(1) of that agreement were to be liberalised as from the entry into force of that agreement. As regards the possibility of relying on Article 31 of the EC-Lebanon Agreement in a situation such as that at issue, it must be pointed out that admittedly, in accordance with Article 33(1) of that agreement, Article 31 thereof is indeed without prejudice to the application of any restrictions existing between the Community and the Republic of Lebanon on the date of entry into force of that agreement in respect of the movement of capital between them involving direct investment, including in real estate, establishment, the provision of financial services or the admission of securities to capital markets. However, the scope of the safeguard clause in Article 33(1) of the EC-Lebanon Agreement is limited by Article 33(2) thereof, which provides that the transfer abroad of investments made in Lebanon by Community residents or in the Community by Lebanese residents and of any profit stemming therefrom is not to be affected by it. (see paras 131-137, operative part 4) 9. Article 31 of the Euro-Mediterranean Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Lebanon, of the other part, must be interpreted as meaning that legislation, according to which a company which is a resident of a Member State may deduct in full or in part, from its taxable amount, dividends received where the dividends are distributed by a company which is resident in the same Member State, but cannot make such a deduction where the distributing company is resident in Lebanon, constitutes a restriction on the free movement of capital, prohibited in principle by Article 31 of that agreement. That difference in treatment with regard to the place where their capital is invested is liable to discourage companies resident in a Member State from making direct investments in companies established in Lebanon. In so far as the capital income originating in that third country is subject to less favourable tax treatment than that reserved for dividends distributed by companies established in a Member State, the shares of companies established in Lebanon are less attractive to investors resident in the Member State, than those of companies with their seat in that Member State. In that regard, the effect of that provision is not limited in a situation which concerns the tax treatment of dividends stemming from direct investments in a non-Member State by a person resident in a Member State by Article 85 of the EC-Lebanon Agreement. As regards Article 85(a) of the EC-Lebanon Agreement, concerning direct taxation, according to which nothing in that agreement has the effect of extending the fiscal advantages granted by a party in any international agreement or arrangement by which that party is bound, the prohibition of the restriction found in the preceding paragraphs of the present judgment follows from the EC-Lebanon Agreement itself and does not result from the extension of advantages provided for by another international agreement or arrangement. Next, as regards Article 85(b) of the EC-Lebanon Agreement, according to which that agreement does not have the effect of preventing the adoption or application by either party of any measure aimed at preventing fraud or the evasion of taxes, in order to allow Article 31 of that agreement to retain its practical effect, Article 85(b) of that agreement must be interpreted as meaning that the measures falling within the scope of that provision are those specifically aimed at preventing fraud or the evasion of taxes. The tax legislation at issue excludes in general terms the possibility of obtaining a tax advantage consisting of the avoiding or mitigating the economic double taxation of dividends, where such dividends are distributed by companies established inter alia, in Lebanon, and does not seek specifically to prevent conduct involving the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due or to obtain a tax advantage. In so far as, subject to verification by the referring court, the legislation at issue does not fall within the scope of measures designed to prevent fraud or the evasion of taxes, the situation at issue does not fall within the situation referred to in Article 85(b) of the EC-Lebanon Agreement. Finally, Article 85(c) of the EC-Lebanon Agreement provides that that agreement does not have the effect of precluding a party from applying the relevant provisions of its tax legislation to taxpayers who are not in an identical situation, in particular, as regards their place of residence. First, the legislation at issue does not make a distinction on the basis of the residence of the taxpayer, namely the company receiving the dividends. Second, it must, admittedly, be acknowledged that, on the basis of the use of the words ‘in particular’ in Article 85(c) of the EC-Lebanon Agreement, distinctions based on other factors, including where the taxpayer’s capital is invested, may come under that provision. However, that provision must be read together with Article 31 of the EC-Lebanon Agreement, which prohibits any discrimination based, in particular, on the place where the capital is invested. Accordingly, it is necessary to distinguish the differences in treatment permitted under Article 85(c) of the EC-Lebanon Agreement from discrimination which does not fall within the scope of Article 85(c) thereof and is prohibited under Article 31 of that agreement. With regard to tax rules, which seek to prevent or mitigate the economic double taxation of distributed profits, the situation of a corporate shareholder receiving dividends sourced in a non-member State is comparable to that of a corporate shareholder receiving nationally sourced dividends in so far as, in each case, the profits made are, in principle, liable to be subject to a series of charges to tax. Consequently, the situation at issue in the main proceedings is also not covered by the situation referred to in Article 85(c) of the EC-Lebanon Agreement. Nevertheless, the refusal to grant, pursuant to a provision of national legislation according to which entitlement to a full or partial deduction is dependent on satisfaction of the condition of tax liability of the distributing company, such a deduction of the dividends received from the beneficiary company’s taxable amount may be justified by overriding reasons in the public interest relating to the need to preserve the effectiveness of fiscal supervision where it is impossible for the tax authorities of the Member State of which the beneficiary company is resident to obtain information from the Republic of Lebanon, the State in which the company distributing such dividends is resident, in order to allow it to be verified that the condition relating to the tax liability of the company distributing those dividends is satisfied. However, the refusal to grant such a partial deduction in accordance with a provision of national legislation, according to which the deduction referred to in that legislation is reduced by 50% when the income comes from profits that have not actually been taxed, unless the beneficiary is a capital share management company, cannot be justified by overriding reasons in the public interest relating to the need to preserve the effectiveness of fiscal supervision, where that provision can be applied in situations where the distributing company’s liability to tax in Lebanon, in which that company is resident, cannot be verified, a matter which it is for the referring court to determine. (see paras 66, 70, 140, 144-152, 156, operative part 4 and 5)