OPINION OF ADVOCATE GENERAL

WATHELET

delivered on 15 November 2017 ( 1 )

Joined Cases C‑327/16 and C‑421/16

Marc Jacob

v

Ministre des Finances et des Comptes publics (C‑327/16)

and

Ministre des Finances et des Comptes publics

v

Marc Lassus (C‑421/16)

(Request for a preliminary ruling

from the Conseil d’État (Council of State, France))

(Reference for a preliminary ruling — Taxation — Mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States Directive 90/434/EEC — Article 8 — Mechanism for deferred taxation — Member State of residence’s power to tax — Change of residence for tax purposes — Effect — Freedom of establishment — Article 49 TFEU — Offset of losses — Difference in treatment of comparable taxable transactions depending on whether or not the taxpayer has exercised his freedom of establishment in another Member State — Justification — Preservation of the allocation of powers of taxation between the Member States)

I. Introduction

1. The questions referred for a preliminary ruling by the Conseil d’État (Council of State, France), lodged at the Court Registry on 10 June 2016 ( 2 ) and 28 July 2016 ( 3 ), relate to the interpretation of Article 8 of Council Directive 90/434/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. ( 4 )

2. Those requests were submitted in the context of proceedings between Messrs Marc Jacob and the Ministre des Finances et des Comptes publics (Minister for Finance and Public Accounts, France), as well as between the Ministre des Finances et des Comptes publics (Minister for Finance and Public Accounts, France) and Mr Marc Lassus, regarding the decision of the tax authorities to tax the capital gains arising out of an exchange of securities on the subsequent transfer of the securities received.

3. The national court takes the view that, in order to resolve the dispute before it, it must ascertain, in particular, whether Article 8(2) of Directive 90/434 precludes national legislation such as that at issue in the cases in the main proceedings which establishes a mechanism to defer taxation of the capital gains arising when shares or securities are exchanged until such shares or securities are subsequently transferred.

4. Under that mechanism, the basis of assessment of the capital gain is determined on the date on which the shares or securities are exchanged, while taxation ( 5 ) takes place only when the shares or securities at issue are subsequently transferred. ( 6 ) Messrs Jacob and Lassus argue that Article 8(2) of Directive 90/434 requires a mechanism for suspended, rather than deferred, taxation, implying that the exchange of shares or securities is nothing more than a purely interim tax-neutral transaction and that only the subsequent transfer of the shares or securities received on the exchange is capable of constituting the chargeable event. On that basis, Messrs Jacob and Lassus submit that the capital gains arising on the transfer of the securities or shares at issue could not be the subject of the disputed taxation measures.

5. In 2000, the French Government replaced the deferred taxation system with a suspended taxation system under which all the detailed rules for taxation are determined at the time of the transfer of the securities, including the determination of the tax base, tax rate and the tax payable. That is when, according to Mr Jacob, the French Government also established an exit tax system.

6. The concepts of ‘suspended’ or ‘deferred taxation’ must be distinguished from deferred recovery, which implies that all the detailed rules for taxation (determination of the basis of assessment of the capital gain and the tax rate) are determined on the date of the exchange of the shares or securities, with only payment of the tax thus determined being deferred to the subsequent transfer of those shares or securities. That mechanism lies at the heart of the questions giving rise to the case-law developed in the judgments of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785); of 23 January 2014, DMC (C‑164/12, EU:C:2014:20); of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331); and of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979).

II. Legal framework

A. European Union law

7. Article 49 TFEU (ex Article 43 TEC) is worded as follows: ‘Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. …’

8. The first, fourth and sixth recitals of Directive 90/434 state: ‘… mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States may be necessary in order to create within the Community conditions analogous to those of an internal market and in order thus to ensure the establishment and effective functioning of the common market; whereas such operations ought not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States; whereas to that end it is necessary to introduce with respect to such operations tax rules which are neutral from the point of view of competition, in order to allow enterprises to adapt to the requirements of the common market, to increase their productivity and to improve their competitive strength at the international level; … … the common tax system ought to avoid the imposition of tax in connection with mergers, divisions, transfers of assets or exchanges of shares, while at the same time safeguarding the financial interests of the State of the transferring or acquired company; … … the system of deferral of the taxation of the capital gains relating to the assets transferred until their actual disposal, applied to such of those assets as are transferred to that permanent establishment, permits exemption from taxation of the corresponding capital gains, while at the same time ensuring their ultimate taxation by the State of the transferring company at the date of their disposal’.

9. Article 8 of Directive 90/434 provides: ‘1. On a merger, division or exchange of shares, the allotment of securities representing the capital of the receiving or acquiring company to a shareholder of the transferring or acquired company in exchange for securities representing the capital of the latter company shall not, of itself, give rise to any taxation of the income, profits or capital gains of that shareholder. 2. The Member States shall make the application of paragraph 1 conditional upon the shareholder’s not attributing to the securities received a value for tax purposes higher than the securities exchanged had immediately before the merger, division or exchange. The application of paragraph 1 shall not prevent the Member States from taxing the gain arising out of the subsequent transfer of securities received in the same way as the gain arising out of the transfer of securities existing before the acquisition. …’

B. Treaty law

10. Article 18 of the Convention of 10 March 1964 between France and Belgium for the avoidance of double taxation and to establish mutual administrative and legal rules of assistance in the field of income tax provides as follows: ‘Unless otherwise provided by the foregoing articles of this Convention, the income of residents of one of the Contracting States shall be taxable only in that State.’

11. Article 13(3) and (4) of the Convention between the French Government and the Government of the United Kingdom and Northern Ireland, signed in London on 22 May 1968, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (‘the French-United Kingdom Tax Convention’), states: ‘3. Gains from the alienation of any property other than that referred to in paragraphs 1 and 2 shall be taxable only in the Contracting State in which the alienator is resident. 4. Notwithstanding the provisions of paragraph 3, gains derived by an individual who is a resident of a Contracting State from the alienation of more than 25 per cent of the shares held, alone or together with related persons, directly or indirectly, in a company which is a resident of the other Contracting State may be taxed in that other State. The provisions of this paragraph shall only apply if: (a) the individual is a national of the other Contracting State without also being a national of the first-mentioned Contracting State; and (b) the individual has been a resident of the other Contracting State at any time in a five-year period immediately preceding the alienation of the shares.’

C. French law

12. Under Article 92 B(II)(1) of the code général des impôts (General Tax Code, ‘the CGI’), in the version applicable to capital gains the taxation of which was deferred as of 1 January 2000: ‘1. As from 1 January 1992 or 1 January 1991 in the case of transfers of securities to a company liable to corporation tax, the taxation of a capital gain that arises on an exchange of securities arising out of a public offering, merger, division, takeover of a mutual fund by an investment company with variable share capital carried out in accordance with the rules in force, or a transfer of securities to a company subject to corporation tax, may be deferred until the securities received upon the exchange are transferred or repurchased …’

13. Article 160(I) and (I ter) of the CGI, in the version applicable at the time of the facts in the main proceedings, provided: ‘I. … The taxation of the capital gain thus arising is subject to the sole condition that the rights held directly or indirectly in company profits by the transferor or the transferor’s spouse, their ascendants and descendants, must together have exceeded 25% of those profits at some time during the previous five years. However, where the transfer is made for the benefit of one of the persons referred to in this paragraph, the capital gain is exempt provided that all or part of those company securities are not resold to a third party within five years. Otherwise, the capital gain is taxed in the name of the first transferor in respect of the year of resale of the securities to the third party. … Capital losses sustained in the course of a year may be offset only against capital gains of the same kind arising during the same year or the following five years’.[ ( 7 )] ‘I ter … 4. On an exchange of company securities arising out of a merger, division or transfer of shares to a company liable to corporation tax, the taxation of the capital gain arising as from 1 January 1991 may be deferred under the conditions laid down in paragraph II of Article 92 B …’

14. Under Article 164 B(I)(f) of the CGI, in the version applicable in 1999, ( 8 ) income from French sources are considered to be ‘the capital gains referred to in Article 160 resulting from the transfer of rights relating to companies having their registered office in France’.

15. Article 244 bis B of the CGI, in the version applicable on the date of transfer of the securities in 1999, ( 9 ) provided: ‘The proceeds of the transfers of company securities referred to in Article 160, carried out by natural persons whose tax residence, for the purpose of Article 4 B, is not in France, or by legal persons or bodies, regardless of their form, having their registered office outside France, shall be determined and taxed in accordance with Article 160.’

III. The dispute in the main proceedings and the questions referred

A. Case C‑327/16

16. On 23 December 1996, Mr Jacob transferred securities he held in Dubocage SAS to Dubocage Développement SAS, (two French companies), and received, in return, securities issued by the latter. At his request, the taxation of the capital gain arising on the exchange of those securities was deferred pursuant to the French provisions in force. ( 10 )

17. On 1 October 2004, Mr Jacob moved his residence for tax purposes to Belgium.

18. On 21 December 2007, he transferred all of his securities in SAS Dubocage Développement. Following that transfer, the capital gain that was still subject to deferred taxation was taxed, in respect of 2007, in the amount of EUR 1342384, together with default interest and a 10% surcharge.

19. On 8 June 2012, the tribunal administratif de Montreuil (Administrative Court, Montreuil, France) granted the discharge of those amounts, but, by judgment of 28 May 2015 on the appeal lodged by the Minister for Finance and Public Accounts, the cour administrative d’appel de Versailles (Administrative Court of Appeal, Versailles, France) set aside the judgment of the tribunal administratif de Montreuil (Administrative Court, Montreuil) and reinstated the contested taxes. Mr Jacob lodged an application for review before the Conseil d’État (Council of State) on 1 October 2015.

20. The Conseil d’État (Council of State) observes that it follows from the applicable provisions of the CGI that their effect is to allow — by way of derogation from the rule that the chargeable event for the purposes of capital gains tax occurs during the year in which the gain arises — the capital gain on an exchange to be established and settled in the year in which it arises, and taxed in the year in which the event putting an end to the deferred taxation occurs, in this case the transfer of the securities received at the time of the exchange. According to the Conseil d’État (Council of State), the fact that, in the meantime, the taxpayer may have moved his residence for tax purposes to another Member State has no effect on the power of the State of which he was a resident when the capital gain on the exchange arose to tax the capital gain on the exchange at the time of the final transfer of the securities received in return.

21. Nevertheless, the Conseil d’État (Council of State) points out that Mr Jacob also submits that those provisions of the CGI, as interpreted by the Conseil d’État (Council of State), are inconsistent with the objectives of the abovementioned provisions of Article 8 of Directive 90/434, in that they allow the French Government, on a transfer of securities received on an exchange, to tax the capital gain that arose on the exchange of the securities originally held, the taxation of which was deferred. According to Mr Jacob, an exchange of securities cannot constitute a chargeable event and should be treated as a neutral interim transaction for tax purposes, since it is the transfer of the securities received on the exchange that constitutes the event giving rise to a capital gain.

22. In those circumstances, the Conseil d’État (Council of State) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling: ‘(1) Must Article 8 of Directive [90/434] be interpreted as meaning that it prohibits, in the event of an exchange of shares falling within the scope of the directive, a mechanism for deferred taxation which provides, by way of derogation from the rule that the chargeable event for capital gains tax purposes occurs during the year in which the gain arises, that the capital gain on the exchange is established and settled on the exchange of the shares, and taxed in the year in which the event putting an end to the deferred taxation occurs, which may, for instance, be the transfer of the shares that were received at the time of the exchange? (2) Must Article 8 of Directive [90/434] be interpreted as meaning that it prohibits, in the event of an exchange of shares falling within the scope of the directive, the capital gain on the exchange of the shares — supposing it to be taxable — from being taxed by the State in which the taxpayer was resident at the time of the exchange, when the taxpayer, at the time the shares received on that exchange are transferred (at which time the capital gain on the exchange is actually taxed), has moved his residence for tax purposes to another Member State?’

B. Case C‑421/16

23. Mr Lassus has resided in the United Kingdom for tax purposes since 1997. On 7 December 1999, he transferred securities ( 11 ) in the French company Gemplus Associates ( 12 ) to the Luxembourg company Gemplus International and received, in return, securities in the latter. ( 13 ) On that exchange, Mr Lassus obtained a capital gain of EUR 17814460, the taxation of which was deferred under the legislation at issue. ( 14 ) Following that exchange, Mr Lassus acquired further securities in Gemplus International.

24. In December 2002, Mr Lassus transferred 45% of the securities he held in Gemplus International. ( 15 ) The French tax authorities ( 16 ) found that 45% of the securities which Mr Lassus had received on the exchange of 7 December 1999 had been transferred and taxed the corresponding proportion of the capital gain that was subject to deferred taxation, as established on that date. In consequence, the authorities imposed additional assessments to income tax on Mr Lassus in respect of 2002.

25. Mr Lassus challenged those assessments and brought an action before the tribunal administratif de Paris (Administrative Court, Paris, France), which was dismissed. On appeal, the cour administrative d’appel de Paris (Administrative Court of Appeal, Paris, France) set aside the decision of the lower court and, therefore, granted a discharge to Mr Lassus in respect of those assessments. The tax authorities thereafter lodged an application for review before the Conseil d’État (Council of State).

26. The referring court states that, under the legislation at issue in the main proceedings and Article 13(4)(a) and (b) of the France-United Kingdom Tax Convention, the capital gain on the exchange obtained in 1999 by Mr Lassus, resident in the United Kingdom for tax purposes, could be taxed in France.

27. Furthermore, the referring court maintains that the effect of the national legislation at issue is to allow — by way of derogation from the rule that the chargeable event for the purposes of capital gains tax occurs during the year in which the gain arises — the capital gain on an exchange of securities to be established and settled in the year in which it arises, and taxed in the year in which the event putting an end to the deferred taxation occurs, namely the transfer of the securities received at the time of the exchange. In that context, the fact that the capital gain on the subsequent transfer of the securities received is taxable in a Member State other than the Member State in which the capital gain relating to the securities exchanged was taxable at the time of the exchange does not, in the national court’s view, have any effect on the power of the latter Member State ( 17 ) to tax the capital gain on the securities exchanged at the time of the final transfer of the securities received in return.

28. However, Mr Lassus questions that interpretation.

29. His primary argument is that the mechanism for deferred taxation established by domestic law is incompatible with Article 8 of Directive 90/434, since under that article the chargeable event is the transfer of the securities received and not the exchange of those securities, the latter being a neutral interim transaction for tax purposes. In addition, he submits that, in the present case, at the time of the transfer, the French tax authorities had lost their powers of taxation, since the transfer came within the fiscal competence of the United Kingdom.

30. Mr Lassus also argues that if the transfer were taxable in France, then since national legislation makes it possible to offset the capital loss on the transfer against capital gains of the same kind, the refusal by the tax authorities to offset the capital loss generated by the transfer of the securities in 2002 against the capital gain on the exchange, the taxation of which was deferred, would be inconsistent with the objectives of Article 8 of Directive 90/434 and would constitute an obstacle to the freedom of establishment guaranteed by Article 49 TFEU.

31. In those circumstances, the Conseil d’État (Council of State) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling: ‘(1) Must the aforementioned provisions of Article 8 of Directive [90/434] be interpreted as meaning that they prohibit, in the event of an exchange of securities falling within the scope of the directive, a mechanism for deferred taxation which provides, by way of derogation from the rule that the chargeable event for capital gains tax purposes occurs during the year in which the gain arises, that the capital gain on the exchange is established and settled on the exchange of the securities, and taxed in the year in which the event bringing an end to the deferred taxation occurs, which may, inter alia, be the transfer of the securities that were received at the time of the exchange? (2) Assuming that it is taxable, may the capital gain on the exchange of securities be taxed by the State with powers of taxation at the time of the exchange, although the transfer of the securities received on that exchange falls within the fiscal competence of another Member State? (3) If the answer to the previous questions is that Directive [90/434] does not preclude the capital gain resulting from an exchange of securities from being taxed at the time at which the securities received at the time of that exchange are subsequently transferred, even if those two transactions do not fall within the fiscal competence of the same Member State, may the Member State in which the capital gain on the exchange was subject to deferred taxation tax the deferred capital gain at the time of the transfer, subject to the applicable provisions of the bilateral Tax Convention, irrespective of the outcome of the transfer when it results in a capital loss? That question is asked in respect of both Directive [90/434] and the freedom of establishment guaranteed by Article [49 TFEU], since a taxpayer whose tax residence is in France at the time at which the securities are exchanged and at the time at which they are transferred may, under the conditions set out in paragraph 4 above,[ ( 18 )] benefit from a tax credit derived from the capital loss on the transfer. (4) If the answer to Question 3 is that account must be taken of the capital loss on the transfer of the securities received at the time of the exchange, must the Member State in which the capital gain on the exchange was derived offset the capital loss on the transfer against the capital gain or, if the transfer does not fall within its fiscal competence, must that Member State forego the taxation of the capital gain on the exchange? (5) If the answer to Question 4 is that the capital loss on the transfer may be offset against the capital gain on the exchange, what purchase price must be used for the securities transferred in order to calculate the capital loss on that transfer? In particular, should the purchase price per unit for the securities transferred be the total value of the securities in the company that were received upon the exchange, as indicated on the capital gains tax return, divided by the number of securities received at the time of the exchange, or should a weighted average purchase price be used, also taking into account transactions occurring after the exchange, such as further acquisitions or free allotments of securities in the same company?’

IV. Procedure before the Court

32. In Jacob (C‑327/16), written observations were submitted by Mr Jacob, the French Government, the Finnish Government, the Swiss Government and the European Commission. In Lassus (C‑421/16), written observations were submitted by the French Government, the Austrian Government, the Finnish Government, the Swiss Government and the Commission.

33. By order of the President of the Court of 10 November 2016, pursuant to Article 54 of the Rules of Procedure of the Court, Jacob (C‑327/16) and Lassus (C‑421/16) were joined for the purposes of the oral part of the procedure and the judgment.

34. At the hearing on 13 September 2017, Mr Jacob, the French Government, the Swiss Government and the Commission presented oral argument.

V. The jurisdiction of the Court in Jacob (C‑327/16)

35. It is apparent from the request for a preliminary ruling in Jacob (C‑327/16) that the facts of the dispute in the case in the main proceedings concerned exchanges of shares involving companies established in a single Member State. That, a priori, excluded them from the scope of Directive 90/434 ( 19 ) and thus amounted to a purely internal situation.

36. However, as appears from that request, Mr Jacob submitted that the provisions transposing Directive 90/434 into French law, namely paragraph II of Article 92 B and paragraph 4 of Article 160(I ter) of the CGI, also apply to the exchange of shares arising out of a merger, division or transfer of shares between two French companies.

37. In response to a request for information from the Court sent on 21 July 2016 to the Conseil d’État (Council of State), the President of the Third Chamber of the Conseil d’État (Council of State) confirmed, by letter of 1 August 2016, that ‘the disputed provisions of Article 92 B and Article 160 of the CGI, adopted to transpose Directive [90/434], apply under the same conditions to the exchange of shares irrespective of whether such exchange takes place between French companies, between companies of different Member States or third countries, provided that … the taxpayer who holds the shares is resident for tax purposes in France on the date of the exchange’.

38. It must be recalled that, under Article 267 TFEU, the Court has jurisdiction to give preliminary rulings concerning the interpretation of the Treaties and concerning acts of the EU institutions. In the context of cooperation between the Court and the national courts, established by that article, it is for the national courts alone to assess, in view of the special features of each case, both the need for a preliminary ruling in order to enable them to give their judgment and the relevance of the questions which they put to the Court.

39. Consequently, where questions submitted by national courts concern the interpretation of a provision of EU law, the Court is, in principle, obliged to give a ruling. Applying that case-law, the Court has repeatedly held that it has jurisdiction to give preliminary rulings on questions concerning EU law in situations where the facts of the cases being considered by the national courts are outside the direct scope of EU law but where those provisions have been rendered applicable by domestic law, which has adopted, for internal situations, the same approach as that provided for under EU law.

40. In such cases it is clearly in the interest of the European Union that, in order to forestall future differences of interpretation, provisions or concepts taken from EU law should be interpreted uniformly, irrespective of the circumstances in which they are to apply. ( 20 )

41. As regards the request for a preliminary ruling in Jacob (C‑327/16), since it is apparent from the reply of the Conseil d’État (Council of State) of 1 August 2016 ( 21 ) that the French legislature decided to treat internal situations and situations governed by Article 8 of Directive 90/434 in the same way, it must be held that the Court has jurisdiction to answer the questions submitted which relate to that article.

VI. Applicability of Directive 90/434

42. The Austrian Government has doubts about the applicability of Directive 90/434 in Lassus (C‑421/16).

43. It submits that the rules set out in that directive are concerned only with ‘the State in which the transferring shareholder is resident for tax purposes and the State in which the recipient company is resident for tax purposes. If the transferring shareholder is resident for tax purposes in another (third) Member State, the Directive does appear to be applicable to him’.

44. The Austrian Government observes that this is clear from the scheme of Directive 90/434. In its view, that directive does not lay down any rules for ‘situations in which a Member State that, on account of the transfer, loses its right to tax the securities of the acquired company, a right that is not replaced by any new taxable securities in the acquiring company, leave the Member State concerned a degree of legislative and regulatory freedom of action which is not restricted by that directive, bearing in mind that Member States’ tax measures must nevertheless be compatible with fundamental freedoms’. According to the Austrian Government, that ‘is the situation in the present case: due to the France-United Kingdom Tax Convention on double taxation, France is entitled to tax the capital gains arising until the securities are exchanged. As a result of that transaction, securities in the acquiring Luxembourg company are, in return, issued to the shareholder resident in the United Kingdom. Those securities received in return can be taxed only in the United Kingdom and not in France’.

45. I consider that the limitation on the scope of Directive 90/434 pleaded by the Austrian Government is in no way supported by the wording or scheme of that directive.

46. It is readily apparent from Article 1 of Directive 90/434 that each Member State is to apply the directive to ‘mergers, divisions, transfers of assets and exchanges of shares in which companies from two or more Member States are involved’. It is not in dispute that the transaction at issue in Lassus (C‑421/16), is a cross-border transaction involving companies from two Member States, in this instance the French Republic and the Grand Duchy of Luxembourg.

47. In my view, neither Article 1 of Directive 90/434 nor Article 8 thereof imposes any limitation on their scope based on the tax residence of the transferring company or of the acquiring company, both of which are parties to the cross-border transaction.

48. Furthermore, in contrast to the Austrian Government’s observations on the ‘situations in which a Member State that, on account of the transfer, loses its right to tax the securities of the acquired company’, I consider that the second subparagraph of Article 8(2) of Directive 90/434 does not prevent a Member State from making provision for, in particular, a mechanism to defer taxation of the capital gains established on an exchange of securities until the subsequent transfer of those securities. ( 22 ) It follows that, under the second subparagraph of Article 8(2) of Directive 90/434, the Member State concerned, in this case the French Republic, retains its right to tax a capital gain arising within the ambit of its fiscal competence prior to the exchange of securities. ( 23 )

VII. Substance

A. The first question referred

49. By the first question referred in these cases, the national court essentially enquires whether Article 8 of Directive 90/434 precludes legislation of a Member State pursuant to which an exchange of shares or securities results in a deferral in taxation of the capital gain established and settled on the exchange until the year in which the event bringing an end to the deferral occurs, namely, in this case, the subsequent transfer of the shares or securities.

50. Although the French legislature has favoured a mechanism for deferred taxation, ( 24 ) under which the basis of assessment of the capital gain on securities crystallises, when the securities are exchanged, and the capital gain is taxed and collected only when the securities received on the exchange are subsequently transferred, Messrs Jacob and Lassus argue that Article 8 of Directive 90/434 requires a mechanism for suspended taxation, in order to ensure compliance with the principle of fiscal neutrality laid down in that directive. ( 25 )

51. That said, it is not the task of the Court to review, in the context of these cases, either the lawfulness of a mechanism for suspended taxation in the light of the second subparagraph of Article 8(2) of Directive 90/434, or the appropriateness of such a mechanism compared with the mechanism for deferred taxation. The question posed by the national court is concerned solely with the mechanism for deferred taxation in force in France. Consequently, it is not for the Court, in this instance, to reopen the assessment made by the referring court, which restricted the legal framework and facts of the dispute brought before it and did not include that aspect of the matter in its question. ( 26 )

52. It should be recalled that in its judgment of 5 July 2007, Kofoed (C‑321/05, EU:C:2007:408, paragraph 32), the Court held that the purpose of Directive 90/434 was ‘to eliminate fiscal barriers to cross-border restructuring of undertakings, by ensuring that any increases in the value of shares are not taxed before they are actually realised and by preventing operations involving high levels of capital gains realised on exchanges of shares from being exempt from income tax simply because they are part of a restructuring operation’.

53. In other words, the purpose of Article 8(1) of Directive 90/434 is, in particular, to avoid cash flow disadvantages which would arise if the tax on the capital gains, established on an exchange of shares or securities, had to be paid before the capital gains had been realised. ( 27 )

54. Article 8(1) of Directive 90/434 provides that an exchange of shares or securities is not, of itself, to give rise to any taxation. ( 28 ) It follows that, by imposing that fiscal neutrality requirement with regard to an exchange of shares or securities, that directive aims — as stated in the first and fourth recitals thereof — to ensure that such an exchange concerning companies from different Member States is not hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States. ( 29 )

55. However, notwithstanding the fiscal neutrality requirement provided for in Article 8(1) of Directive 90/434, the second subparagraph of Article 8(2) of that directive provides that Member States may ( 30 )‘tax … the gain arising out of the subsequent transfer of securities received in the same way as the gain arising out of the transfer of securities existing before the acquisition’.

56. Thus, while Article 8(1) of Directive 90/434 prevents the exchange of shares being taxed at the time of the exchange, it is apparent from the second subparagraph of Article 8(2) of that directive that those provisions do not, however, provide for any permanent exemption from taxation of the capital gain associated with that exchange. ( 31 )

57. In paragraph 35 of its judgment of 11 December 2008, A.T. (C‑285/07, EU:C:2008:705), the Court held that ‘Directive 90/434 itself aims, in accordance with the fourth recital in its preamble, to safeguard the financial interests of the State of the acquired company. Thus, the second subparagraph of Article 8(2) of Directive 90/434 provides that the application of Article 8(1) is not to prevent the Member States from taxing the gain arising out of the subsequent transfer of securities received in the same way as the gain arising out of the transfer of securities existing before the acquisition’. ( 32 )

58. It should be noted, as the Swiss Government and the Commission ( 33 ) have observed, that the second subparagraph of Article 8(2) of Directive 90/434 does not contain any provisions laying down detailed rules for the taxation of shares or securities on a subsequent transfer. Given that the second subparagraph of Article 8(2) of Directive 90/434 is silent on the matter, Member States have a degree of latitude in the transposition and implementation of that provision of EU law, provided that they do not infringe the provisions of the TFEU, notably the freedom of establishment guaranteed by Article 49 TFEU, ( 34 ) or the other provisions of Directive 90/434, in particular Article 8(1).

59. Article 8 of Directive 90/434 does not prevent a Member State from providing a mechanism to defer taxation of the capital gains established on an exchange of securities until the subsequent transfer of those securities. The mechanism for deferred taxation complies with the principle of fiscal neutrality by ensuring that an exchange of securities does not, in itself, give rise to any taxation and that any increases in the value of the securities are not taxed before they are actually realised, while respecting the interests of the Member State in which the capital gain on the exchange was derived. That mechanism safeguards the right of the Member State concerned — in this case the French Republic — to tax at a later stage, at the time at which it was realised, a capital gain that was hidden when the securities were exchanged.

60. The establishment of the capital gain on the exchange of the securities and the deferral of taxation of that gain until the subsequent transfer of those securities cannot be regarded as tantamount to taxation, which is prohibited in Article 8(1) of Directive 90/434. The mechanism for deferred taxation does not result in the cash flow disadvantages that would arise if the tax on the capital gains, established on an exchange of shares or securities, had to be paid before the gains had been realised.

61. In the absence of EU rules on the application of the second subparagraph of Article 8(2) of Directive 90/434, the detailed procedural rules designed to ensure the protection of the rights which taxpayers acquire particularly under Article 8 of that directive are a matter for the domestic legal order of each Member State, in accordance with the principle of the procedural autonomy of the Member States, provided that they are not less favourable than those governing similar domestic situations (principle of equivalence) and that they do not render impossible in practice or excessively difficult the exercise of rights conferred by the EU legal order (principle of effectiveness). ( 35 )

62. The detailed rules for the application of the second subparagraph of Article 8(2) of Directive 90/434 laid down in domestic and treaty law must be transparent and consistent to ensure the legal certainty of taxpayers, which is a matter for the national court to verify.

63. Consequently, I consider that Article 8(1) and the second subparagraph of Article 8(2) of Directive 90/434 must be interpreted as not precluding a mechanism such as that at issue in the main proceedings which, in the event of an exchange of securities falling within the scope of that directive, defers taxation of the capital gain established on such an exchange until the subsequent transfer of those securities.

B. The second question referred

64. By the second question referred in these cases, the national court essentially asks whether, assuming that it is taxable, the capital gain on the exchange may be taxed by the Member State with powers of taxation at the time of the exchange, although the subsequent transfer of the securities received on that exchange falls within the fiscal competence of another Member State.

65. In the light of my answer to the first question that the capital gain established on the exchange of securities may be taxed when those securities are subsequently transferred, it is necessary to reply to the second question submitted by the national court.

66. I should point out that the second question is concerned with the possibility of taxing, on a subsequent transfer, the capital gain arising out of the exchange of securities and not the possibility of taxing any capital gains arising out of the subsequent transfer of those securities. ( 36 )

67. Directive 90/434 introduces with respect to exchanges of securities concerning companies of different Member States tax rules which are neutral from the point of view of competition in order to allow undertakings to adapt to the requirements of the common market and prevent such transactions being hampered by restrictions, disadvantages or distortions arising from the tax provisions of the Member States. ( 37 )

68. However, although Directive 90/434 does not harmonise the criteria for the allocation of powers of taxation between the Member States ( 38 ) and, in the absence of harmonisation at EU level, the Member States retain the power to establish, by treaty or unilaterally, the criteria for allocating their powers of taxation with a view to, in particular, eliminating double taxation, ( 39 ) as mentioned in point 59 of this Opinion, Article 8(2) of Directive 90/434 also aims to safeguard the financial interests of the State in which the capital gain on the exchange arose.

69. In view of my answer to the first question that Article 8(1) and the second subparagraph of Article 8(2) of Directive 90/434 do not preclude a mechanism which, in the event of an exchange of securities falling within the scope of that directive, ( 40 ) defers taxation of the capital gain established and settled on such an exchange until the subsequent transfer of the securities, I consider that the fact that the transfer of the securities forming the subject matter of the exchange falls within the fiscal competence of a Member State other than the Member State with power to tax the capital gain on the exchange — in this instance, the French Republic — is irrelevant.

70. The second subparagraph of Article 8(2) of Directive 90/434 is without prejudice to the possibility for a Member State to provide for the taxation of a capital gain on an exchange of securities when those securities are subsequently transferred, even though, as a result of an international element arising between the exchange of the securities and their transfer, the transfer might not fall within the fiscal competence of that Member State.

71. Put another way, the fiscal competence of the Member States at the time of the transfer of the securities that were the subject of an exchange does not affect the right of another Member State to tax a capital gain which arose within the ambit of its fiscal competence at the time of the exchange, ( 41 ) even if the securities are transferred only at a later stage. That possibility in no way affects the fiscal neutrality of the exchange of securities, while respecting the interests of the Member State in which the capital gain on the exchange was derived. ( 42 )

72. Consequently, I consider that Article 8(1) and the second subparagraph of Article 8(2) of Directive 90/434 ( 43 ) must be interpreted as meaning that the capital gain on an exchange of securities may be taxed, when those securities are subsequently transferred, by the Member State with power to tax that gain at the time of the exchange, even though the subsequent transfer of the securities exchanged might fall within the fiscal competence of another Member State.

C. The third question referred

73. The third question submitted in Lassus (Case C‑421/16), need only be addressed if an answer is given to the first two questions, namely that Directive 90/434 does not preclude a mechanism for deferring taxation of the capital gain arising on an exchange of securities, such as that at issue.

74. By its third question, the national court essentially asks whether Directive 90/434 and/or Article 49 TFEU prevent a Member State, in which the capital gain on an exchange was subject to deferred taxation, from taxing the gain without taking account of the capital loss resulting from the subsequent transfer of the securities received in return, if the transfer does not fall within the fiscal competence of that Member State.

75. Mr Lassus argued before the national court that, under the fourth subparagraph of paragraph I of Article 160 of the CGI, according to which capital losses sustained in the course of a year may be offset against capital gains of the same kind arising during the same year or the following five years, a taxpayer resident for tax purposes in France at the time of the exchange and transfer of securities is entitled to a tax credit derived from the capital loss on the transfer.

76. Notwithstanding the fact that, in its reply to the Court’s request for clarification, the national court confirmed that Article 92 B and Article 160 of the CGI ‘apply under the same conditions to the exchange of shares irrespective of whether such exchange takes place between French companies, between companies of different Member States or third countries’, ( 44 ) the national court stated in its request for a preliminary ruling that, according to Mr Lassus, the French tax authorities had refused to offset the capital loss on the transfer he carried out in 2002 against the capital gain the taxation of which was deferred in 1999, in other words within less than five years, as stipulated by the fourth subparagraph of paragraph I of Article 160 of the CGI, on the ground that the allocation of powers of taxation between France and the United Kingdom prevented them from doing so.

77. The French Government submits that, in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 56), the Court accepted that the failure of the Member State of origin of a company to take into account capital losses that had occurred after the transfer of the company’s place of effective management cannot be regarded as disproportionate to the objective of the balanced allocation of powers of taxation between the Member States pursued by the legislation at issue. ( 45 )

78. As regards Directive 90/434, in addition to the fact that it does not harmonise the criteria for the allocation of powers of taxation between the Member States and that the second subparagraph of Article 8(2) does not contain any provisions laying down detailed rules for the taxation of securities exchanged on their subsequent transfer, that directive does not govern the right or obligation to offset any capital losses resulting from the subsequent transfer of the securities exchanged.

79. In view of that lack of harmonisation, it is necessary to examine the question in the light of Article 49 TFEU.

80. It is apparent from the documents before the Court that, according to the Commission’s observations, ( 46 ) the implementation of French law ( 47 ) and the France-United Kingdom Tax Convention results in comparable taxable transactions being treated differently depending on whether or not the taxpayer has exercised his freedom of establishment in another Member State, ( 48 ) which constitutes a restriction on the freedom of establishment within the meaning of Article 49 TFEU. ( 49 )

81. According to settled case-law, a restriction on the freedom of establishment is permissible only if it is justified by overriding reasons in the public interest. It is further necessary, in such a case, that it should be appropriate to ensuring the attainment of the objective in question and not go beyond what is necessary to attain that objective. ( 50 )

82. The French Government argues that the detailed rules for the taxation of a capital gain on an exchange of securities, which do not take account of any capital loss arising on the subsequent transfer of the securities exchanged where that transfer does not fall within its fiscal competence, are justified by the objective of the balanced allocation of powers of taxation between the Member States. ( 51 )

83. The Commission maintains that the French Government ‘is required to take into account the capital loss on the transfer in respect of the securities exchanged in 1999, because, on that date, it had powers of taxation …. Consequently, as soon as the French Republic decided — based on the provisions transposing Directive [90/434], which permits taxation of the capital gains on an exchange to be deferred — to treat resident and non-resident shareholders in the same way, it was barred from relying on the treaty-based rules on the allocation of powers of taxation between the Member States to refuse to grant a tax credit derived from the capital loss on a transfer to a taxpayer who had exercised his freedom of establishment in another Member State, in circumstances where such an advantage would be granted to a resident taxpayer. As regards both the tax that was originally deferred and the taking into account of the capital loss in respect of shares the taxation of which had been deferred, only the taxation powers of one Member State are in issue, namely those of the [French Republic]’. ( 52 )

84. Preserving the allocation of powers of taxation between the Member States is a legitimate objective recognised by the Court. ( 53 )

85. In paragraph 46 of its judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), the Court held that, in accordance with the principle of fiscal territoriality, a Member State is entitled — where assets are transferred to a permanent establishment in another Member State — to charge tax at the time of that transfer on any capital gains arising in its territory prior to the transfer. Such a measure is intended to prevent situations capable of jeopardising the right of the Member State of origin to exercise its powers of taxation in relation to activities carried on in its territory.

86. It follows that, where assets are transferred to another Member State, a Member State does not have to waive its right to tax the capital gains generated within its fiscal competence prior to the transfer of those gains outside its territory. ( 54 )

87. In paragraph 58 of its judgment of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979), the Court recalled, with reference to paragraph 52 of the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), that legislation of a Member State which prescribes the immediate recovery of tax on unrealised capital gains relating to assets of a company transferring its place of effective management to another Member State at the very time of that transfer is disproportionate, by reason of the fact that measures existed which were less restrictive of the freedom of establishment than the immediate recovery of that tax. However, that debate was concerned with deferred recovery rather than deferred taxation. ( 55 )

88. In its judgment of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331, paragraph 48), the Court found that it was proportionate for a Member State, for the purpose of safeguarding the exercise of its powers of taxation, to determine the amount of the tax due on the unrealised capital gains that have been generated in its territory pertaining to the assets transferred outside its territory, at the time when its powers of taxation in respect of the assets concerned cease to exist, namely, in the case in point, at the time of the transfer of the assets at issue outside the territory of that Member State. As regards the recovery of such a tax, the Court added, in paragraph 49 of that judgment, that the taxable person must have the choice between, on the one hand, immediate payment of that tax, and, on the other hand, deferred payment of the tax, together with, if appropriate, interest in accordance with the applicable national legislation. ( 56 )

89. Furthermore, the Court has held that a possible omission by the host Member State to take account of capital losses does not impose any obligation on the Member State of origin to revalue, at the time of realisation of the asset concerned, a tax debt which was definitively determined at the time when the company in question, because of the transfer of its place of effective management, ceased to be subject to tax in the latter Member State. ( 57 )

90. I take the view that, unlike the situation in the case giving rise to the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), where the Member State of origin had fully exercised (subject to possible deferred recovery) its right to tax the unrealised capital gains generated in its territory pertaining to the assets transferred outside its territory at the time of that transfer, ( 58 ) the Member State of origin in Lassus (C‑421/16), namely the French Republic, which, under Article 8(1) of Directive 90/434, had no entitlement to tax the capital gains arising out of the exchange of securities in 1999 at the time of that exchange, established, in accordance with the second subparagraph of Article 8(2) of that directive, a mechanism to defer taxation of the capital gain arising out of the exchange of securities until their subsequent transfer. It should also be recalled that the documents in the national file lodged at the Court Registry seem to suggest that the detailed rules for taxation of the capital gain on the exchange, such as the tax rate, are determined on the date of the subsequent transfer of the securities exchanged and that the tax payable is determined only on that date.

91. Consequently, the French Government exercises its taxation power at the time of the subsequent transfer ( 59 ) of the securities exchanged, ( 60 ) notwithstanding the fact that the taxation of any capital gain arising out of that transfer does not fall within its fiscal competence.

92. It follows that, unlike the circumstances in the cases giving rise to the judgments of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331), and of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979), in , Lassus (C‑421/16), the Member State of origin, namely the French Republic, had the power to tax when the capital losses ( 61 ) arose in 2002.

93. I consider that, in those circumstances, the preservation of the allocation of powers of taxation does not justify different treatment as between resident and non-resident taxpayers because only the French Government’s tax powers were at issue.

94. In consequence, the Member State of origin should not refuse to grant a taxpayer who has exercised his freedom of establishment in another Member State a tax credit derived from capital losses sustained under its national law ( 62 ) if such an advantage would be granted to a resident taxpayer.

95. The following answer should be given to the third question submitted by the national court in Lassus (C‑421/16): Article 49 TFEU prevents a Member State, in which the capital gain on an exchange was subject to deferred taxation in accordance with the second paragraph of Article 8(2) of Directive 90/434, from taxing the gain at the time of the subsequent transfer of the securities exchanged without taking account of the capital losses arising after the exchange if such an advantage would be granted to a resident taxpayer. The fact that the subsequent transfer of the securities exchanged does not fall within the fiscal competence of that Member State does not justify such discriminatory treatment.

D. The fourth question referred

96. By the fourth question referred in Lassus (C‑421/16), which is submitted only if the answer to the third question is that account must be taken of the capital loss on a transfer, the national court essentially asks whether the Member State of origin is required to offset against the capital gain established on an exchange of securities the capital loss on the transfer of those securities, or whether it must forego the taxation of the capital gain at issue if the transfer itself does not fall within its fiscal competence.

97. It follows from my answers to the first to third questions that, since Article 8 of Directive 90/434 does not provide for any permanent exemption from taxation of the capital gain established on an exchange of securities in accordance with that directive, the Member State of origin has the power to provide a mechanism to defer taxation of the capital gain on the exchange until the subsequent transfer of those securities, notwithstanding the fact that the transfer does not fall within its fiscal competence. In line with the French Government’s observations, I consider that the fact that the transfer of the securities exchanged resulted in a capital loss does not call in question the fiscal competence of the Member State of origin.

98. However, if national law provides a mechanism to defer taxation of a capital gain established on an exchange of securities falling within the scope of Directive 90/434 until the subsequent transfer of those securities, and if it provides for account to be taken of the capital losses arising after the exchange of securities for resident taxpayers, the Member State of origin must, under Article 49 TFEU, grant the same advantage to non-resident taxpayers. That obligation does not require the Member State of origin to forego the taxation of the capital gain on the exchange if the subsequent transfer of the securities exchanged does not fall within its fiscal competence.

E. The fifth question referred

99. By the fifth question referred in Lassus (C‑421/16), which is submitted if the answer to the third and fourth questions is that the capital loss on the transfer may be offset against the capital gain on the exchange, the national court essentially enquires about the detailed rules for such offset.

100. In line with the observations of the French Government ( 63 ) and the Commission, ( 64 ) I consider that neither Directive 90/434 nor any other provisions of EU law define the detailed rules for offset.

101. Consequently, the detailed rules for the possible offset of a capital loss arising on a subsequent transfer of the securities is a matter for the national law of the Member State of origin in compliance with EU law, particularly with Article 49 TFEU on the freedom of establishment.

VIII. Conclusion

102. In the light of the foregoing considerations, I propose that the Court answer the questions referred for a preliminary ruling by the Conseil d’État (Council of State, France) as follows: (1) Article 8(1) and the second subparagraph of Article 8(2) of Council Directive 90/434/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 do not preclude a mechanism which, in the event of an exchange of securities falling within the scope of that directive, defers taxation of the capital gain established on such an exchange until the subsequent transfer of those securities. (2) Article 8(1) and the second subparagraph of Article 8(2) of Directive 90/434 must be interpreted as meaning that the capital gain on an exchange of securities may be taxed, when those securities are subsequently transferred, by the Member State with power to tax that gain at the time of the exchange, even though the subsequent transfer of the securities exchanged might fall within the fiscal competence of another Member State. (3) Article 49 TFEU prevents a Member State, in which the taxation of the capital gain on an exchange was deferred in accordance with the second paragraph of Article 8(2) of Directive 90/434 until the subsequent transfer of the securities exchanged, from taxing the gain at the time of that transfer without taking account of the capital losses arising after the exchange if such an advantage would be granted to a resident taxpayer. The fact that the subsequent transfer of the securities exchanged does not fall within the fiscal competence of that Member State does not justify such discriminatory treatment. (4) If national law provides a mechanism to defer taxation of a capital gain established on an exchange of securities falling within the scope of Directive 90/434 until the subsequent transfer of those securities, and if it provides for account to be taken of the capital losses arising after the exchange of securities for resident taxpayers, the Member State of origin must, under Article 49 TFEU, grant the same advantage to non-resident taxpayers. That obligation does not require the Member State of origin to forego the taxation of the capital gain on the exchange if the subsequent transfer of the securities exchanged does not fall within its fiscal competence. (5) The detailed rules for the possible offset of a capital loss arising on a subsequent transfer of the securities is a matter for the national law of the Member State of origin in compliance with EU law, particularly Article 49 TFEU.

( 1 ) Original language: French.

( 2 ) In Jacob (C‑327/16).

( 3 ) In Lassus (C‑421/16.

( 4 ) OJ 1990 L 225, p. 1. Article 8 of that directive was amended by Council Directive 2005/19/EC of 17 February 2005 (OJ 2005 L 58, p. 19). Directive 90/434 was subsequently repealed by Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States (OJ 2009 L 310, p. 34). However, Article 8(1) and the second subparagraph of Article 8(2) of Directive 90/434 are couched in almost identical terms to Article 8(1) and (6) of that directive, as amended by Directive 2005/19, and to Article 8(1) and (6) of Directive 2009/133.

( 5 ) Based on the basis of assessment determined at the time of the exchange.

( 6 ) The documents in the national file lodged at the Court Registry seem to suggest that the other detailed rules for taxation of the capital gain, in particular the tax rate, are determined on the date of the subsequent transfer. Indeed, by the first question referred for a preliminary ruling in these joined cases, the Conseil d’État (Council of State) refers to ‘the capital gain on the exchange [which] is established and settled on the exchange of the shares, and taxed in the year in which the event putting an end to the deferred taxation occurs’. Emphasis added.

( 7 ) According to the referring court, one of the effects of that legislative provision ‘was to make it possible to offset a capital loss against a capital gain, the taxation of which had previously been deferred, at the time at which that capital gain is taxed, in the year in which the event bringing the deferred taxation to an end occurs’.

( 8 ) That date is relevant for the purposes of Lassus (C‑421/16). See point 24 of this Opinion.

( 9 ) That date is relevant for the purposes of Lassus (C‑421/16). See point 24 of this Opinion.

( 10 ) See paragraph II of Article 92 B and paragraph I ter of Article 160(4) of the CGI.

( 11 ) In this case, 11924 securities.

( 12 ) Originally known as Mars Sun.

( 13 ) He received, in return, 599874 securities in Gemplus International.

( 14 ) Article 160(I ter) and Article 92 B of the CGI.

( 15 ) To the company Sagem.

( 16 ) The capital gain on the exchange obtained by Mr Lassus on 7 December 1999 was taxable in France, even though he had resided in the United Kingdom since 1997, in accordance with Article 13(4) of the France-United Kingdom Tax Convention.

( 17 ) In this case, the French Republic.

( 18 ) See point 13 of this Opinion.

( 19 ) Article 1 of Directive 90/434 provides:

‘Each Member State shall apply this Directive to mergers, divisions, transfers of assets and exchanges of shares in which companies from two or more Member States are involved.’

( 20 ) Judgment of 14 March 2013, Allianz Hungária Biztosító and Others (C‑32/11, EU:C:2013:160, paragraphs 19 and 20 and the case-law cited). Also see judgment of 18 October 1990, Dzodzi (C‑297/88 and C‑197/89, EU:C:1990:360, paragraphs 33 to 37).

( 21 ) See point 37 of this Opinion.

( 22 ) See point 59 of this Opinion.

( 23 ) See point 59 of this Opinion.

( 24 ) See Article 92 B(II) of the CGI.

( 25 ) See point 4 of this Opinion on the difference between deferred taxation and suspended taxation. Also see point 6 of this Opinion on the concept of ‘deferred recovery’. According to Mr Jacob, the mechanism for deferred taxation laid down in French legislation undermines the principle of fiscal neutrality which results in the exchange of securities being treated as a ‘taxable event’ in itself, ‘as it will then be necessary to establish the capital gain, corresponding to the increase in value of the securities exchanged since their acquisition, the establishment of that capital gain being the basis for the right to tax of the State in which the person concerned was then resident’.

( 26 ) ‘In addition, to alter the substance of the questions referred for a preliminary ruling at the request of one of the parties, or to answer the additional questions mentioned by the parties in the main proceedings in their observations, would be incompatible with the Court’s function under Article 267 TFEU and with its duty to ensure that the governments of the Member States and the parties concerned are given the opportunity to submit observations under Article 23 of the Statute of the Court of Justice, bearing in mind that under that provision only the order of the referring court is notified to the interested parties.’ See my Opinion in Ehrmann (C‑609/12, EU:C:2013:746, point 27 and the case-law cited).

( 27 ) See, by analogy, judgment of 11 December 2008, A.T. (C‑285/07, EU:C:2008:705, paragraph 36). Also see the Opinion of Advocate General Kokott in Kofoed (C‑321/05, EU:C:2007:86, point 36): ‘[Article 8(1) of Directive 90/434] is intended … to ensure tax neutrality as regards such restructuring operations and to prevent the taxation of hidden reserves or other asset gains before the actual realisation thereof.’ Also see judgment of 20 May 2010, Modehuis A. Zwijnenburg (C‑352/08, EU:C:2010:282, paragraphs 39 and 40). In the judgment of 8 March 2017, Euro Park Service (C‑14/16, EU:C:2017:177, paragraphs 28 and 29), the Court recalled that ‘a cross-border merger constitutes a particular method of exercise of the freedom of establishment, important for the proper functioning of the internal market, and is therefore among those economic activities in respect of which Member States are required to comply with that freedom. … In order for that particular method of exercising the freedom of establishment not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States, Directive 90/434, as is apparent from the first to fifth recitals thereof, lays down a common system of taxation by providing tax advantages, such as the deferral of taxation of capital gains tax relating to the assets transferred at the time of such a merger’. Emphasis added.

( 28 ) ‘The wording of that provision is unambiguous and mandatory.’ See the Opinion of Advocate General Sharpston in A.T. (C‑285/07, EU:C:2008:608, point 24).

( 29 ) See, to that effect, judgment of 11 December 2008, A.T. (C‑285/07, EU:C:2008:705, paragraph 21).

( 30 ) Although the wording of Article 8(1) of Directive 90/434 is mandatory, the wording of the second subparagraph of paragraph 2 of that article, which provides Member States with the possibility of taxing the gain arising out of the subsequent transfer of securities, is clearly optional.

( 31 ) See, by analogy, judgment of 19 December 2012, 3D I (C‑207/11, EU:C:2012:818, paragraph 28), which relates to Articles 4 and 9 of Directive 90/434. According to Advocate General Jääskinen, the objective of that directive is ‘to achieve fiscal neutrality by creating a common system of deferral of taxation of capital gains relating to a cross-border … share exchange. Taxation is not to take place until the date of the actual disposal of the shares or assets’. He takes the view that the ‘principle of fiscal neutrality’ relates solely to the tax treatment at the time of a cross-border share exchange and not to any other stage. Opinion of Advocate General Jääskinen in 3D I (C‑207/11, EU:C:2012:433, points 37 and 39). According to Advocate General Sharpston, Directive 90/434 ‘imposes a common tax system applicable to … exchanges of shares between companies in different Member States. It seeks to avoid the imposition of tax in connection with such operations whilst at the same time safeguarding the financial interests of the Member State in which a charge to tax arises. In the context of share exchanges, it does this by providing that the allocation of securities in the acquiring company to a shareholder of the acquired company “shall not, of itself, give rise to any taxation of the income, profits or capital gains of that shareholder”, while permitting Member States to tax “the gain arising out of the subsequent transfer of securities received in the same way as the gain arising out of the transfer of securities existing before the acquisition”’. See point 3 of the Opinion of Advocate General Sharpston in A.T. (C‑285/07, EU:C:2008:608).

( 32 ) According to the Austrian Government, Article 8 of Directive 90/434 is based ‘on the notion that, owing to the grant of securities in return to the shareholders of the acquiring or acquired company, the State in which those shareholders reside must retain the possibility of taxing the securities acquired at a later point in time’. The Finnish Government submits that ‘the objective of Directive 90/434 is not to grant a definitive tax exemption for the transfer that took place on the exchange of the securities originally held, but solely to ensure the benefit of deferred taxation, so as to facilitate cross-border exchanges of securities. That position, which is consistent with the objective and wording of the directive, has also been confirmed by the case-law of the Court, for instance in [the judgment of 5 July 2007, Kofoed (C‑321/05, EU:C:2007:408)]’.

( 33 ) According to the Commission, Directive 90/434 does not prevent an exchange of securities, followed by a transfer at a later point in time, from being divided into two successive stages: first, the establishment and settlement of the capital gain on the exchange, the taxation of which is deferred, and, secondly, the actual taxation of the income arising on the subsequent transfer of those securities.

( 34 ) In paragraph 41 of the judgment of 5 July 2007, Kofoed (C‑321/05, EU:C:2007:408), the Court stated that ‘each of the Member States to which a directive is addressed is obliged to adopt, within the framework of its national legal system, all the measures necessary to ensure that the directive is fully effective, in accordance with the objective that it pursues’. ‘[The Member States] may choose the form and methods for implementing directives which best ensure the result to be achieved by those directives’. (Paragraph 43 of that judgment).

( 35 ) See, by analogy, judgment of 8 March 2017, Euro Park Service (C‑14/16, EU:C:2017:177, paragraph 36).

( 36 ) In Jacob (Case C‑327/16), Mr Jacob was resident and subject to tax in France at the time of the exchange of securities in accordance with paragraph II of Article 92 B and paragraph 4 of Article 160(I ter) of the CGI. He changed his residence for tax purposes after that exchange but before the transfer of the securities at issue. In Lassus (Case C‑421/16), Mr Lassus was subject to tax in France in respect of the capital gain on the exchange in 1999 under Article 13(4)(a) and (b) of the France-United Kingdom Tax Convention, even though he had been resident in the United Kingdom since 1997. According to the French Government ‘pursuant to the provisions of Article 164 B in conjunction with Article 244 bis B of the CGI in force when the exchange of securities took place on 7 December 1999, capital gains arising out of the transfer of rights relating to companies having their registered office in France are income from French sources taxable in France in accordance with the detailed rules laid down in Article 160 of the CGI, even though the recipient of those gains, a natural person, was not resident in France for tax purposes. … Furthermore, Article 13(4) of the France-United Kingdom Tax Convention confirms that allocation of tax powers between France and the United Kingdom’. On the other hand, the French Government states that the transfer of the securities received in return, namely the securities in the Luxembourg company Gemplus International, does not fall within any of the situations envisaged in Article 164 B and Article 244 bis B of the CGI and in Article 13(4) of the France-United Kingdom Tax Convention, since that transfer concerned securities in a Luxembourg company held by a natural person resident for tax purposes in the United Kingdom. Before the Conseil d’État (Council of State), Mr Lassus argued that the subsequent transfer of the securities exchanged fell within the fiscal competence of the United Kingdom Government, which does not affect the powers of the French Government to tax the capital gains at issue.

( 37 ) See the first recital of Directive 90/434.

( 38 ) In common with Mr Jacob, as well as the French Government and the Finnish Government, I consider that the purpose of Directive 90/434 is not to establish rules governing the territoriality of the tax and to allocate the right to impose taxes between the Member States.

( 39 ) Judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 45 and the case-law cited).

( 40 ) Namely, a cross-border transaction in accordance with Article 1 of Directive 90/434 or a domestic transaction to which the directive has been rendered applicable by national law.

( 41 ) See, by analogy, judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 46 and the case-law cited). Also see judgment of 23 January 2014, DMC (C‑164/12, EU:C:2014:20, paragraph 47).

( 42 ) See the fourth recital of Directive 90/434. In addition, since that possibility also respects the interests of the Member State in which the subsequent transfer of the securities exchanged took place, because it does not affect that Member State’s right to tax any capital gains arising out of that transfer, it maintains, in my view, a balanced allocation of powers of taxation between the Member States, which is a legitimate objective recognised by the Court.

( 43 ) The French Government, the Finnish Government, the Swedish Government and the Commission submit that Article 8 of Directive 90/434 does not prevent the capital gain on an exchange of securities being taxed by the Member State of residence of the taxable person at the time of the exchange even if, on the date of the subsequent transfer of the securities, that person has moved his residence for tax purposes. Mr Jacob argues that Article 8 of Directive 90/434 must be interpreted as meaning that, in the event of an exchange of securities falling within the scope of the directive, the sole chargeable event occurs on the date of the transfer of the securities received in return. He therefore contends that the rules governing the territoriality of the tax must be assessed on that date in the light of the provisions of Member States’ domestic law and any tax conventions concluded between them.

( 44 ) Emphasis added.

( 45 ) The Austrian Government contends that ‘the failure to take into account capital losses is not contrary to the freedom of establishment because it is for the Member States to determine definitively the amount of tax on unrealised capital gains — without including any capital losses or capital gains arising subsequently — at the time when the Member State’s power to impose tax as regards the assets at issue comes to an end’. The Swiss Government maintains that ‘the Member State should not reasonably be required to take into account capital losses in the form of losses occurring on the final sale of the securities, namely once it no longer has any taxation powers. Consequently, the failure to take a loss into account at the time of such a final transfer should not be regarded as constituting a barrier to the freedom of establishment. If the Court were to take the opposite view, such a restriction could, in any event, be justified by reference to the balanced allocation of powers of taxation between the Member States and, therefore, would be justified by overriding reasons in the public interest and be consistent with the principle of proportionality’. The Finnish Government asserts that ‘the Member State is under no obligation to take such a capital loss into account when taxing the capital gain arising out of an exchange of securities. First, as regards Directive 90/434, it is sufficient to repeat that that directive does not contain any provisions whatsoever governing the allocation between the Member States of powers of taxation in connection with exchanges of securities. Accordingly, the entitlement to offset capital losses, which also concerns the question of the allocation of powers of taxation, is not governed by the directive either. Consequently, the directive does not impose any limitation whatsoever in that regard on Member States’ tax legislation. Secondly, Article 49 TFEU does not require account to be taken of any capital loss resulting from the transfer of the securities received in return.’

( 46 ) The Commission submits that ‘it seems that a transferor who has not exercised his freedom of establishment is entitled to the restitution in full of the capital gain on the exchange, the taxation of which was originally deferred, by means of a tax credit derived from the capital loss on the corresponding transfer. By contrast, if he exercises his freedom of establishment in the United Kingdom, as the taxpayer did in Lassus (C‑421/16), the possibility of taking account of the capital loss on the transfer is considerably limited due to the application of calculations based on rules which would not have been applied in a purely domestic context’.

( 47 ) Namely, the fourth subparagraph of paragraph I of Article 160 of the CGI. That difference in the treatment of comparable taxable transactions is not apparent from the wording of the provisions at issue.

( 48 ) Judgment of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979, paragraph 46 and the case-law cited).

( 49 ) The French Government ‘does not dispute that the detailed rules for the taxation of a capital gain on an exchange of securities effectively treat exchanges of securities carried out by non-residents, or by national residents who have become non-residents when the securities exchanged are transferred, differently to exchanges carried out by national residents, for whom any capital loss arising on the subsequent transfer of the securities exchanged will be offset against the capital gain in order to calculate the tax due’. Emphasis added.

( 50 ) Judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 42 and the case-law cited).

( 51 ) According to the French Government, the detailed rules for the taxation of a capital gain on an exchange of securities are defined in terms of Article 13(4) of the France-United Kingdom Tax Convention. By contrast, any subsequent capital loss arising on the transfer of the securities received in return falls not within the fiscal competence of the French Government but within that of the United Kingdom. Furthermore, the French Government contends that the detailed rules in question for the taxation of a capital gain on an exchange of securities do not go beyond what is necessary to attain the objective they pursue.

( 52 ) Emphasis added.

( 53 ) In addition, as noted in point 68 of this Opinion, it is apparent from settled case-law that, in the absence of any unifying or harmonising measures adopted by the European Union, the Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation. Judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 46).

( 54 ) Judgment of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331, paragraph 44).

( 55 ) See point 6 of this Opinion.

( 56 ) Judgment of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331, paragraphs 48 and 49 and the case-law cited). It follows that taxation of the capital gain was not deferred to a later date. In the case giving rise to that judgment, the tax on the unrealised capital gains at issue was determined at the time of the transfer and recovery of the tax was deferred or spread over ten years.

( 57 ) Judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 61). Also see judgment of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979, paragraph 55). On the transfer of the place of management of a trust, see, by analogy, judgment of 14 September 2017, Trustees of the P Panayi Accumulation & Maintenance Settlements (C‑646/15, EU:C:2017:682, paragraph 58) and the Opinion of Advocate General Kokott in Trustees of the P Panayi Accumulation & Maintenance Settlements (C‑646/15, EU:C:2016:1000, points 61 to 65). In paragraph 58 of its judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), the Court ruled that ‘since, in a situation such as that at issue in [that case], the profits of a company which transfers its place of effective management are, after the transfer, taxed exclusively in the host Member State, in accordance with the principle of fiscal territoriality linked to a temporal component, it is also for that Member State, in view of the abovementioned connection between a company’s assets and its taxable profits, and hence for reasons relating to the symmetry between the right to tax profits and the possibility of deducting losses, to take account in its tax system of fluctuations in the value of the assets of that company which occur after the date on which the Member State of origin loses all fiscal connection with the company’.

( 58 ) Also see, by analogy, judgments of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331), and of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979).

( 59 ) It should be recalled that the documents in the national file lodged at the Court Registry seem to suggest that the detailed rules for taxation of the capital gain on the exchange, such as the tax rate, are determined on the date of the subsequent transfer of the securities exchanged.

( 60 ) In that connection, it should be noted that, as indicated in footnote 36 of this Opinion, Mr Lassus was subject to tax in France in respect of the capital gain on the exchange arising in 1999 in accordance with Article 13(4)(a) and (b) of the France-United Kingdom Tax Convention, even though he had resided in the United Kingdom since 1997.

( 61 ) I recall that the capital losses were sustained in the five-year period following the exchange of the securities at issue.

( 62 ) In the present case, the fourth subparagraph of paragraph I of Article 160 of the CGI. I note that that provision sets a maximum period of five years. In my view, if the transfer of the securities exchanged occurs more than five years after the exchange, it is not necessary to take account of the capital loss on the transfer. Article 49 TFEU only requires equal treatment for comparable transactions.

( 63 ) The French Government asserts that the Court does not have jurisdiction to answer that question because neither primary nor secondary EU legislation defines those detailed rules. In the event that it does, the French Government submits that if a Member State is required to take into account any capital loss on a transfer of the securities exchanged at the time at which the capital gain on the exchange is taxed, it may only take into account the capital loss relating to those securities. Furthermore, according to the French Government, in order to calculate the amount of the capital loss, the purchase price to be used is the value of those securities at the time of the exchange.

( 64 ) The Commission states that Directive 90/434 does not lay down any detailed rules for calculating the capital gain on an exchange or the rules applying to any capital loss on a transfer.