OPINION OF ADVOCATE GENERAL
WATHELET
delivered on 7 February 2018 (1)
Case C‑685/16
EV
v
Finanzamt Lippstadt
(Request for a preliminary ruling from the Finanzgericht Münster (Finance Court, Münster, Germany))
(Reference for a preliminary ruling — Free movement of capital — Deduction of taxable profits — Different treatment of dividends from subsidiaries having their management and registered office in a third country)
1.        This reference for a preliminary ruling, made by the Finanzgericht Münster (Finance Court, Münster, Germany), concerns the interpretation of Treaty provisions on the free movement of capital in the light of the German law on trade earnings and, in particular, in the light of some of the provisions of that law concerning the reduction of taxable profits. This reference has been made in a dispute between a company producing parts for motor vehicles, the parent company of an international group of companies (‘EV’ and the Finanzamt Lippstadt (Lippstadt Tax Office, Germany, ‘the Tax Office’)) concerning the latter’s decision relating to the assessment of trade tax.
I.      Legal framework
A.      EU law
2.        Article 56(1) EC (now Article 63(1) TFEU) provides:
‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.’
3.        According to Article 57 EC (now Article 64 TFEU):
‘1. The provisions of Article 56 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from third countries involving direct investment — including in real estate — establishment, the provision of financial services or the admission of securities to capital markets. In respect of restrictions existing under national law in Estonia and Hungary, the relevant date shall be 31 December 1999.’
4.        Article 58 EC (now Article 65 TFEU) provides:
‘1. The provisions of Article 56 shall be without prejudice to the right of Member States:
(a)      to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;
(b)      to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security.
2. The provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with this Treaty.
3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56.’
B.      German law
5.        The Gewerbesteuergesetz (Law on trade tax (‘the GewStG’), in the version in force at the time of the facts in the main proceedings, (2) includes, inter alia, the following provisions:
‘Paragraph 2 Subject of the tax
(1) Any industrial or commercial undertaking which operates within Germany shall be subject to the trade tax. Industrial or commercial undertaking means an industrial or commercial undertaking within the meaning of the Einkommensteuergesetz [Law on Income Tax, “the EStG”]. An industrial or commercial undertaking shall be regarded as operating within Germany when it maintains a permanent business establishment on German territory or on a merchant vessel registered in Germany.
(2) Activity carried out by capital companies (in particular European companies, public limited liability companies, limited liability companies and limited partnerships), cooperative societies, including European cooperative societies, and insurance funds and mutual pension funds, shall in all cases be regarded fully as a business undertaking. If a capital company is a controlled company [Organgesellschaft] within the meaning of Paragraphs 14, 17 or 18 of the Körperschaftsteuergesetz [Law on corporation tax, “the KStG”], it shall be regarded as constituting a permanent establishment of the controlling company.
…
Paragraph 8 Add-backs
The following amounts shall be added back to the profit from the business operation (Paragraph 7) if they have been deducted when ascertaining the profit:
…
(5) the surplus of shares of profits (dividends) which has not been taken into account under Paragraph 3(40) of [the EStG] or Paragraph 8b(1) of the [KStG] and income and earnings treated as such from holdings in a company, in an association of persons or in corporate funds within the meaning of the [KStG], provided that they do not fulfil the requirements set out in Paragraph 9(2a) or (7), after the deduction of operating expenses which are economically linked to those revenues, earnings and benefits, where they are not taken into account under Paragraph 3c(2) of [the EStG] and Paragraph 8b(5) and (10) of the [KStG]. This provision shall not apply to distributions of profits which are subject to Paragraph 3(41)(a) of [the EStG];
…
Paragraph 9 Allowances/reductions
The sum of the profit and of the add-backs shall be reduced
…
(2a)      by profits from shareholdings in a capital company incorporated under national law which is non-tax-exempt within the meaning of Paragraph 2(2), in a credit institution or an insurance fund governed by public law, in a trading and business cooperative [Erwerbs- und Wirtschaftsgenossenschaft] or in an investment company [Unternehmensbeteiligungsgesellschaft] within the meaning of Paragraph 3(23), where the shareholding at the beginning of the period in which such profits are received is at least equal to 15% of the initial capital or share capital and where that share of the profits has been entered in the accounts for the purpose of ascertaining the profit (Paragraph 7). In the absence of initial capital or share capital, it is necessary to use the holding in the assets or, for trading and business cooperatives [Erwerbs-und Wirtschaftsgenossenschaften], the holding in the total amount of contributions. The charges directly related to shares in the profits shall reduce the amount of the allowances in so far as the corresponding earnings from those shares are taken into account; in this context, Paragraph 8(1) shall not apply. Non-deductible operating expenses under Paragraph 8b(5) of the [KStG] do not constitute profits from shareholdings within the meaning of the first sentence. In relation to life and health insurance companies, the first sentence shall not apply to profits from shareholdings attributable to capital investments; this shall also apply to pension funds;
…
(7)      by profits from shareholdings in a capital company whose registered office and central management and control are outside the territorial area to which this law applies, and at least 15% (subsidiary) of whose share capital the undertaking has held, without interruption, since the beginning of the reference period, and which derives its gross revenues exclusively, or almost exclusively, from activities covered by Paragraph 8(1)(1) to (6) of the Außensteuergesetz [Law on foreign transaction tax, “the AStG”], and by profits from shareholdings in companies in which the undertaking directly holds at least a quarter of the share capital, where those shareholdings have been held without interruption for at least 12 months before the accounting date for the purpose of determining the profit and where the undertaking establishes
(1)      that those companies have their registered office and central management and control in the same State as the subsidiary and that their gross revenues are derived exclusively, or almost exclusively, from activities covered by Paragraph 8(1)(1) to (6) of [the AStG], or
(2)      that the subsidiary possesses shareholdings which are economically linked to its own activities covered by Paragraph 8(1)(1) to (6) and that the company in which the shareholding is held derives its gross revenues exclusively, or almost exclusively, from such activities,
where the shares of profits were entered in the accounts as profits (Paragraph 7); this provision shall also apply to the profits from shareholdings in a company fulfilling the requirements set out in Annex 2 to [the EStG], which reproduces Article 2 of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225 p. 6; OJ 1997 L 266, p. 20 and OJ 1997 L 16, p. 98), most recently amended by Council Directive 2006/98/EC of 20 November 2007 (OJ 2007 L 363, p. 129), which has neither its management nor registered office on national territory and in which the undertaking holds at least a tenth of the share capital at the beginning of the reference period. The third sentence of Paragraph 9(2a) shall apply by analogy. The fourth sentence of Paragraph 9(2a) shall apply by analogy. If an undertaking which, through a subsidiary, indirectly owns at least 15% of a capital company having its central management and control and its registered office outside the territory of application of this law (a lower-tier subsidiary) makes profits in the course of a financial year from its shareholdings in the subsidiary and if the lower-tier subsidiary distributes profits to the subsidiary during that financial year, the same rule shall apply, at the request of the undertaking, to the part of the profits received by it and corresponding to the distribution by the lower-tier subsidiary of the profits allocated to the undertaking on account of its indirect shareholding. If, during the financial year concerned, the subsidiary has received other revenues additional to the shares of profits of a lower-tier subsidiary, the fourth sentence shall apply only to the share of the distribution allocated to the subsidiary corresponding to the proportion of those shares of profits in the sum of the profits and other revenues, within the limits of the amount of those shares of profits. Application of the fourth sentence presupposes that
(1)      the lower-tier subsidiary has, in the course of the financial year during which it carried out the distribution, derived its gross revenues exclusively, or almost exclusively, from activities covered by Paragraph 8(1)(1) to (6) of [the AStG] or from shareholdings covered by the point (1) of the first sentence and that
(2)      the subsidiary fulfils the requirements laid down by the first sentence as regards the shareholding in the capital of the lower-tier subsidiary.
Application of the foregoing provisions requires that the undertaking provide all evidence, in particular,
(1)      that it establish, by the submission of relevant documents, that the subsidiary derives its gross revenues exclusively, or almost exclusively, from activities covered by Paragraph 8(1)(1) to (6) of [the AStG] or from shareholdings covered by points (1) and (2) of the first sentence,
(2)      that it establish, by the submission of relevant documents, that the lower-tier subsidiary derives its gross revenues exclusively, or almost exclusively, from activities covered by Paragraph 8(1)(1) to (6) of [the AStG] or from shareholdings covered by point (1) of the first sentence,
(3)      that it establish the distributable profits of the subsidiary or of the lower-tier subsidiary by the production of balance sheets and profit and loss accounts; those documents must be presented on request with the certificate required or usually used in the State of management or registered office and drawn up by an officially recognised supervisory body or an equivalent body. Sentences 1 to 7 shall not apply, as regards life and health insurance companies, to profits from shareholdings attributable to capital investments; this shall also apply to pension funds; ...’
6.        Paragraph 8(1)(1) to (6) of [the AStG], as referred to in Paragraph 9(7) of the GewStG, lists the following activities:
(1)      agriculture and forestry;
(2)      the manufacture, treatment, processing or assembly of objects, energy production activities and the search for or exploration of natural resources,
(3)      the operation of credit institutions or insurance companies which use business premises for their activities (with some exceptions),
(4)      trade (with some exceptions),
(5)      services (with some exceptions),
(6)      leasing and rental (with some exceptions).
7.        Furthermore, with regard to the trade tax, the following provisions of the [KStG] are relevant:
‘Paragraph 8b Shareholding in other companies and associations
(1)      Earnings received within the meaning of Article 20(1)(1), (2), (9) and (10)(a) of [the EStG] shall not be taken into account for the purpose of determining income. The first sentence shall apply to other income within the meaning of the second sentence of Paragraph 20(1)(1) of [the EStG] and to revenues within the meaning of the second proposition in Paragraph 20(1)(9) and the second proposition in Paragraph 20(1)(10)(a) of [the EStG] only to the extent that they have not reduced the income of the company providing the benefits (second sentence of Paragraph 8(3)). If the earnings within the meaning of the first sentence are excluded from the basis of assessment for corporation tax under a double taxation convention, the second sentence shall also apply, notwithstanding the provisions of the convention concerning that exemption.
…
Paragraph 15 Calculation of the income of a single taxable entity [Organschaft]
For the purpose of determining the income of a single taxable entity, the following provisions shall apply, by derogation from the general rules:
…
2.      Paragraph 8b(1) to (6) of this Law and Paragraph 4(6) of the Umwandlungssteuergesetz [Law on taxation of business reorganisations] shall not be applicable to the controlled company [Organgesellschaft]. ...’
8.        For an understanding of Paragraph 8b of the KStG, it is also necessary to refer to the extract from Paragraph 20(1)(1) of the EStG reproduced below:
‘(1) Revenue from capital includes:
(1)      shares of profits (dividends), yields and other earnings from shares, rights of enjoyment which confer a right to share in the profits and in the proceeds of the liquidation of a capital company, shares held in limited liability companies, in trading and business cooperatives [Erwerbs-und Wirtschaftsgenossenschaften] and associations for the exploitation of mineral deposits which enjoy the rights of a legal person ...’
II.    The dispute in the main proceedings and the question referred for a preliminary ruling
9.        EV, a partnership limited by shares governed by German law (KGaA), is the parent company of an international group of companies. Its subsidiaries, in turn, hold shares in several other companies.
10.      In the 2008/2009 tax year at issue, there existed a single taxable entity for income tax purposes comprising the applicant, as the controlling company, and (R GmbH), now (H International), as the controlled company. The applicant held 100% of the capital of the company R.
11.      The company R in turn held 100% of the capital of (HAP Ltd), a capital company incorporated under Australian law having its registered office in Australia.
12.      In 2009, HAP Ltd received from its Philippine subsidiary (H Inc.) a profit distribution of AUD 556 000 (approximately EUR 337 584).
13.      The same year HAP Ltd distributed a sum of AUD 45 287 000 (approximately EUR 27 496 685.49) to its shareholder, the company R. Apart from the sum paid by H Inc., the distribution consisted of retained earnings (profits brought forward which had accumulated over a number of previous financial years).
14.      In 2012, Finanzamt Dortmund (Tax Office of Dortmund, Germany), carried out a tax inspection of the company R for the financial years 2006 to 2009 and found that the dividends obtained by the company R were tax-exempt for the applicant under Paragraph 8b(1) of the Körperschaftsteuergesetz 2002 (Law on corporation tax of 2002), 5% of earnings being added back to the income of the company at a flat rate under Paragraph 8b(5) of the same law as non-deductible operating expenses.
15.      The Tax Office of Dortmund considered that it was appropriate, in accordance with Paragraph 8(5) of the GewStG and after deduction of the profits distributed by the company H Inc. to HAP Ltd, to add the dividends paid by HAP Ltd to the company R back (at the rate of 95%, as provided for in respect of the trade tax) to the earnings of the applicant as the controlling company, which constitute the basis of assessment for the trade tax.
16.      On 13 November 2012, the Tax Office issued a tax notice in which it set at EUR 11 417 the basis of assessment for corporation tax due in respect of 2009.
17.      The complaint made against that tax notice was rejected as unfounded by the Tax Office, by decision of 8 November 2013.
18.      The applicant then lodged an appeal, arguing that it was necessary to interpret in a more flexible way Paragraph 9(7) of the GewStG and to construe more strictly Paragraph 8(5) in conjunction with Paragraph 9(7) of the GewStG, or that there was discriminatory treatment of dividends from foreign sources which is justified neither in EU law nor in constitutional law.
19.      Following the appeal against that decision on the amount of the basis of assessment for trade tax, the ongoing dispute concerns only the operating loss carried forward by the applicant, which the Tax Office calculated at EUR 2 366 004.40 in its notice of 6 June 2016 and which the applicant estimated at EUR 29 525 077.
20.      It is in that context that the Finanzgericht Münster (Finance Court, Münster) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:
‘Are the provisions regarding the free movement of capital and payment transactions in Article 63 et seq. [TFEU] to be interpreted as precluding Paragraph 9 No 7 of the [GewStG] in so far as those provisions cause the trade tax deduction of the profit and add-backs by the amount of the profits from shares in a capital company whose management and registered office are located outside the Federal Republic of Germany to be tied to stricter requirements than for the deduction of the profit and the add-backs by the amount of the profits from shares in a non-tax-exempt domestic capital company or by that part of the trade earnings of a domestic undertaking allocated to a permanent establishment not located in Germany?’
III. Analysis
A.      Summary of the observations of the parties
21.      Written observations were submitted by both parties to the main proceedings, EV and the Tax Office, and by the German Government and the European Commission. All the parties, except the Tax Office, presented oral argument at the hearing on 30 November 2017.
22.      The Federal Republic of Germany takes the view that the provisions relating to the free movement of capital and payments, in Article 63 et seq. TFEU, do not preclude a provision such as Paragraph 9(7) of the GewStG.
23.      According to that government, the present case falls outside the scope of Article 63 et seq. TFEU, but it should be examined in the light of the freedom of establishment, because it involves the existence of a ‘definite influence’ on companies by laying down a requirement for a 15% shareholding.
24.      There is a definite or decisive influence from the moment when the rule at issue, if it does not lay down provisions concerning control or blocking minorities, imposes a shareholding threshold higher than the limit above which rights granted to minority shareholders are applicable.
25.      However, according to that government, Article 49 TFEU does not protect situations, such as that in the present case, concerning the establishment of a company of a Member State in a third country or the establishment of a company of a third country in a Member State. (3)
26.      According to the German Government, even assuming that the free movement of capital is applicable in the present case, the provision in Paragraph 9(7) of the GewStG does not restrict that freedom or create any difference in treatment but, on the contrary, provides for the equal treatment of passive income from shareholdings in foreign capital companies established within the European Union and other passive income.
27.      That government asserts that Paragraph 9(7) of the GewStG allows a national recipient of dividends to be treated in the same way, under the provision at issue, in relation to the commercial activities of companies established in third countries and in relation to holdings in companies established on national territory.
28.      If the Court were to hold that the present case falls within the scope of the free movement of capital, the German Government takes the view that a possible restriction on that freedom would not infringe EU law, on the basis of Article 64(1) TFEU, which allows Member States to maintain restrictions on the free movement of capital.
29.      According to the German Government, the three cumulative requirements for application of the safeguard clause provided for in Article 64 TFEU were fulfilled: the restriction at issue existed on 31 December 1993; the national measure at issue concerns activities carried out in third countries and, finally, the capital movements concerned are linked with one of the operations set out in Article 64(1) TFEU.
30.      That government notes that the concept of ‘direct investment’, according to the case-law, concerns investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity. (4)
31.      Finally, according to that government, if a restriction on the free movement of capital were to be established, it would be justified.
32.      The German Government takes the view that the situations covered by Paragraph 9(7) of the GewStG are not objectively comparable to the situations covered by Paragraph 9(2a) of the GewStG. In order to demonstrate this, it points out that shareholdings in national or foreign capital companies owned by a national company give rise to national income. The dividends from the shareholding in foreign property are not, in principle, subject to the trade tax at an earlier stage. On the other hand, dividends from shareholdings in the national company are. This constitutes an objective criterion justifying a difference in treatment.
33.      With regard to the other derogations laid down to justify the restrictions at issue, it notes that the prevention of abusive arrangements is recognised by the Court as a ground capable of justifying a restriction. It is true that any general presumption of fraud must be excluded and that the legislature must give taxpayers an opportunity to provide evidence that there has been no abuse. Such an opportunity is, inter alia, provided for in Paragraph 8(2) of the AStG in the case of genuine economic activity.
34.      EV argues, in essence, that there exists in the present case a restriction on the free movement of capital, in so far as the exemption of dividends received from a company established in the same Member State is subject to requirements which are far less strict than those in cases where a non-member State is involved.
35.      First, the scheme provided for by the first sentence of Paragraph 9(7) is applied to entities receiving dividends paid by companies established in non-member States or having their effective management in non-member States, on the basis of which scheme the exemption of dividends can be applied for the benefit of the entity subject to trade tax receiving them only if the company making the distribution and established in a non-member State derives its gross income from certain ‘active’ sources of revenue.
36.      Secondly, the shareholding must have been held without interruption from the beginning to the end of the reference period, whereas for shareholdings in resident companies, it is necessary to establish only that it was held at the beginning of the period in question.
37.      Thirdly, the exemption of dividends from a company established in a non-member State is limited to cases in which the structure of the group comprises no more than three tiers.
38.      As to whether the restriction on the fundamental freedom at issue might be justified, EV does not see which overriding reasons in the public interest could justify treating dividends from companies established in the same Member State more favourably than dividends paid by companies established in non-member States.
39.      Furthermore, EV argues that the standstill clause is not applicable for at least four reasons.
40.      In the first place, although, in accordance with Article 64 TFEU, any restrictions on the movement of capital to or from third countries may still be applied by a Member State if they existed in its legislation on 31 December 1993, EV submits that the legal framework for the taxation of dividends from a capital company established in Germany was substantially different in 2009 from that existing on 31 December 1993, since the German legislature had introduced not only a ‘new procedure’ using different terminology, but also significant conceptual differences. Accordingly, from the point of view of its effect on the possibility of relying on Article 64(1) TFEU (the standstill clause), such an amendment to the applicable law is tantamount to the introduction of new legislation underpinned by a new logic, differing from that of the previous legislation in so far as the provision at issue governed, at the time of the facts at issue, situations very different from those existing on 31 December 1993.
41.      In the second place, following substantive amendments to the provision at issue, the possible deductions available to a taxable person have been reduced.
42.      In the third place, the level of shareholding of 10% specified by the Unternehmenssteuerreformgesetz (Law on the reform of corporation tax) on 31 December 1993, to which the provision at issue refers, was raised to 15% (and therefore increased) by the law of 14 August 2007. (5) That increase of 50% in the level of shareholding has significantly reduced the scope of any deductions under Paragraph 9(7) of the GewStG.
43.      In the fourth place, the provision at issue in the main proceedings was included in a completely amended system for the taxation of dividends.
44.      The Commission shares the view of the referring court that Paragraph 9(7) of the GewStG must be analysed in the light of the free movement of capital and takes the view that it gives rise, in the present case, to a restriction on that freedom of movement. It is of the view that a comparison of the rules applicable to resident and foreign subsidiaries, as regards the deductions to be made from the income concerned for the purposes of applying the trade tax (that is to say the sum of the profit and of the add-backs), points to the existence of unequal treatment.
45.      While dividends paid by resident subsidiaries confer entitlement to an unconditional deduction from the taxable base under Paragraph 9(2a) of the GewStG, Paragraph 9(7) of the GewStG lays down several additional requirements as regards distributions by non-resident companies: the distributed profits must, in particular, derive from an ‘active’ economic activity, which is not the case with a holding company such as HAP Ltd; moreover, the management and registered office of the ‘lower-tier subsidiaries’ must be in the same State as the State of the subsidiary.
46.      With regard to the applicability of the ‘standstill clause’ in Article 57 EC (now Article 64 TFEU), the Commission recalls that the provision at issue must ‘involve direct investment’, a requirement which has not been fulfilled in its view.
47.      Since Paragraph 9(7) of the GewStG provides only for a level of shareholding of 15% (initially 10%), it cannot, in the Commission’s view, be regarded as a provision involving direct investment.
48.      As to whether the existing legislation is, in substance, consistent with the legislation applicable on 31 December 1993, according to the Commission, the Court has, in that regard, already given clear guidance in its case-law, in particular in paragraph 41 of the judgment of 24 May 2007, Holböck (C‑157/05, EU:C:2007:297), in which it pointed out that legislation based on an approach which differs from that of the previous law or which establishes new procedures cannot be treated as original legislation.
49.      The Commission notes that the provision at issue has been amended several times since 1993, in particular in 1999 with the introduction of the system establishing an allowance of 50% of income. Such amendments could be regarded as a ‘complete change of the system’.
50.      In addition, the minimum shareholding threshold required for a deduction was increased from 10% to 15%, thereby restricting the scope of the legislation. The Commission accordingly concludes that that restriction on the free movement of capital cannot be allowed on the basis of Article 57 EC.
51.      For the purpose of ascertaining whether the possible restriction at issue may be justified, the Commission notes that the objective of combatting tax abuse or tax evasion would, where appropriate, constitute a possible justification. According to the case-law of the Court (judgment of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraphs 51 and 55, and the case-law cited), a restrictive measure may be justified ‘where it specifically relates to wholly artificial arrangements aimed at circumventing the application of the legislation of the Member State concerned’.
52.      However, it points out that the chargeable event in Paragraph 9(7) of the GewStG contains no criterion for identifying a wholly artificial arrangement or the existence of other evidence attesting to tax abuse. Moreover, a general presumption of tax avoidance or evasion is insufficient to justify such a restriction. (6)
53.      In conclusion, the Commission acknowledges no possibility thatthe provision of Paragraph 9(7) of the GewStG may be justified by the prevention of abusive tax practices or tax avoidance. It also fails to see any other reasons capable of justifying such a provision.
B.      Assessment
1.      Preliminary remarks
54.      Although the applicable provisions of the two treaties are identical, it should first be noted that, for the financial year 2008/2009 ending on 31 May 2009, the provisions of the EC Treaty were still applicable to the applicant, since the TFEU did not enter into force until December 2009.
55.      Secondly, even though the question referred for a preliminary ruling refers to the differences established by the German law in the requirements applicable to deductions of profits from shareholdings according to whether those shareholdings are in a capital company which does or does not have its management and its registered office outside the Federal Republic of Germany (which fails to distinguish between other Member States and non-member States), the dispute before the referring court concerns only shareholdings in capital companies having their management and their registered office in third countries which are not Member States of the European Union. I shall formulate this Opinion on that basis, without referring to shareholdings in capital companies having their management or their registered office in other Member States. (7)
56.      Finally, and in so far as at least three of the parties are concerned, it not disputed that the requirements for the exemption of dividends received from companies established in non-member States are stricter than those imposed on dividends received from companies resident in Germany.
57.      That unequal treatment is also the reason why, in a very detailed and clearly reasoned order comprising no fewer than 41 pages, the referring court expresses ‘serious’ doubts as to the compatibility of Paragraph 9(7) of the GewStG with EU law. (8)
58.      I would recall the three differences which are not disputed by the parties: (i) with respect to shareholdings from capital companies incorporated under national law, in order to obtain the exemption, it is sufficient that, at the beginning of the period of receipt, those shareholdings are at least equal to 15% of the initial capital and that the shares of profits have been entered into the accounts in accordance with the detailed rules set out in that legislation; (ii) the requirement that the company making the distribution derives its gross income from rural, industrial, commercial or service activities or that that income is ‘active’ and not ‘passive’ exists only if the company is established in a third country; and (iii) the exemption of dividends is limited to cases in which the structure of the group comprises no more than three tiers, where the company making the distribution is established in a third country. (9)
2.      Which fundamental freedom is applicable in the present case?
59.      Contrary to what the German Government maintains, (10) I consider, like the referring court, that the provision at issue (11) must be analysed in the light of the free movement of capital (Article 56 EC) and not the freedom of establishment.
60.      It is in no way necessary for the application of that provision for the company receiving the dividends to have a decisive influence on the company making the distribution. The effective level of shareholding held by EV in the company established in the non-member State is therefore not decisive because the provision of national law at issue is not intended to apply exclusively to cases in which the company receiving the dividends exercises decisive influence over the company making the distribution.
61.      On this subject, the Court has held that, in a context relative to the tax treatment of dividends originating in a non-member State, it was sufficient to examine the purpose of national legislation in order to determine whether the tax treatment of such dividends fell within the scope of the provisions of the Treaty on the free movement of capital(12)
62.      In that regard, the Court has stated that national legislation relating to the tax treatment of dividends which does not apply exclusively to situations in which the parent company exercises decisive influence over the company paying the dividends must be assessed in the light of Article 63 TFEU. A company established in a Member State may therefore rely on that provision in order to call into question the legality of such legislation, irrespective of the size of its investment in the company paying dividends established in a third country. (13)
63.      That is the case with Paragraph 9(7) of the GewStG concerning the profits from shareholdings in a subsidiary which has its management and its registered office outside the Federal Republic of Germany and which has a parent undertaking subject to tax that holds at least 15% of its share capital, without reference to any requirement for a decisive influence on the decisions of that subsidiary.
64.      In its order for reference, the national court considers that, in view of the specific features of national law, such a minimal shareholding confers no definite influence on the decisions of a company. (14)
65.      However, I do not think that it is necessary to enter (15) into the debate on whether or not the 15% level of shareholding confers a definite influence on the decisions of the company in which a shareholding is held or to take into consideration the level of R’s shareholding in HAP Ltd, precisely because the provision of national law at issue is not intended to apply exclusively to cases in which the company receiving the dividends exercises decisive influence over the decisions of the company making the distribution.
66.      As the Commission has pointed out, consideration of the specific circumstances of the present case does not make it possible to ‘exclude’ free movement of capital involving non-member States, on the basis that freedom of establishment takes precedence over free movement of capital in cases where a shareholding is substantial.
67.      That approach is confirmed by the judgment of 11 September 2014, KronosInternational (C‑47/12, EU:C:2014:2200), according to which:
‘37. In the case of legislation from whose purpose it cannot be determined whether it falls predominantly within the scope of Article 49 TFEU or Article 63 TFEU, the Court has already held that, in so far as the national legislation relates to dividends which originate in a Member State, account should be taken of the facts of the case in point in order to determine whether the situation to which the dispute in the main proceedings relates falls within the scope of Article 49 TFEU or of Article 63 TFEU [(16)].
38. As regards, on the other hand, the tax treatment of dividends originating in a third country, the Court has held that it is sufficient to examine the purpose of national legislation in order to determine whether the tax treatment of such dividends falls within the scope of the provisions of the FEU Treaty on the free movement of capital, as national legislation relating to the tax treatment of dividends originating in third countries is not capable of falling within the scope of Article 49 TFEU [(17)].
39. The Court has thus held that a company that is resident in a Member State and has a shareholding in a company resident in a third country giving it definite influence over the decisions of the latter company and enabling it to determine its activities may rely upon Article 63 TFEU in order to call into question the consistency with that provision of legislation of that Member State which relates to the tax treatment of dividends originating in the third country and does not apply exclusively to situations in which the parent company exercises decisive influence over the company distributing the dividends [(18)].’
68.      The answer to the question referred must, therefore, be based solely on the free movement of capital.
3.      Does the unequal treatment (cf. points 57 and 58 above) constitute a restriction on the free movement of capital?
69.      The measures prohibited as restrictions on the free movement of capital in Article 56 EC include those which are such as to discourage non-residents from making investments in a Member State or to discourage that Member State’s residents from doing so in other States. (19) That is the case in particular where cross-border situations are treated less favourably than national situations, by being subject, for example, to higher taxation (20) or to stricter requirements for obtaining a tax advantage.
70.      My application of the foregoing to the present case reveals the existence of unequal treatment and a restriction on the free movement of capital.
71.      Indeed, it follows from my analysis in points 56 to 58 of this Opinion (which is consistent with that of the referring court) that the exemption scheme applicable to income from shareholdings in national capital companies is subject to requirements which are far more straightforward than the requirements of the scheme applicable to income from shareholdings in capital companies established in third countries. Accordingly, the latter shareholdings are ultimately less attractive.
72.      The German Government raises the question whether the equal treatment of dividends from passive income is appropriate in view of the nature of the activities involved in trade earnings. It takes the view that the fact that only dividends from industrial or business activities are deductible, unlike the income from passive activities, is justified because ‘passive’ activity, generally asset management, is not subject to the trade tax.
73.      That argument cannot be accepted because it in no way alters the fact that that requirement for industrial or business activities, rather than passive activities, is imposed only in relation to income from shareholdings in companies established in non-member States. The relevant difference for determining whether there is a restriction is not the difference between passive and non-passive activities but rather the difference which gives rise to that requirement based on the source of the dividends.
74.      In any event, the German Government’s argument relates only to one of the requirements for classification as unequal treatment.
75.      I conclude from the foregoing that the scheme in question entails a restriction on the free movement of capital.
4.      Is the ‘standstill clause’ of Article 57 EC (now Article 64 TFEU) applicable?
76.      Two requirements laid down by that provision deserve analysis: first, that the movement of capital to which the restrictions at issue apply must involve ‘direct investment’ and, secondly, that the restrictions at issue must have existed under the national legislation on 31 December 1993.
(a)    The concept of ‘direct investment’
77.      For the purpose of defining capital movements as referred to in Article 56 EC et seq. (now Article 63 TFEU et seq.), which are not defined in the Treaty, the Court has referred in its settled case-law to Section I of Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty. (21)
78.      The same is true with regard to the concept of ‘direct investment’.
79.      The Court held in the judgment of 24 May 2007, Holböck (C‑157/05, EU:C:2007:297), that: ‘Although the concept of “direct investment” is not defined by the Treaty, it has nevertheless been defined in the nomenclature of the capital movements set out in Annex I to Council Directive 88/361/EEC ...’ (paragraph 33).
80.      The Court went on to state that: ‘As the list of “direct investments” in the first section of that nomenclature and the relative explanatory notes show, the concept of [“]direct investments[”] concerns investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity ...’ (paragraph 34).
81.      Finally, it stated that: ‘As regards shareholdings in new or existing undertakings, as the explanatory notes confirm, the objective of establishing or maintaining lasting economic links presupposes that the shares held by the shareholder enable him, either pursuant to the provisions of the national laws relating to companies limited by shares or in some other way, to participate effectively in the management of that company or in its control ...’ (paragraph 35 of that judgment).
82.      I would point out that a clear distinction is drawn between, on the one hand, participation in control (which may involve shared control) and, on the other, effective participation in the management of the company.
83.      Since Paragraph 9(7) of the GewStG provides for a minimum shareholding of 15% (initially 10%), I think that that provision is concerned with direct investment because such shareholdings, in the event that they fail to provide an opportunity to control a company, certainly provide an opportunity to participate effectively in its management.
(b)    Absence of amendments to the national legislation existing on 31 December 1993
84.      In order to ascertain whether that second requirement is fulfilled, it is necessary to consider whether the rules of national law prior to 31 December 1993 and those subsequent to that date have the same substance and logic(22) since mere changes in the wording are immaterial in so far as they do not in any way affect the inherent logic of the legal provisions. (23)
85.      It is stated in the case-law of the Court that a provision which changes the logic on which the earlier legislation was based and introduces new procedures cannot be treated in the same way as the provisions existing on the date set out in Article 57 EC (now Article 64 TFEU). (24)
86.      Like EV and the Commission, I consider that the amendments made to the legislation at issue since 31 December 1993 mean that it is not possible, in terms of substance, procedures and logic, to regard the law as it stood in 2009 (the relevant period in this case) as identical to the law prevailing on 31 December 1993.
87.      It is true that it is, ‘in principle, for the national court to determine the content of the legislation which existed on a date laid down by a Community measure, [but] the Court can provide guidance on interpreting the Community concept which constitutes the basis of a derogation from Community rules for national legislation “existing” on a particular date’. (25)
88.      In that regard, because of the radical alteration of the taxation scheme for dividends in Germany, in particular the disappearance of the imputation system in the context of corporation tax and the introduction of the exemption of dividends from 1 January 2001, the legal framework for the taxation of dividends must be regarded as having fundamentally changed.
89.      This can be demonstrated quite simply: the minimum shareholding threshold required for a deduction has been raised from 10% to 15%, thereby reducing the scope of the exemption and exacerbating the restriction.
90.      I would add that my conclusion endorses the view of the referring court, which notes that the amendments made since 1993 represent a ‘complete change of the system. (26)
5.      Can the restriction be justified in the present case?
91.      The restriction arising from the legislation at issue may be justified by the existence of situations which are not objectively comparable or by overriding reasons in the public interest, (27) provided that the restriction is appropriate for ensuring the attainment of the objective that it pursues and does not go beyond what is necessary to attain it.
(a)    Comparability
92.      The German Government maintains that the situations referred to are not comparable, in so far as dividends from a shareholding in a company established in a non-member State are not subject to the trade tax at an earlier stage whereas those from a national company are.
93.      As that government states in paragraph 70 of its observations, the issue of whether or not the situations are comparable cannot be based on whether the dividends received represent national income or foreign income.
94.      The Court has never accepted that reasoning in its extensive case-law on ‘incoming dividends’. (28) However, it is undeniable that the distribution of dividends by a capital company having its registered office in Germany and by a company whose registered office is located in a non-member State is comparable.
95.      The Commission refers also to the conception of the trade tax, which, as a municipal tax, must in principle concern business activity at the place of the registered office. (29) However, in so far as the distributions from related companies are likely to be included in the basis of assessment for the tax, there is no reason to make a distinction between resident and non-resident companies. That reasoning also applies to the possible aim of preventing the imposition of a series of charges to tax (the objective which ultimately forms the basis of the provisions of Paragraph 9(2a) of the GewStG). In that regard, there is no essential difference between resident and non-resident companies.
(b)    Overriding reason in the public interest
96.      The fight against fraud or abuse is the only overriding reason in the public interest relied on by the German Government.
97.      In that regard, it must be borne in mind that, since the judgment of 16 July 1998, ICI (C‑264/96, EU:C:1998:370), the Court has accepted that justification only for legislation which had the specific aim of preventing wholly artificial arrangements used to circumvent national tax legislation, which does not appear to be of the case in regard to the legislation at issue.
98.      Moreover, the Court has never allowed that type of legislation to establish a general and irrebuttable presumption of fraud, as would follow from the German law were its true aim to combat fraud, tax avoidance or abuse. It is impossible to take the view that fraud or abuse necessarily exists because income derives from ‘passive’ (30) activities or because the structure of a group of companies has more than three tiers.
99.      In addition, the ‘presumption of abuse’ referred to Paragraph 9(7) of the GewStG (if one exists) is irrebuttable, that is to say it does not even allow taxpayers to demonstrate that they have not committed abuse as regards a particular case.
100. In that regard, the German Government could not rely on the justification based on the need to ensure the effectiveness of tax inspections, which, it is true, has been accepted under less strict conditions in the case of capital movements involving third countries, but only where there is no convention on administrative assistance in tax matters between the Member State and the non-member State in question.
101. In the present case, the German Government confirmed at the hearing that it in no way called into question the existence (referred to by both the national court and the Commission) of such conventions, in particular that between the Federal Republic of Germany and the Commonwealth of Australia, the country of origin of the dividends. Moreover, in response to a question put by the Court at the hearing, the German Government confirmed that there were no known difficulties concerning the sharing of tax information between the Federal Republic of Germany and the Commonwealth of Australia.
102. In any event, I am of the opinion that, regardless of the information communicated, a recipient of dividends could never prove the non-existence of abuse.
IV.    Conclusion
103. For those reasons, I propose that the Court reply as follows to the question referred by the Finanzgericht Münster (Finance Court, Münster, Germany):
Article 56 et seq. EC must be interpreted as precluding a national provision, such as that at issue in the main proceedings, in so far as it has the effect, for the purposes of determining the profit and the add-backs in the context of the trade tax, of linking the deduction of profits from shareholdings in a capital company established in a third country not a Member State of the European Union to stricter requirements than the deduction, made in respect of the profit and the add-backs, of profits from shareholdings in a non-exempt resident capital company, unless such requirements are appropriate, necessary and proportionate in relation to the prevention of tax abuse or tax fraud.
1      Original language: French.
2      Gewerbesteuergesetz 2002, as amended by the 2008 annual tax law of 20 December 2007 (BGBl. I 2007, p. 3150).
3      See judgment of 13 November 2012, Test Claimants in the FII Group Litigation (C‑35/11, EU:C:2012:707, paragraph 96 et seq.)
4      Judgment of 24 November 2016, SECIL (C‑464/14, EU:C:2016:896, paragraph 75).
5      BGBl. I 2007, p. 1912.
6      Judgments of 28 October 2010, Établissements Rimbaud (C‑72/09, EU:C:2010:645, paragraph 34), and of 9 November 2006, Commission v Belgium (C‑433/04, EU:C:2006:702, paragraph 35 and the case-law cited).
7      For the latter shareholdings, if the requirements for deductions of profits imposed on them are the same as for shareholdings in companies established in non-member States (which was disputed at the hearing and has not been addressed in the written proceedings), the answers which I shall propose will apply mutatis mutandis with regard to the restriction on free movement and its possible justification. By definition, Article 57 EC would not apply to them and if the freedom at issue were the freedom of establishment this would in no way alter the outcome.
8      For the same opinion/the same conclusion, see the legal literature: Roser, F. in Lenski, E.and Steinberg, W., Kommentar zum Gewerbesteuergesetz, paragraph 9 Nr. 7 point 20a, Otto Schmidt, Cologne, 2016; Güroff, G., in Glanegger, P. and Güroff, G., Gewerbesteuergesetz: Kommentar, paragraph 9 Nr. 7 point 4, 8th Edition, Beck, Munich, 2014; Blümich, W., and Gosch, D., Einkommensteuergesetz, Körperschaftsteuergesetz_Gewerbesteuergesetz, GewStG, paragraph 9, point 297, Vahlen, Munich, 2016; Schnitter, G., in Frotscher, G. and Drüen, K.-D., Kommentar zum Körperschaft-/Gewerbe- und Umwandlungssteuergesetz, GewStG, paragraph 9, point 201, Haufe, Fribourg, 2016; Ernst, M., Das gewerbesteuerliche Schachtelprivileg — Irrungen und Wirrungen in nationalen und grenzüberschreitenden Konstellationen, Die Unternehmensbesteuerung, 2010, p. 494, 499 and 501; Kraft, G. and Hohage, U., Zur Notwendigkeit einer unionsrechtlichen Neujustierung des internationalen gewerbesteuerlichen Schachtelprivilegs, Finanz- Rundschau Ertragsteuerrecht, vol. 96, No 9, May 2014, p. 419 and 420.
9      The Commission relied on a fourth difference, namely that the management and registered office of the ‘lower-tier subsidiaries’ had to be located in the same State as the State of the subsidiary. As I shall show, the three undisputed differences more than suffice to establish the existence of a restriction on the free movement of capital.
10      See point 23 et seq. of this Opinion.
11      That is to say, Paragraph 9(7) of the GewStG.
12      See, to that effect, judgments of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company (C‑190/12, EU:C:2014:249, paragraph 29); of 10 June 2015, X AB (C‑686/13, EU:C:2015:375, paragraph 17 et seq., and the case-law cited); and of 24 November 2016, SECIL (C‑464/14, EU:C:2016:896, paragraphs 34 and 35).
13      See, to that effect, judgment of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company (C‑190/12, EU:C:2014:249, paragraph 30, and the case-law cited).
14      In paragraph 3.b of the order for reference (p. 23 et seq.), the court starts from the premiss that, under German law, such an influence exists only from 25%. In my view, it is clear that it is not necessary in these proceedings to provide an answer to the question whether this is in fact the case.
15      Which sometimes occurs in the case of situations internal to the European Union. See, inter alia, judgment of 10 June 2015, X AB (C‑686/13, EU:C:2015:375, paragraph 22 et seq., and the case-law cited).
16      In that paragraph, the Court refers, to that effect, to the judgments of 13 November 2012, Test Claimants in the FII Group Litigation (C‑35/11, EU:C:2012:707, paragraphs 93 and 94, and the case-law cited); of 28 February 2013, Beker and Beker (C‑168/11, EU:C:2013:117, paragraphs 27 and 28); and of 13 March 2014, Bouanich (C‑375/12, EU:C:2014:138, paragraph 30).
17      In that paragraph, the Court refers, to that effect, to the judgment of 13 November 2012, Test Claimants in the FII Group Litigation (C‑35/11, EU:C:2012:707, paragraphs 96 and 97).
18      In that paragraph, the Court refers to the judgment of 13 November 2012, Test Claimants in the FII Group Litigation (C‑35/11, EU:C:2012:707, paragraph 104).
19      Judgment of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen (C‑436/08 and C‑437/08, EU:C:2011:61, paragraph 50, and the case-law cited).
20      See, inter alia, judgments of 17 October 2013, Welte (C‑181/12, EU:C:2013:662, paragraph 25); of 4 September 2014, Commission v Germany (C‑211/13, EU:C:2014:2148, paragraph 28 et seq.); of 2 June 2016, Pensioenfonds Metaal en Techniek (C‑252/14, EU:C:2016:402, paragraph 28); and of 30 June 2016, Feilen (C‑123/15, EU:C:2016:496, paragraph 19).
21      OJ 1988 L 178, p. 5. See judgments of 6 June 2000, Verkooijen (C‑35/98, EU:C:2000:294, paragraph 27); of 5 March 2002, Reisch and Others (C‑515/99, C‑519/99 to C‑524/99 and C‑526/99 to C‑540/99, EU:C:2002:135, paragraph 30); of 11 September 2008, Arens-Sikken (C‑43/07, EU:C:2008:490, paragraph 30); of 11 September 2008, Eckelkamp and Others (C‑11/07, EU:C:2008:489, paragraph 39); and of 17 September 2009, Glaxo Wellcome (C‑182/08, EU:C:2009:559, paragraphs 41 to 44).
22      Judgments of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraphs 174 to 196); of 24 May 2007, Holböck (C‑157/05, EU:C:2007:297, paragraphs 39 to 45), of 5 May 2011, Prunus and Polonium (C‑384/09, EU:C:2011:276, paragraphs 27 to 37); and of 31 May 2015, Wagner-Raith (C‑560/13, EU:C:2015:347, paragraph 41); and in particular the less advantageous tax treatment of foreign-sourced dividends (judgment of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraph 81 et seq.). See also judgments of 24 May 2007, Holböck (C‑157/05, EU:C:2007:297, paragraph 41), and of 11 February 2010, Fokus Invest (C‑541/08, EU:C:2010:74, paragraph 42).
23      See judgment of 5 May 2011, Prunus and Polonium (C‑384/09, EU:C:2011:276, paragraph 36).
24      Judgment of 24 November 2016, SECIL (C‑464/14, EU:C:2016:896, paragraph 88, and the case-law cited).
25      Judgments of 24 May 2007, Holböck (C‑157/05, EU:C:2007:297, paragraph 40), and of 24 November 2016, SECIL (C‑464/14, EU:C:2016:896, paragraph 82).
26      See order for reference, part III.1.bb (pp. 30 to 32).
27      See, to that effect, judgments of 10 May 2012, Santander Asset Management SGIIC and Others (C‑338/11 to C‑347/11, EU:C:2012:286, paragraph 23, and the case-law cited), and of 2 June 2016, Pensioenfonds Metaal en Techniek (C‑252/14, EU:C:2016:402, paragraph 47).
28      Judgments of 15 July 2004, Lenz (C‑315/02, EU:C:2004:446); of 7 September 2004, Manninen (C‑319/02, EU:C:2004:484); of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774); of 23 April 2009, Commission v Greece (C‑406/07, not published, EU:C:2009:251); and of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company (C‑190/12, EU:C:2014:249).
29      See the observations of the Commission, paragraph 42, referring to the order for reference.
30      See judgments of 26 September 2000, Commission v Belgium (C-478/98, EU:C:2000:497, paragraph 45); of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas (C-196/04, EU:C:2006:544, paragraph 50); of 28 October 2010, Établissements Rimbaud (C-72/09, EU:C:2010:645, paragraph 34); of 5 May 2011, Commission v Portugal (C-267/09, EU:C:2011:273, paragraph 42); and of 24 November 2016, SECIL (C-464/14, EU:C:2016:896, paragraph 59, and the case-law cited). See, also, judgments of 12 December 2002, Lankhorst-Hohorst (C-324/00, EU:C:2002:749, paragraph 37); of 4 March 2004, Commission v France (C-334/02, EU:C:2004:129, paragraph 27); of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen (C-436/08 and C-437/08, EU:C:2011:61, paragraph 69 et seq.); of 6 June 2013, Commission v Belgium (C-383/10, EU:C:2013:364, paragraph 63 et seq.); of 22 October 2014, Blanco and Fabretti (C-344/13 and C-367/13, EU:C:2014:2311, paragraph 37 et seq.); and of 8 March 2017, Euro Park Service (C-14/16, EU:C:2017:177, paragraph 22 et seq.) (concerning a directive).