62003CC0376_EN
Opinion of the Advocate-General
Opinion of the Advocate-General
I – Introduction
1. In order to achieve customs union in the Community it was necessary to introduce a common external customs duty, and the unhindered movement of goods required the harmonisation of indirect taxes. Freedom of movement for persons and capital should lead to an approximation of direct taxation, to ensure that decisions on where they are to be located are not influenced by the greater or lesser fiscal pressure in the various Member States. (2)
2. However, the Member States retain sovereignty to legislate on levies of that nature, a realm into which European Union law may not in principle trespass. (3) Nevertheless, in exercising that competence, they must comply with Community law, (4) in particular, for the present purposes, those provisions which enshrine the freedom of movement of capital, which clearly militates against the adoption of measures which deter their inhabitants from investing in the territory of other Member States (5) and, conversely – although this is a less common effect – which dissuade foreign nationals from investing their wealth in the country, (6) and they must, consequently, reject tax provisions which have such effects.
3. The present request for a preliminary ruling raises issues of principle concerning the taxation powers of Member States and the restrictions which Community law imposes on them. First, the Court of Justice is asked to clarify whether the settled case-law on personal income tax applies, without qualification, to wealth tax. Secondly, it is requested to analyse whether a Member State is entitled, by means of a double taxation treaty, to discriminate between citizens of other Member States. Lastly, it must once again examine the compatibility with the principle of the effectiveness of Community law of a national procedural rule.
4. The Netherlands has a tax system which, in taxing wealth, entitles resident taxpayers to deduct an allowance from the taxable amount, whilst those living in other Member States can only enjoy that right if 90% or more of their assets are situated in the Netherlands. The Fourth Tax Chamber of the Gerechtshof te ’s‑Hertogenbosch (Regional Court of Appeal, ’s‑Hertogenbosch, Netherlands) (7) wonders whether that rule is consistent with the free movement of capital.
Another aspect of this case is the fact that the Member State in question has entered into a double taxation convention with Belgium, under which residents of the latter country are entitled to the allowance on the same terms as taxpayers resident in the Netherlands, irrespective of the proportion of their total assets represented by their property in the Netherlands. The Gerechtshof questions the legality of the different treatment which that international arrangement establishes between citizens resident in Belgium and those resident in other countries of the European Union.
Lastly, the referring court wishes to ascertain whether a national provision on costs, under which a ceiling is imposed in proceedings on the costs recoverable by a successful claimant, is compatible with the principle of the effectiveness of the Community legal system.
II – The legal framework
A – Community law
5. Article 56 EC (formerly Article 73b of the EC Treaty) prohibits all restrictions on the movement of capital and payments between Member States, and between the latter and third countries, subject to the relevant provisions of their tax law which distinguish between taxpayers with regard to their place of residence or the place where their capital is invested (Article 58 EC – formerly Article 73d(1)(a) of the EC Treaty). In any event, that proviso cannot be relied on for the purpose of adopting measures establishing arbitrary discrimination or a disguised restriction on the freedom in question (Article 58(3)).
6. The second indent of Article 293 EC (formerly Article 220 of the EC Treaty), for its part, gives Member States the power to ensure, by negotiation, that their nationals are not taxed twice within the Community for the same chargeable event.
B – Netherlands law
1. Wealth tax
7. The Netherlands collected the tax until 2000. It was governed by the Wet op de vermogensbelasting 1964 (Law on Wealth Tax, hereinafter ‘the Wealth Tax Law’), Article 1 of which formulated the tax as a direct tax payable by natural persons. The provision drew a distinction between resident taxpayers and those resident in other Member States who held taxable property in the Netherlands (‘non-resident taxpayers’).
8. Article 3 provided that the former were subject to tax on all their property whilst, under Article 12, those in the second category paid tax in respect of that which they held in the Netherlands at the beginning of the calendar year, determined in both instances as the value of their assets less liabilities.
9. According to Article 14(2), the taxable amount for resident taxpayers consisted of their net assets, calculated as described above, less the allowance referred to in the following paragraph, whereas non-nationals paid tax without any deduction whatsoever. According to Article 14(3), the allowance for 1998 was NLG 193 000, in the case of unmarried persons (category I), and NLG 241 000 for married taxpayers (category II).
10. By an order of 18 April 2003, the State Secretary for Finance ruled that Article 14(3) of the Wealth Tax Law also applied to non-resident taxpayers if 90% or more of their assets were located in the Netherlands. (8)
The double taxation conventions entered into by the Netherlands
(a) With Belgium
11. As a result of that bilateral agreement, of 19 October 1970, assets comprising immovable property are subject to tax in the Member State in which they are situated (Article 23(1)).
12. Article 25(3) provides that ‘natural persons resident in one of the two Member States are entitled in the other to the personal allowances, concessions and reductions which are granted by the latter to its own residents by reason of their civil status or dependents’.
13. Accordingly, taxpayers living in Belgium enjoyed the exemptions which the Wealth Tax Law granted to residents of the Netherlands.
14. At the material time, the Belgian tax system did not include a wealth tax.
(b) With Germany
15. Under the convention between the Netherlands and Germany, concluded in The Hague on 16 June 1959, a taxpayer’s immovable property may be liable to wealth tax in the Member State which is entitled, on the basis of the convention itself, to tax the income from that property (Article 19).
16. By virtue of Article 4(1), the income which an inhabitant of one Member State derives from real property located in a different State may be liable to tax in the latter.
17. Since 1 January 1997, wealth tax has been abolished in Germany. In a ruling of 22 June 1995, the Bundesverfassungsgericht (Federal Constitutional Court) ruled that the law governing that tax was unconstitutional, on the ground that it infringed the principle of equality, but allowed it to remain in force until 31 December 1996.
3. Costs in proceedings
18. Tax proceedings in the Netherlands are governed by the Algemene wet bestuursrecht (General Law relating to Administrative Law, hereinafter ‘the Awb’), which allows the taxpayer to act in person, with no requirement to have legal representation. Under Article 8(73), the court delivering judgment may order the tax authority to indemnify the claimant for the loss occasioned by the imposition of an incorrect assessment, which reparation must include the actual expenses incurred up to the objection stage.
19. Costs in judicial proceedings are regulated in Article 8(75) of the Awb, which makes reference to the Besluit van 22 December 1993, houdende nadere regels betreffende de proceskostenveroordeling in bestuursrechtelijke procedures, a regulatory provision according to which, in Article 1, the order for costs includes, amongst other heads of expenditure, the costs of professional legal assistance (Article 1(a)) calculated, by virtue of Article 2, as a flat-rate, using a points system (based on the nature and complexity of the proceedings) which is set out in an annex to the regulation. (9)
20. According to Article 2(3) of the regulation, the system described may be derogated from in exceptional circumstances. In the view of the Gerechtshof te ’s-Hertogenbosch, the mere fact that a tax assessment is issued in breach of Community law does not amount to an exceptional circumstance.
III – The facts in the main proceedings
21. D., a married person, lives in Germany and holds German nationality. On 1 January 1998 10% of his assets consisted of immovable property in the Netherlands, whilst the remainder was located in his country of origin, and he was consequently subject to the Wealth Tax Law as a non-resident taxpayer.
22. Once the tax had been assessed, he applied in the Netherlands for the allowances available to Netherlands taxpayers, relying for that purpose on Community law.
23. The tax authorities rejected his application, whereupon he appealed to the Gerechtshof te ’s‑Hertogenbosch, and that court, in order to determine the matter, referred the questions set out below to the Court of Justice.
24. The costs incurred by D. in asserting his rights amount to EUR 20 000, of which EUR 10 000 relate to the administrative objection and the remainder to the proceedings before the referring court. To that sum must be added EUR 2 500, incurred by reason of the proceedings before the Court of Justice. According to the order for reference, the sum awarded as costs in the proceedings cannot substantially exceed EUR 2 000. The costs of the administrative proceedings are recoverable by means of an action in damages.
IV – The questions referred to the Court for a preliminary ruling
25. The questions from the Gerechtshof te ’s-Hertogenbosch read as follows:
(1) Does Community law, and in particular Article 56 et seq. EC, preclude legislation such as that referred to in the main proceedings, under which a domestic taxpayer is always entitled to deduction of a tax allowance in respect of wealth tax, whereas a non-resident taxpayer has no such entitlement in the case where the assets in question are situated predominantly in the taxpayer’s State of residence (in which no wealth tax is levied)?
(2) If not, does it make a difference in this case that the Netherlands has, under a bilateral treaty, granted to residents of Belgium, who in all other respects are in comparable circumstances, entitlement to the tax allowance (no wealth tax being levied in Belgium either)?
(3) If either of the previous two questions is answered in the affirmative, does Community law preclude a legal costs scheme such as that in issue, under which, in principle, only a limited contribution is made towards legal costs where a citizen is successful in proceedings brought before the national courts for breach of Community law by a Member State?
V – The proceedings before the Court of Justice
26. D., the Commission and the German, Belgian, Finnish, French, Netherlands and United Kingdom Governments submitted written observations within the time-limit indicated in Article 20 of the EC Statute of the Court of Justice. The defendant in the main proceedings also participated, and endorsed the observations of the Netherlands Government.
27. A hearing was held on 14 September 2004 at which the representatives of D., of the German, Netherlands and United Kingdom Governments and of the Commission presented oral argument.
VI – Analysis of the questions referred to the Court for a preliminary ruling
A – Preliminary note on the relevant Community provisions
28. In its questions, the referring court alludes indiscriminately to ‘Community law’ and later, with the appropriate precision, to ‘Article 56 et seq. EC’.
29. It is plain that to invoke the entire Community legal system, without qualification, could render the reference for a preliminary ruling inadmissible, as uncertain and for failing to give reasons. The Court of Justice must therefore confine its analysis to the context bounded by the specific provision cited, that is, to the free movement of capital which, as is apparent in the order for reference (paragraph 4.2), is the area on which D. focused the debate in the main proceedings.
B – The first question
30. By that question the Gerechtshof te ’s‑Hertogenbosch seeks to clarify whether the free movement of capital within the Union precludes legislation, such as the Netherlands provision, which gives entitlement to an allowance in respect of wealth tax solely to resident taxpayers and to those non-residents who have at least 90% of their assets in the Netherlands. The Commission and the participating governments take the view that there is no contradiction whatsoever, whilst D. takes the opposite view.
31. As a contribution to the discussion it is not inappropriate to take a look at the dicta of the Court of Justice on Member States’ powers to impose direct tax burdens in relation to the free movement of capital and freedom of establishment. However, since the main proceedings concern a tax payable by a natural person, in the interests of narrowing the horizon the examination should be restricted to those judgments which have addressed taxes of that type in respect of individuals, leaving aside those relating to companies and partnerships since, even where they reflect the same principles, the circumstances of each category do not seem entirely comparable.
1. The Community case-law on fundamental freedoms and the direct taxation of individuals
32. This is not the first time that the Court of Justice has considered the Netherlands wealth tax legislation. In Baars, it examined the provisions under which a natural person’s holding in an undertaking is exempt up to a certain threshold if the company is domiciled in the Netherlands, although in the judgment (10) the Court merely gave its ruling from the perspective of Article 43 EC and of freedom of establishment, to the effect that they do preclude tax legislation such as that at issue in that case.
33. I am not aware that the Court of Justice has ruled on other occasions on the fundamental freedoms under the Treaty, in particular on the free movement of capital, (11) in relation to the tax in question, although it has done so, many times, as regards income tax.
34. The starting point was Biehl, (12) according to which Article 39 EC (formerly Article 48 of the EC Treaty), in so far as it establishes freedom of movement for workers in the internal market and prohibits any discrimination on grounds of nationality, precludes a tax system such as, in that instance, the Luxembourg system, which prevented a non-resident taxpayer from obtaining repayment of overpaid tax. The Court of Justice alluded to covert discrimination which leads to the same result as overt discrimination based on nationality (paragraphs 13 and 14). The reasoning was confirmed years later in Commission
v Luxembourg . (13)
35. After a further, unsuccessful, approach in Werner, (14) the Court of Justice addressed the issue head on in Schumacker, already cited, a landmark ruling on the matter, which turns on the following principles:
1. Article 48 of the EC Treaty is capable of limiting the powers of Member States to levy taxes, since it prohibits them from subjecting a citizen of a different Member State who has exercised his right to freedom of movement to a less favourable regime than its own nationals in the same situation (paragraph 24).
2. The rules regarding equal treatment forbid not only overt discrimination by reason of nationality but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result. That is true of tax provisions which, disregarding the nationality of the taxpayer, are based on residence, and afford to residents advantages which they deny to non-residents, because the latter are more often foreigners (paragraphs 26 to 28).
3. In relation to direct taxes, the situations of residents and of non-residents are not, as a rule, comparable. Income received by a non-resident in the territory of the taxing Member State is in most cases only a part of his total income, which is usually concentrated at his place of residence, where it is more easy to assess his ability to pay, since that is where his personal and financial interests are centred. Accordingly, the fact that a Member State denies non-residents certain tax benefits which it grants to a resident is not, as a rule, discriminatory (paragraphs 31 to 34).
36. Since Schumacker, the cases dealt with by the Court of Justice have fallen into two categories. The first consists of those that challenge State tax systems which apply different provisions to taxpayers according to their place of residence. The second brings together those in which the legislation under scrutiny subjects taxpayers to different methods depending on the source of the taxable income or wealth. The circumstances at issue in the main proceedings belong to the first group, and it is therefore necessary to examine the relevant case-law, although not discounting that which concerns the second category since, as will be seen, it is relevant in answering the preliminary question.
(a) Differences based on the taxpayer’s place of residence
37. In Wielockx, (15) delivered a few months after Schumacker, the Court of Justice held that Article 43 EC (formerly Article 52 of the EC Treaty) precludes legislation of a Member State which allows only resident taxpayers to deduct profits invested in a pension reserve from their taxable income, and refuses that right to non-residents, even where they receive almost all their income in that State. In Asscher, 10 months later, (16) the Court found that the principle of equality on grounds of nationality inherent in that article is infringed by a tax system which, even in objectively identical situations, levies tax at a higher rate on self-employed income received by non-resident taxpayers.
38. The judgment of 14 September 1999 in Gschwind, (17) reworked the same reasoning to hold that freedom of movement for workers does not preclude a tax system which, in taxing income, allows resident married couples to elect the splitting
method whilst, in order to enjoy that advantage, non-resident married couples have to satisfy the requirement that at least 90% of their total income is subject to tax in that country or, if it is not, that their income from foreign sources does not exceed a particular ceiling. (18)
39. Without moving away from Article 48 of the EC Treaty, Zurstrassen (19) reiterated that the fundamental freedom laid down in that provision does not permit a national rule, in that instance once again a Luxembourg rule, under which, in relation to income tax, non-separated spouses could enjoy joint assessment to tax only if they both lived in the Grand Duchy, and which excluded from that benefit a worker established in Luxembourg whose wife remained in the couple’s State of origin. Covert discrimination and the need for its elimination are again issues in that decision, which treats the situation of Mr and Mrs Zurstrassen as comparable with that of any other couple who both reside in Luxembourg (paragraph 18 et seq.).
40. The judgment in Gerritse, (20) of 12 June 2003, is a very good illustration in that, employing the principles upheld since Schumacker (paragraphs 43 to 45), it held that a national provision which, as a general rule, takes into account the gross income of non-residents, without deducting business expenses, whereas resident taxpayers are taxed on their net income, after deduction of those expenses, does infringe the freedom to provide services (Article 59 of the EC Treaty, now Article 49 EC).
41. More recent rulings have been in line with the earlier cases, applying the same principles. The judgment in Schilling and Fleck-Schilling, (21) of 13 November 2003, holds that a provision which prevents Community officials of German origin who, by reason of their jobs, live in Luxembourg, from deducting the costs of employing a household assistant in the latter country from their taxable income in the former is contrary to the freedom of movement for workers.
42. Lastly, the judgment in Wallentin and Riksskatteverket, delivered on 1 July 2004, (22) continued that trend, by classifying as contrary to freedom of movement for workers a Swedish rule which denies taxpayers with no tax residence in Sweden certain tax benefits granted to their neighbours. That recent judgment is particularly significant as regards the question now submitted for a preliminary ruling, since it relates to a case in which a person living in Germany, who had received in his country of origin income which was exempt from income tax, was claiming in Sweden similar tax treatment in respect of his earnings to that granted to residents.
43. The abovementioned interpretative rulings, following in the wake of Schumacker, turn on the following ideas: 1) Member States have a duty to exercise their competence in relation to direct taxation consistently with Community law and, therefore, with freedom of movement and freedom of establishment; 2) those fundamental rules structuring the internal market preclude any manifest or covert discrimination on grounds of nationality by virtue of which, without justification, different rules are applied to comparable situations or the same rules are applied to dissimilar situations; 3) in respect of direct taxes, the circumstances of residents in a particular Member State are not, as a general rule, comparable to those of non-residents, since they present objective differences as regards both the source of their income and their ability to pay tax or their personal and family circumstances; and 4) nevertheless, in many situations (such as those considered in a number of the judgments cited) the position of both groups is equivalent, and different treatment can therefore infringe the freedoms in question.
(b) Distinctions based on the source of income
44. Apart from Baars, the first ruling on the taxation of natural persons concerned with distinctions based on the place where the taxable income arose is Verkooijen, in which, furthermore, the ‘golden rule of Community compatibility’ was the free movement of capital. The Court of Justice dealt with the point left outstanding in Baars, (23) stating that Article 67 of the EC Treaty, in force at the time, precluded the legislation of a Member State which, in taxing dividends paid to shareholders, made the grant of an exemption subject to the requirement that they be distributed by companies established in its territory. (24)
45. The judgment of 26 June 2003 in Skandia and Ramstedt (25) likewise upheld the freedom to provide services in relation to Swedish legislation which made insurance policies effected with companies established in other Member States subject to less favourable income tax provisions.
46. The judgment of 13 November 2003 in Lindman, (26) likewise found that Finnish legislation under which prizes won in lotteries organised in other Member States were subject to the abovementioned tax, whereas those won in lotteries organised in Finland were exempt, was incompatible with the freedom to provide services.
47. In Commission
v France (27) the Court of Justice found that France had failed to fulfil its obligations under Articles 49 EC and 56 EC because it denied altogether to taxpayers who received income arising from certain financial investments from persons or companies established in a different Member State the option of either paying income tax or being subject to a fixed levy. The Court endorsed a similar solution in Lenz
and Weidert-Paulus, (28) in which it interpreted Article 56 EC and Article 58(1)(a) EC as precluding national legislation (of Austria and Luxembourg respectively) which affords revenue from capital originating in another Member State less favourable tax treatment than revenue from the State in question. It had already ruled against less advantageous treatment for gains associated with companies established abroad in its judgment in X and Y
of 21 November 2001. (29)
2. Applicability of the above case-law to the circumstances of the main proceedings
48. The applicability of that case-law raises a twofold issue. First, whether court decisions relating to personal income tax are transferable to the realm of wealth tax. Second, whether decisions which interpret the freedoms of movement for persons (employed and self-employed workers) and to provide services can, without qualification, extend to freedom of movement in relation to capital. In order to resolve both those doubts, it is necessary to examine the nature of the tax at issue and to analyse Articles 56 and 58 EC.
(a) The nature of wealth tax
49. Wealth tax, in common with income tax, involves a direct liability on individual citizens. That is to say, it is a tax based on the taxpayer’s ability to pay and is, therefore, personal. The calculation of the tax payable is based on the property owned by the taxpayer when it accrues but, as in the case of the Wealth Tax Law, does not leave out of account other circumstances such as, for example, marital status. (30)
50. However, there is a distinguishing feature which is, as will be explained below, important in answering the question in this case. Income exists in the tax systems of all the Member States, whereas only some levy a wealth tax. (31) Accordingly, if a natural person’s wealth is distributed between two countries, one of which does not have that tax, the part located in the other country represents, for tax purposes, his entire taxable wealth.
(a) Interpretation of Articles 56 EC and 58 EC
51. Until the recent judgment in Manninen, (32) Community case-law had not decisively tackled those articles in relation to the competence of Member States to impose direct taxes on natural persons. Verkooijen
was concerned with the former Article 67 of the EC Treaty, their immediate chronological predecessor, (33) although it did, in paragraphs 43 to 45, make some useful comments on the two articles in question. For its part, Commission
v France, in common with Weidert-Paulus, both cited above, is somewhat sparse on the issue, since it does not analyse the scope of those provisions.
52. The first indication on the subject lies in the fact that, unlike the provisions concerning the free movement of persons and the freedom to provide services, in regulating the free movement of capital the Treaty, after prohibiting all restrictions (Article 56 EC), nuances that rule, to the effect that the prohibition in question does not preclude the right of Member States to apply tax provisions which distinguish between taxpayers with regard to their place of residence or with regard to the place where their capital is invested (Article 58(1)(a)), the very two circumstances upon which, as I have stated, Community case-law focuses.
53. It has been said that the sole purpose of Article 58(1) EC is to define the limits of State power in relation to the free movement of capital, in particular as regards taxation, (34) which seems obvious, in the light of its wording and structure. (35) So, does that imply that Member States can confine the scope of that freedom further than is permissible for the other fundamental rules on the functioning of the internal market, and that the case-law of the Court of Justice on the matter therefore does not apply?
54. In principle, the answer to that question is in the negative.
55. First of all, as the Court of Justice stated in Manninen, Article 58(1)(a) EC must be interpreted strictly, since it lays down an exception to the fundamental principle of the free movement of capital (paragraph 28). Furthermore, Article 58 EC itself provides that the distinction it allows Member States to make between taxpayers on the basis of their residence or the place where their assets are invested may not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital, as the Court of Justice pointed out in paragraph 44 of Verkooijen, in relation to the former Article 73d(3) of the EC Treaty. There can, then, be differentiation, (36) provided it is justified, either because the factual situations are not the same, or because it is based on imperative reasons in the general interest. (37) In the words of my colleague Advocate General Kokott in her Opinion in Manninen : since that judgment, ‘this provision does not give the Member States carte blanche to apply every form of different treatment of taxpayers according to the place of investment under their national tax law’ (paragraph 36). (38)
56. Article 58(1)(a) EC has in fact conferred legislative status on a principle enshrined in the case-law, as is apparent from a reading of section VI.B.1 of this Opinion and as is pointed out in paragraph 43 of the judgment in Verkooijen . Whilst that article, in the words of Advocate General Kokott, (39) ‘codifies’ the case-law of the Court of Justice on freedom of movement for persons and freedom of establishment, there is nothing to prevent its extension to the freedom safeguarding the unhindered movement of capital in the single market. In other words, those freedoms, in the context of taxation, give rise to a number of common problems. (40)
57. So, the ‘Schumacker doctrine’ represents a limitation on the scope of operation of Article 58(1)(a) EC with the result that, although the Member States retain their right to distinguish between residents and non-residents, they may not discriminate, either directly or indirectly, on grounds of nationality.
(c) The situation of the claimant in the main proceedings
58. Accordingly, the reasoning of the Court of Justice on the obstacles which the freedom of movement for persons and the freedom to provide services place in the way of the taxation powers of the Member States as regards personal income tax can be used to safeguard that same right, in relation to capital, when they exercise sovereignty in order to tax wealth.
59. As a general rule, individuals own the majority of their assets in the country in which they reside, particularly in the case of real property, and it is exceptional for a natural person to have the entirety or major part of his property in a different Member State. (41) Furthermore, as already held in Schumacker, the Member State in which the taxpayer resides is in the best position to assess his tax-paying ability and, therefore, to set an amount of tax which is a true reflection of that ability. The theoretical distinction between residents and non-residents seems to me, therefore, to be justified.
60. Accordingly, the answer which the Court of Justice gives to the referring court, if it wishes to be helpful, must focus on the situation in the main proceedings, which is defined by one legal circumstance and one of fact. The former, in turn, comprises two aspects. One is the fact that the Netherlands wealth tax legislation establishes different regimes according to the residence of the taxpayer, conferring on domestic taxpayers entitlement to an allowance which is available to non-residents only if at least 90% of their wealth is located in the Netherlands. The other is the fact that in 1998 no tax of that kind was levied in Germany. The factual circumstance is that only 10% of D’s assets were in the Netherlands, the remainder being situated in his State of residence.
61. Since discrimination occurs where, for no apparent reason, comparable situations receive unequal treatment or the same rule is applied to dissimilar circumstances, it is necessary, in principle, to clarify whether, for those purposes, D.’s position, despite the presence of the differentiating factor of residence, can be regarded as similar to that of a person living in the Netherlands who pays tax and is entitled to an allowance.
62. In my view, the answer must be in the affirmative.
63. First, the taxable amount, as D. points out in his written submissions, is calculated in the same way in both cases – the value of property owned less debts – with the particular feature that for non-residents only property in the Netherlands and debts incurred in that country are taken into account.
64. Second, contrary to the assertions of the Commission and the Netherlands Government, it is decisive in the present case that no tax of that kind was levied in Germany because, as regards his assets in the Netherlands, D. is in the same position as a resident since, in reality, 100% of his taxable wealth is located in the latter country, because the property he owns in his country of domicile is irrelevant for tax purposes. In Wallentin and Riksskatteverket, with reference to income tax, the Court of Justice treated the situation of a taxpayer who receives only tax-free income in his Member State of origin as being the same as that of a person with no income, and decided that the ‘Schumacker doctrine’ did apply to him.
65. D. is in the same position as a Netherlands resident with equivalent wealth, since all his taxable assets are in the Netherlands. However, he is not considered to be entitled to any allowance, and is taxed more heavily than the other in respect of his Netherlands property. The objective similarity and different treatment become apparent if one compares the situation of the claimant in the main proceedings with that of a Netherlands resident who, like him, has 10% of his assets in his own country and the rest in Germany, since the latter would pay no tax whatsoever in the Federal Republic and his property in the Netherlands would attract an allowance.
66. That different treatment is tantamount to indirect discrimination on grounds of nationality, since those who live in a Member State are normally nationals of that State and, furthermore, it poses a clear obstacle to the free movement of capital, because it deters those who live in Germany from investing their capital in the neighbouring country. It is in fact a scenario which is complementary to that examined in Verkooijen, in which resident natural persons were discouraged from investing their savings in companies established in the other Member States.
67. The situation is discriminatory because there is nothing which justifies the unequal system. Neither the Governments that have participated in these proceedings nor the Commission have put forward any reasons to explain the anomaly in the Netherlands legislation, and have merely speculated that it is not incompatible with Community law, after citing Schumacker, Gschwind
and Verkooijen . Only the Belgian Government gave reasons for its thesis, asserting that D.’s situation and that of a person established in the Netherlands are not sufficiently similar to demand equal tax treatment.
68. That Government adds that there is no infringement of Community law, since D.’s personal and family circumstances, in contrast to those of Mr Schumacker and in common with those of Mr and Mrs Gschwind, can be taken into consideration in Germany, where he has the majority of his assets. However, that assertion is wrong, for the simple reason that, as I have indicated, in the Federal Republic no direct tax was levied on the wealth of natural persons, and the charge which D. bore on the entirety of his ‘taxable wealth’ therefore does not reflect his ability to pay tax.
69. Admittedly, the effect described occurs because no wealth tax was levied in Germany, and 90% of D.’s ‘actual wealth’ was exempt from tax, but that fact is irrelevant because, in any event, there is no logical explanation for the regime to which he is subject in the Netherlands, which is a deterrent to his investment.
70. Furthermore, Articles 56 EC and 58 EC prohibit unjustified differences in treatment: but not simply any differences, only negative distinctions, which entail prejudice to the person affected. Positive differences, those which stimulate investment in other countries and the movement of capital, deserve every recognition and encouragement. Accordingly, the fact that D. pays no tax whatsoever in respect of the property he owns in Germany is of no significance, since nor do residents of other Member States, in particular those living in the Netherlands, who have immovable property assets in the Federal Republic.
71. By reason of the foregoing considerations, I propose that the Court of Justice should rule that the free movement of capital within the European Union precludes national legislation which, in relation to wealth tax, grants resident taxpayers entitlement to an allowance which it denies to non-resident taxpayers (unless 90% of their assets are located in the Member State in question), where the latter have no ‘taxable assets’ other than those located in that country, because those which they own in other States are not subject to a tax of that kind.
C – The second question
1. A rhetorical question
72. In view of the response I suggest to the first question from the Gerechtshof te ’s-Hertogenbosch it is superfluous to undertake any analysis for the purposes of replying to the second. However, in case the Court of Justice takes a different course, it is appropriate, in the alternative, to clarify a number of points.
73. The referring court wonders whether, if it is found that the tax provisions of the Wealth Tax Law do not infringe Article 56 EC, the position might alter in the light of the double taxation convention between the Netherlands and Belgium, which extends to persons resident in the latter Member State who have immovable property in the former the tax advantages conferred by Netherlands legislation on its own residents, so that they too enjoy the allowance available to those residents.
74. The question is based on the premiss that the reply to the first question referred for a preliminary ruling was in the negative since, in order to make a finding that there was equal treatment as regards the free movement of capital, the Court of Justice would have taken the view that, in terms of the wealth tax in the Netherlands, the situation of a German resident is not comparable with that of a Netherlands resident, even when both have assets of identical value in that Member State which represent the entirety of the total taxable assets of each. With that point of departure, the second question would be redundant, since the situations would likewise not be comparable if one of the owners of those same assets resided in Germany and the other in Belgium.
75. Therefore, if one assumes that the situations compared in the main proceedings (that of D. and of a taxpayer in the Netherlands residing in Belgium) can be treated as equivalent, one also has to treat as equivalent the two situations to which the second question relates (that of D. and that of a taxpayer in the Netherlands residing in Belgium), and the issue should be examined in hypothetical terms only and in the alternative, and does not warrant any mention whatsoever in the operative part of the preliminary ruling.
76. In 1998, as a result of the bilateral agreement referred to above, an individual established in Belgium with immovable property in the Netherlands received more favourable tax treatment in the latter Member State than a German resident with immovable assets of the same value in that country because he was entitled to keep a portion tax free, a privilege which the latter did not enjoy, whereas neither paid any tax whatsoever on assets owned in their countries of origin. As a result of the international agreement in question, Netherlands law deterred Germans from investing their savings in the Netherlands, as compared with people living in Belgium.
77. In order to ascertain whether Community law can tolerate that situation, it is necessary to attempt to apprehend the meaning of Article 293 CE.
2. Member States’ power to avoid double taxation in the Community by means of bilateral agreements
78. Eradication of the phenomenon of double taxation is an objective of the Treaty, (42) closely linked with establishment of the internal market. (43)
79. However, as the Court of Justice pointed out in Gilly, with the exception of the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises of 23 July 1990, (44) no unifying or harmonising measure designed to eliminate it has to date been adopted within the European Union.
80. Article 293 EC gives Member States power to enter into negotiations to that end. (45) In the absence of any multilateral treaty entered into by all Member States, they have signed bilateral agreements, by which they agree to restrict their fiscal sovereignty and surrender part of it. In other words, those agreements serve to share out the power to set the rules governing taxable events.
81. The exercise of that power can give rise to a number of disparities, in view of the fact that there is no harmonisation of national tax rules. (46)
82. However, the legitimate use of a power depends on its being exercised within the limits for which it is conferred, so that any overstepping of those limits is illegal. On the other hand, as I have suggested, the purpose of the Member States’ competence to enter into bilateral agreements, such as that referred to in the main proceedings, is to allocate taxation powers, with the result that, where there is nothing to share out, the agreement becomes meaningless. In relation to the wealth tax, since at the material time there was no such tax in Belgium, Article 25(3) of the agreement with the Netherlands, (47) to the extent to which it extends to Belgian residents entitlement to the allowance it grants to Dutch residents, becomes a mere privilege for which no consideration is given and for which there is no reciprocal basis, and the test of its ‘Community compatibility’ must therefore be much more rigorous. The somewhat alarmist arguments and consequences outlined by the Governments participating in the proceedings, to which I shall refer briefly below, vanish into thin air, because the provision under analysis is completely unrelated to the specific substance of the arrangements intended to abolish international double taxation.
83. Consequently, the difference of treatment established by the Netherlands tax system, of which that convention forms part, between taxpayers resident in Belgium and those resident in Germany, by hindering the free transfer of capital between the latter Member State and the Netherlands, is not in conformity with Articles 56 EC and 58 EC.
84. Even were one to take the view that a national tax system such as that under analysis is the result of the scrupulous exercise of taxation powers in order to prevent double taxation, there is no guarantee that it would comply with Community law. It is necessary, in that regard, to look again at the case-law.
3. The case-law of the Court of Justice on the exercise by the Member States of the power under Article 293 EC
85. As I have indicated, the Member States are free to exercise their tax sovereignty but, both where they do so alone and where they act in concert, they must comply with Community law. (48) The invitation extended in the Treaty article in question does not lead to a outcome contrary to that intended, namely the establishment of a single market through attainment of the fundamental freedoms of movement, since the fact that a taxable event might be taxed twice is the most serious obstacle there can be to people and their capital crossing internal borders.
86. In the cases in which the Court of Justice has analysed the terms of bilateral agreements of that kind, the point of reference has always been a person resident in one of the two Member States parties to the agreement, who claims that application of the agreement discriminates against him in the other. In Gilly
there was a dispute as to calculation of the personal income tax payable in Germany by a couple resident in France, under the provisions of the convention entered into on 21 July 1959 between those two States. De Groot, (49) for its part, addressed the situation of a Netherlands resident who, during the 1994 tax year, worked as an employee of companies belonging to the same group in the Netherlands and in three other Member States (Germany, France and the United Kingdom), with each of which the Netherlands had entered into agreements.
87. The whole panorama changes, however, where legal persons are involved. In Metallgesellschaft and Others, the referring court asked whether the authorities of one Member State could deny a tax credit to a company from a different Member State, when they granted that credit to resident companies and to those established in the Member States with which they had entered into double-taxation treaties. In reality, the referring court was enquiring whether it was possible, by means of such a treaty, to distinguish between companies from the various Member States. Unfortunately, the Court of Justice did not find it necessary to give a ruling on that point (paragraph 97).
88. Similar facts were at issue in Saint-Gobain ZN, to which I have likewise referred, since the permanent establishment in Germany of a company having its seat in another Member State was claiming entitlement in the first State to the concessions granted to companies having their seat in Germany in relation to the taxation of dividends received from companies established in non-member countries (the Swiss Confederation and the United States), under double taxation treaties concluded with those two countries.
89. As can be seen, those two cases bear similarities with the situation of D., who is claiming in the Netherlands the same treatment as is granted, by virtue of a bilateral agreement, to residents in Belgium. A triangular situation, with non-national (German and Belgian) factors of comparison, should receive from the Court of Justice a satisfactory answer in accordance with the requirements of Community law.
4. The principle of non-discrimination and the most-favoured-nation clause
90. The Governments that have made submissions in these proceedings and the Commission have, unanimously, rejected the suggestion that the Court of Justice, under the Convention at issue, might interpret Article 56 EC as requiring that citizens resident in Germany should receive in the Netherlands the same treatment as those resident in Belgium.
91. The Netherlands Government in particular has exercised itself in distinguishing the present situation from those in Saint-Gobain ZN and Gottardo, (50) in which a Member State had within its jurisdiction nationals of other Member States, and wondered whether it should apply to them the advantages extended to its own nationals under international agreements entered into with third countries. In reality, that last circumstance is the only difference between them, since the present case concerns a bilateral agreement with another Member State. In all other respects, the situations are the same.
92. Mrs Gottardo, an Italian national by birth but of French nationality following her marriage, claimed, for the purposes of fixing the amount of her retirement pension in the country of her birth, that not only periods of insurance in those States but also contributions paid in Switzerland should be taken into account, under an Italian-Swiss social security convention which, for the calculation of pensions, recognises periods worked by Italians in Switzerland. Saint-Gobain ZN
concerned a company established in France which, having paid taxes in Germany on the income and assets of a branch in that country, sought to enjoy the tax benefits granted to companies having their seat in Germany, under two treaties for the avoidance of double taxation with Switzerland and the United States. D. is a German resident subject to taxation in the Netherlands in respect of the immovable property he owns in the latter country. He seeks to enjoy the benefit granted by the law of that Member State to its property owners resident in Belgium, in accordance with an agreement with that second country. The sole difference between the foregoing cases and the one under analysis lies in the fact that, in the first two situations, the country with which the agreement has been entered into is a non-Member State.
93. That disparity is not, however, sufficient to produce a different outcome.
94. First, the convention in the main proceedings differs from those at issue in Saint-Gobain ZN
and Gottardo, since it falls squarely within the scope of the Treaty (Article 293 EC), so that, if there is a risk that its literal interpretation might hinder application of a provision of Community law, the Member States have an even greater duty than in the cases cited to do what is necessary to avoid such an outcome. Redundant though it may seem, I should point out once again that, in the light of the view taken by the participating governments, when Member States exercise their taxation powers, they must do so consistently with Community law, irrespective of the instrument used – a law, a regulation or an international or Community agreement or an agreement with a third country. That being so, in Gottardo,
the Court of Justice stated that ‘when giving effect to commitments assumed under international agreements, be it an agreement between Member States or an agreement between a Member State and one or more non-member countries, (51) Member States are required, subject to the provisions of Article 307 EC, to comply with the obligations that Community law imposes on them’ (paragraph 33).
95.
Accordingly, on the basis that D. and a taxpayer resident in Belgium are in the same position for the purposes of payment in the Netherlands of the tax to which they are liable in respect of their immovable property, the former is entitled to the advantages which the convention for the avoidance of double taxation between those States confers on the latter, provided its application does not involve an unjustified fetter on the free movement of capital.
96. I concur with the participating governments that the most-favoured-nation clause does not appear to be automatically transferable to the matter now under discussion, or, in other words, that the principle of non-discrimination on grounds of nationality, as a rule safeguarding freedoms of movement, does not require that a citizen of one Member State should receive the best possible treatment in the other, regardless of whether or not that is necessary for the establishment of the single market. That is the reasoning underlying my arguments in paragraphs 66 and 67 of my Opinion in Gilly
where I stated, referring to income tax, that the object of a bilateral double taxation convention is to prevent income which is taxed in one State from being taxed again in the other, not to confer upon taxpayers the tax status which is most favourable to them in each case.
97. However, if the application of a contractual provision by a Member State hinders the free movement of capital by unjustifiably affording different treatment to residents of other Member States (who, as European citizens, are entitled not to be directly or indirectly discriminated against on the grounds of their nationality, according to the first paragraph of Article 12 EC), there is nothing to prevent Community law from rectifying that circumstance and eliminating the inequality. (52) That is to say, in triangular situations such as that in the main proceedings, the position of the taxpayer in the taxing State can be defined on the basis not only of the most-favoured-nation clause but also of the fact that there is a restriction on free movement. The taxpayer will seek, as D. is doing, to have the scope of the agreement covering residents in Belgium extended to him, and that claim can be formulated by reference to a restriction on the free movement of capital if the heavier tax burden and adverse consequences are regarded as contrary to Community law. In short, accepting reciprocal obligations to another Member State which limit the freedom of movement of the nationals of European non-member countries is contrary to Community law. (53) The fact must not be overlooked that national provisions, which include validly concluded and ratified international treaties, must not infringe the fundamental freedoms of the European legal system.
98. The governments which have submitted observations in the proceedings, adducing various arguments, resolutely oppose that contention.
99. They maintain that D.’s circumstances cannot be compared with those of a taxpayer resident in Belgium. Agreements concluded under Article 293 EC are, in their view, the fruit of negotiations which include assessment of the framework and content of their respective tax systems and therefore, in order to make a finding as to equal treatment in relation to a specific factual situation, account cannot be taken of an isolated provision, or even of the entire convention, but the national taxation system as a whole must be considered. As the Commission very graphically demonstrates, different treaty arrangements create different situations, which are not comparable.
100. The foregoing maximalist reasoning would have precluded the rulings given in Gottardo
and Saint-Gobain ZN, or any test of equal treatment, since if, in addition to similarity between the factual circumstances and the applicable provisions, there must be similarity between the reasons, the grounds and the procedure followed for their approval and between the legal systems which incorporate the provisions being compared, it would never be possible to make a finding and there would never, or almost never, be comparable situations. In reality, assessment of equality is simpler and more limited, in so far as it is a matter of identifying whether two individuals in comparable factual circumstances are subject without justification to disparate rules and, in comparing those rules, the sole pertinent inquiry is whether their application leads to differing effects to the detriment of either of them.
101. I am aware of the dangers which the foregoing considerations imply for the equilibrium and reciprocity which prevail in the system of double-taxation treaties, but those difficulties must not become obstacles to the establishment of the single market. First, in setting in those agreements the criteria for allocating competence in taxation matters, the Member States must act with the utmost care, avoiding any provisions which might hinder that objective. Second, the right to equal treatment stands alone and is independent from the principle of reciprocity and therefore, in the event of a conflict, it takes precedence over mutual commitments. If the reciprocity of the obligations in such an agreement runs counter to the fundamental ideas driving the construction of a unified Europe, the Member States in question have a duty to seek other formulae which, whilst achieving the objective sought, do not, in breach of Community law, prejudice the citizens of other Member States. The principle of proportionality so demands.
102. The United Kingdom Government contends that most-favoured-nation status entails a risk of tax evasion if a taxpayer invokes the least rigorous of the anti-fraud provisions included by a Member State in its agreements with others.
103. That argument, however, is not tenable. First, the issue is not one of applying the principle of most favourable national treatment, but concerns the scope of operation of the fundamental rules of Community law which lead, on occasion, to an outcome similar to that resulting from that principle. Second, the risk alleged is purely hypothetical in the circumstances of the main proceedings, because D. is not seeking the removal of tax controls over him but is claiming a specific and precise tax benefit.
104. Lastly, if preventing tax evasion had become an imperative reason in the general interest justifying obstacles to free movement, there would be debate even now as to the possibility of making the intra-Community movement of capital subject to a system of prior authorisation. In my Opinion in Commission
v France, already cited (paragraph 27), I observed that the combating of tax fraud does not give carte blanche to Member States in order to curb those freedoms. On the contrary, in common with any exception to the fundamental premises on which the construction of the Community is based, it must be interpreted and applied in compliance with the requirements of the principle of proportionality. Accordingly, difficulties affecting the tasks of administering and inspecting taxes are not sufficient to legitimise provisions which restrict those fundamental freedoms and are endowed with an absolute character, in disregard of other less expeditious, but also less onerous, means of achieving the same end.
105. An affirmative reply to the second question referred to the Court would severely fetter the complex system of bilateral agreements for the avoidance of double taxation in the Community, but it would not be the first time that a ruling of the Court of Justice caused upheaval in the legal systems of the Member States.
106. That being so, in view of the fact that the second question was submitted in the alternative, and of the reply proposed to the first question, I suggest that the Court of Justice should not give a ruling on it or, if it does, should do so in line with the suggestions set out in the preceding pages.
D – The third question
107. By its last question the referring court, although still concerned as to whether the Netherlands provisions are compatible with Community law, moves away from the sphere of taxation in order to delve into the mysteries of procedural law.
108. In particular, it wishes to know whether the principle of the effectiveness of Community law allows a national rule which limits to a small proportion of the costs incurred in obtaining a favourable decision the amount which a claimant can recover under an order for costs against the authorities.
109. I have recently had occasion to give my view on that principle and on the limits to which, in my opinion, the powers of the Court of Justice should be subject in safeguarding the effectiveness of the provisions making up the Com munity legal system. In the interests of not further lengthening this Opinion, which is already on the long side, I refer to the views I expressed in my Opinions of 14 March 2002 and 11 December 2003 respectively in Grundig Italiana
(paragraphs 26 to 30) (54) and Recheio
(paragraphs 23 to 35). (55)
110. In accordance with the view I put forward on those occasions, the Court of Justice should, in replying to the last question, merely say that Community law and, in particular, the principle that requires that it be effective, precludes any provisions of a Member State which, in relation to actions against that State for the reimbursement of taxes, lay down rules on costs which, in practice, render it excessively difficult to exercise the right to reimbursement. If recovery of tax wrongly assessed and paid involves a large financial outlay by taxpayers, they may be deterred and the exercise of their rights may be improperly thwarted. An expensive procedural system is, in the same way as a slow system, incompatible with the right to an effective remedy.
111. It is for the referring court to draw its own conclusions about its own procedural system and to analyse the compliance thereof with those requirements, for both substantive and pragmatic reasons. Not only is it in a better position to assess its domestic law and to act accordingly, but it also has available the means to do so, having regard to the elements of fact and law at its disposal.
112. In any event, in the light of previous experience, it is very possible that, as in its judgments in Grundig Italiana
and Recheio, the Court of Justice will decline to follow my recommendations and purport to take the place of the national court. In view of that possibility, my alternative view is that a procedural rule which allows recovery of only a little over EUR 2 000 out of a total of EUR 12 500 (56) expended in the course of the judicial proceedings in order to obtain reimbursement of tax paid but not due may infringe the principle of the effectiveness of Community law, since it is liable to render recourse to legal proceedings fruitless and to deter the holders of rights under Community law from defending them.
VII – Conclusion
113. In view of the foregoing considerations, I propose that the Court of Justice, in reply to the first question referred to it, should rule as follows:
Articles 56 EC and 58 EC on the free movement of capital within the Community preclude national legislation which, in relation to wealth tax, grants to resident taxpayers entitlement to an allowance which it denies to non-resident taxpayers (unless 90% of their assets are located in the Member State in question), where the latter have no ‘taxable assets’ other than those located in that country, because those which they own in other States are not subject to a tax of that kind.
Community law, in particular the principle that requires that it be effective, precludes any provisions of a Member State which, in relation to actions against that State for the reimbursement of taxes, establish a system of procedural costs which, in practice, renders reimbursement excessively onerous, and it is for the referring court to determine whether, in the light of the matters of fact and law available to it, the national legislation at issue in the main proceedings complies with that principle.
(1) .
(2)
–	See, in that regard, Álvarez García, S., and
Arizaga Junquera, M.C., ‘Libertad de movimientos de capitales y unión monetaria: implicaciones para la armonización de la fiscalidad directa de los países comunitarios’, Noticias de la Unión Europea, No 144, January 1997, pp. 79 to 87. Also, Aparicio Pérez, A., ‘La libre circulación de capitales en la Unión Europea. Especial referencia a la fiscalidad’, ibid., pp. 59 to 78.
(3)
–	The only course available to legitimise intervention by the Community in this field is Article 94 EC (formerly Article 100 of the EC Treaty), which allows the adoption of harmonising measures on matters which directly affect the functioning of the common market. One example is Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15). Another consists of Council Directives 90/434/EEC and 90/435/EEC, of 23 July 1990, on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States, and on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, pp. 1 and 6 respectively). To the foregoing can be added Directives 2003/48/EC and 2003/49/EC, likewise of the Council, the first on taxation of savings income in the form of interest payments and the latter on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (OJ 2003 L 57, pp. 38 and 49 respectively).
(4)
–	The Court of Justice so stated for the first time in Case C-279/93 Schumacker
[1995] ECR I‑225, paragraph 21, using a formula which has met with success, repeated in other rulings, such as Case C-264/96 ICI
[1998] ECR I-4695, paragraph 19, Case C-307/97 Saint - Gobain ZN
[1999] ECR I‑6161, paragraph 58, Case C-35/98 Verkooijen [2000] ECR I‑4071 paragraph 32, and Joined Cases C-397/97 and C-410/98 Metallgesellschaft and Others
[2001] ECR I-1727, paragraph 37.
(5)  –	Case C-478/98 Commission
v Belgium
[2000] ECR
I‑7587, paragraph 18, and the judgments cited therein, expressed the same view.
(6)
–	Which, as will emerge, is the situation in the dispute which has given rise to this request for a preliminary ruling.
(7)  –	A town in Brabant, near Antwerp, where Hieronymus Bosch was born, around 1450.
(8)
–	According to the order for reference, that administrative decision, bearing number CPP2003980 (BNB 2003/237), was taken on the basis of the ruling made by the Gerechtshof te ’s‑Gravenhage
(Regional Court of Appeal, The Hague) on 18 July 2000 (BK‑99/01421), holding that there is no objective difference capable of constituting a ground for withholding entitlement to a tax allowance between the situation of a taxpayer residing in Spain who has no, or practically no, assets there and whose entire taxable wealth is situated in the Netherlands, and that of a domestic taxpayer whose entire taxable wealth is in the Netherlands.
(9)  –	In that annex one point is awarded for the bringing of an appeal and the same number for appearing at the hearing. Filing a reply warrants half a point. Both drafting written observations and attending a pre-trial hearing amount to two points. Each point is worth EUR 322. Lastly, the figure is weighted according to the difficulty of the case, by a factor which varies between 0.25 for straightforward cases, and 2 in the case of a complex action.
(10)
–	Case C-251/98 Baars
[2000] ECR I-2787.
(11)  –	Before entry into force of the Treaty on European Union, which incorporated Article 56 et seq. EC (formerly Article 73b et seq. of the EC Treaty), Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (OJ 1988 L 178, p. 5) treated investments in real estate in the Member States by non-residents as movements of capital. Community case-law holds that the annex in question still has its intended indicative value for the purposes of defining the notion of capital movements (Case C-222/97 Trummer and Mayer
[1999] ECR I‑1661, paragraph 21, and Case C-452/01 Ospelt and Schlössle Weissenberg [2003] ECR I-9743, paragraph 7).
(12)
–	Case C-175/88 Biehl
[1990] ECR I-1779.
(13)
–	Case C-151/94 Commission
v Luxembourg
[1995] ECR I‑3685.
(14)
–	Case C-112/91 Werner
[1993] ECR I-429. In that case, the doubts of the Finanzgericht Köln (Finance Court, Cologne) as to whether the German legislation on income tax in force at the time was compatible with the freedom of movement for workers remained unresolved because the facts of the dispute were purely domestic.
(15)  –	Case C-80/94 Wielockx
[1995] ECR I-2493.
(16)  –	Case C-107/94 Asscher
[1996] ECR I-3089.
(17)
–	Case C-391/97 Gschwind
[1999] ECR I-5451.
(18)  –	The case concerned the German system which, in 1996, was amended to conform to the requirements imposed by Schumacker .
(19)  –	Case C-87/99 Zurstrassen
[2000] ECR I-3337.
(20)
–	Case C-234/01 Gerritse
[2003] ECR I-5933.
(21)  –	Case C-209/01 Schilling and Fleck - Schilling
[2003] ECR I-0000.
(22)
–	Case C-169/03 Wallentin
[2004] ECR I-0000.
(23)
–	Although they were different tax charges, the Netherlands legislation at issue in both cases was essentially the same. Baars concerned a provision which made exemption from wealth tax on shareholdings subject to a requirement that the company was established in the Netherlands. In Verkooijen
the legislation consisted of a relief from personal income tax, which depended on the place where the company from which the income originated had its seat.
(24)  –	Recognition of the Member States’ competence in relation to direct taxation, compliance with Community law as a limitation on the exercise of that competence and the rejection of any rule which places the nationals of other Community countries in a less favourable position than those of the country itself are features of the order of 12 September 2002 in Case C-431/01 Martens
[2002] ECR I-7073, which censured Belgian legislation under which a natural person residing and carrying on a self-employed business in a Member State could, for the purposes of personal taxation, deduct from his taxable profit for one year a loss incurred the previous year only on the condition that the loss was not capable of being set off against remuneration received as an employed person in another Member State. The grounds for that ruling lie in the fact that losses offset in that way cannot be deducted from taxable income in any of the Member States involved, whilst they can be deducted if the taxpayer works as a self-employed or employed person exclusively in the State in which he resides.
(25)
–	Case C-422/01 Skandia and Ramstedt
[2003] ECR I‑6817.
(26)
–	Case C-42/02 Lindman
[2003] ECR I-0000.
(27)
–	Case C-334/02 Commission
v France
[2004] ECR I-0000.
(28)
–	Case C-315/02 Lenz
[2004] ECR I-0000, and Case C-242/03 Weidert-Paulus
[2004] ECR I‑0000.
(29)
–	Case C-436/00 X and Y
[2001] ECR I-10829. The order of 8 June 2004 in Case C-268/03 De Baeck
[2004] ECR I-0000 has likewise criticised the Belgian rule under which gains arising on the assignment for valuable consideration, otherwise than in the exercise of a professional activity, of shares or stock in companies are only exempt from tax if that transfer is made to Belgian companies, associations, establishments or bodies.
(30)
–	The Member States, referred to in the following footnote, which have such a tax, do take into account the marital status of taxpayers and also, in some cases, their dependants.
(31)
–	Only six (Spain, Finland, France, Luxembourg, the Netherlands and Sweden) of the 15 Member States making up the European Union at the time the question was submitted make legislative provision for a tax on the wealth of natural persons.
(32)
–	Case C-319/02 Manninen
[2004] ECR I-0000.
(33)  –	Article 67 of the EC Treaty provided that ‘[d]uring the transitional period and to the extent necessary to ensure the proper functioning of the common market, Member States shall progressively abolish between themselves all restrictions on the movement of capital …’, whilst Article 56 EC states, more categorically, that ‘… all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited’.
(34)
–	García-Moncó, A.M., Libre circulación de capitales en la Unión Europea: problemas tributarios, Editorial Civitas, Madrid, 1999, p. 141.
(35)
–	Article 58(1)(b) EC makes the same exception, granting powers to impose penalties, in particular in the field of taxation, to take the measures necessary in order to ensure public security or uphold public policy and to ensure the appropriate monitoring of capital movements.
(36)  –	Clearly, I am referring to negative differences in treatment, since positive differences, those which benefit persons resident in other Member States, in so far as they encourage the movement of capital between different Member States, are not only permissible but desirable. García-Moncó, A.M., op. cit., pp. 146 and 147, is of the view that the adoption of Article 73d(1)(a) at Maastricht was the result more of policies seeking to maintain fiscal competitiveness through positive discrimination than of the possibility of measures involving negative discrimination.
(37)
–	So states Advocate General Tizzano in paragraph 44 of his Opinion in Case C-516/99 Schmid
[2002] ECR I‑4573. The Court of Justice recently reiterated that view in paragraph 29 of the judgment in Manninen .
(38)
–	That interpretation has enabled the Court of Justice to state, in paragraph 39 of Manninen, that ‘the principle of territoriality cannot justify different treatment of dividends distributed by companies established in Finland and those paid by companies established in other Member States, if the categories of dividends concerned by that difference in treatment share the same objective situation’.
(39)  –	She so states in paragraph 38 of her Opinion in Manninen, reiterating paragraph 27 of her Opinion in Case C-242/03 Weidert - Paulus
[2004] ECR I-0000.
(40)  –	Martin P., ‘La portée fiscale des libertés communautaires de circulation (travailleurs, établissement, prestation de services, capitaux): réflexions au regard du droit interne’, Revue de droit fiscal, No 44, November 2000, pp. 1444-1448, in particular page 1448.
(41)  –	In relation to immovable property, until such time as the desired harmonisation of direct taxation occurs, the most appropriate solution in order to establish a single market free of restrictions is, in my view, for the point of connection to be the place where the property is located, so that the competence to tax those assets lies with the Member State in which they are situated, and for the State of residence to decline to take them into consideration, even when calculating the taxpayer’s total assets for the purposes of the tax. That is why the Model Double Taxation Treaty of the Organisation for Economic Cooperation and Development (OECD) provides, in Article 22, that capital represented by immovable property, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.
(42)
–	In Case 137/84 Mutsch
[1985] ECR 2681, paragraph 11, the Court of Justice stated that the then Article 220 of the EC Treaty obliged Member States to extend to the nationals of the other Member States the guarantees accorded by them to their own nationals. In Case C-336/96 Gilly
[1998] ECR I-2793, paragraph 16, it was stated more precisely that ‘the abolition of double taxation within the Community is … included among the objectives of the Treaty’.
(43)
–	So, with his characteristic clarity and concision, states Melchior Wathelet, former judge of the Court of Justice, in his collaborative work ‘Les conventions de double imposition dans la jurisprudence de notre Cour’, in Liber Amicorum Gil Carlos Rodríguez Iglesias, Une communauté de droit, Berliner Wissenschafts-Verlag, 2003, p. 445.
(44)  –	OJ 1990 L 225, p. 10.
(45)
–	In the Opinion I delivered in Gilly, I noted that that article leaves the Member States a wide discretion to decide whether it is necessary to enter into negotiations (paragraph 35).
(46)  –	As the Court of Justice expressly acknowledged in paragraph 30 of its judgment in Gilly .
(47)  –	The OECD Model Treaty contains no similar provision.
(48)  –	The Court of Justice has upheld that view since its judgment in Case 270/83 Commission
v France
[1986] ECR 273, the ‘ tax credit case ’, paragraph 26.
(49)
–	Case C-385/00 De Groot
[2002] ECR I-11819.
(50)
–	Case C-55/00 Gottardo
[2002] ECR I-413, which concerned a bilateral social security convention with a third country. In that case, the Court of Justice took up the suggestions in my Opinion of 5 April 2001.
(51)
–	Emphasis added.
(52)  –	In accordance with the case-law, so often repeated that I do not need to cite it, Article 12 EC is intended to apply independently only in situations governed by Community law for which the Treaty makes no specific provision against discrimination. So, in contrast to the freedom of movement for workers (Article 39(2) EC), the freedom of establishment (the first paragraph of Article 43 EC) and the freedom to provide services (the first paragraph of Article 49 EC), the free movement of capital is regulated without any special provisions of that kind (Article 56 EC), and the only reference to discrimination is that in Article 58(3) EC, in the form of a limitation of the power conferred by Article 58(1) to adopt certain measures since, in view of its breadth, it covers all forms of unjustified inequality of treatment, including that prohibited by Article 12 EC.
(53)
–	See García Prats, F.A., ‘Convenios de doble imposición, establecimientos permanentes y derecho comunitario (Consideraciones en torno a los casos Royal Bank of Scotland y Saint-Gobain)’, Noticias de la Unión Europea, No 191, December 2000, pp. 9 to 54, in particular p. 49.
(54)  –	Case 255/00 Grundig Italiana
[2002] ECR I-8003.
(55)
–	Opinion not yet reported.
(56)
–	Repayment of the EUR 10 000 incurred during the administrative phase depends on the success of an action in damages.