OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 11 November 2010 ( )

Joined Cases C‑436/08 and C‑437/08

Haribo Lakritzen Hans Riegel BetriebsgmbH (C-436/08)

and

Österreichische Salinen AG (C-437/08)

v

Finanzamt Linz

(Reference for a preliminary ruling from the Unabhängiger Finanzsenat, Außenstelle Linz (Austria))

(Free movement of capital – Portfolio holdings − Corporation tax – Prevention of economic double taxation of dividends – Exemption method for national dividends – Conditional exemption method with a possible switchover to the imputation method for dividends from other EU/EEA States – Difficulties of adducing evidence of a previous foreign charge to corporation tax – Neither exemption nor imputation method for dividends from non-member States − Possible justifications − Proportionality – Pursuit of the stated objective in a consistent and systematic manner)













Table of contents





I – Austrian law

II – Facts and questions referred for a preliminary ruling

III – Legal assessment

A – The second question in Haribo

1. Preliminary remarks

2. Existence of a restriction

3. Justification

a) Comparability with regard to the risk of economic double taxation

b) Comparability with regard to the method to be applied to prevent economic double taxation

4. Proportionality

a) Appropriateness and necessity

b) Interim conclusion

c) Pursuit of the objective in a consistent manner

5. Conclusion

B – The first question in Haribo

1. Admissibility of the question

2. Answer to the question

a) Restriction

b) Justification

c) Proportionality

d) Conclusion

C – The third question in Haribo

1. Restriction

2. Justification

a) Particular characteristics of the non-member-state aspect

b) Individual grounds of justification

i) Allocation of the power to impose taxes

ii) Reciprocity

iii) Fiscal supervision

c) Conclusion

D – Questions 4, 4.1 and 4.2 in Haribo

E – The two questions in Österreichische Salinen

1. Admissibility of the questions

2. Answer to the questions

IV – Conclusion





Introduction

1. The present cases once again concern the taxation of foreign dividends. Austrian law on corporation tax contains rules which are intended to prevent the double imposition of corporation tax on corporate profits distributed in the form of dividends, once at the level of the company making the distribution and a second time at the level of the recipient company. In the case of national dividends such economic double taxation is prevented by the dividends being exempt from corporation tax at the level of the recipient company. In the case of foreign dividends, however, the question whether an exemption is granted, a credit is merely given for the foreign corporation tax, or neither, depends on the size of the holding, the previously paid tax and the origin.

2. In the case of portfolio dividends from other European Union (‘EU’) States, that is to say dividends from shareholdings of less than 10%, exemption and crediting appear to be frustrated, as a rule, because the recipient is not able to provide the necessary information on previously paid foreign corporation tax. In such cases, economic double taxation therefore occurs. If the portfolio dividend comes from a European Economic Area (‘EEA’) State which is not a member of the European Union, comprehensive procedures for mutual assistance with regard to administrative matters and enforcement are also required. For portfolio dividends from non-member States, there is no provision from the outset for the prevention of economic double taxation. It must be examined to what extent such special treatment of foreign portfolio dividends is compatible with the free movement of capital. Question are once again raised as to the equivalence of the exemption and imputation methods, ( ) possible distinctive features of capital movements to and from non-member States ( ) and the proportionality of restrictions where they are based on considerations which may be legitimate but are not pursued in a consistent manner. ( )

I – Austrian law

3. Paragraph 10 of the 1988 Law on corporation tax (Körperschaftsteuergesetz 1988) ( ) as amended by the 2009 Law accompanying the budget (Budgetbegleitgesetz 2009) ( ) (‘the KStG’), which has the heading ‘Exemption for earnings from holdings and international inter-company holdings’ and under Paragraph 26c(16)(b) of the KStG is applicable to all assessments procedures in progress, reads as follows:

‘(1) Earnings from holdings shall be exempt from corporation tax. Earnings from holdings are:

1. shares of profits of any kind from holdings in domestic capital companies or domestic trade and industrial cooperatives in the form of shares in companies or cooperatives;

…

5. shares of profits within the meaning of points 1 to 4 from holdings in foreign corporations which fulfil the conditions, laid down in Annex 2 to the 1988 Law on income tax, of Article 2 of Council Directive 90/435/EEC of 23 July 1990 (OJ 1990 L 255, p. 6) and do not fall within the scope of point 7;

6. shares of profits within the meaning of points 1 to 4 from holdings in corporations in States in the European Economic Area which are comparable to domestic corporations falling within the scope of Paragraph 7(3) and with whose State of establishment comprehensive procedures for mutual assistance with regard to administrative matters and enforcement exist, if the holdings do not fall within the scope of point 7;

7. shares of profits of any kind from an international inter-company holding within the meaning of subparagraph 2.

(2) An international inter-company holding [internationale Schachtelbeteiligung] exists where taxpayers falling within the scope of Paragraph 7(3) or other foreign corporations with unlimited tax liability which are comparable to a domestic taxpayer falling within the scope of Paragraph 7(3) are proven to have, in the form of shareholdings, for an uninterrupted period of at least one year a stake of at least one tenth in

1. foreign corporations comparable to a domestic capital company,

2. other foreign corporations which fulfil the conditions, laid down in Annex 2 to the 1988 Law on income tax, of Article 2 of Council Directive 90/435/EEC of 23 July 1990 (OJ 1990 L 255, p. 6), in the applicable version.

The said period of one year shall not apply to shares that have been acquired as a result of a capital increase, provided that the extent of the equity interest is not thereby increased.

…

(4) Notwithstanding subparagraph 1, point 7, shares of profits, capital gains, capital losses and other changes in value from international inter-company holdings within the meaning of subparagraph 2 shall, in accordance with the following provisions, not be exempt from corporation tax if there are grounds for the Federal Minister for Finance so to order by regulation in order to prevent tax evasion and abuses (Paragraph 22 of the Federal Tax Code). Such grounds may be taken to exist, in particular, where:

1. the foreign corporation’s main business focus lies directly or indirectly in obtaining revenue from interest, from the assignment of movable tangible or intangible assets or from the sale of holdings, and

2. the foreign corporation’s income is not subject to any foreign tax comparable to Austrian corporation tax in terms of determination of the tax base or tax rates.

(5) Notwithstanding subparagraph 1, points 5 and 6, shares of profits shall not be exempt from corporation tax if one of the following conditions applies:

1. the foreign corporation is not in fact subject abroad, directly or indirectly, to any tax comparable to Austrian corporation tax;

2. the profits of the foreign corporation are subject abroad to a tax comparable to Austrian corporation tax, the applicable rate of which is more than 10 percentage points lower than Austrian corporation tax under Paragraph 22(1);

3. the foreign corporation enjoys a comprehensive personal or subject‑based exemption abroad. Any exemption under subparagraphs 1 and 3 shall be irrelevant.

(6) In the cases under subparagraphs 4 and 5, relief from a foreign tax corresponding to corporation tax is to be brought about for shares of profits in the following manner: upon an application being made, the foreign tax to be considered an advance charge on the distribution shall be credited against the domestic corporation tax charged on shares of profits of any kind derived from the international inter-company holding. When determining the income, the foreign tax creditable shall be added to the shares of profits of any kind from the international inter-company holding.’

4. In the view of the referring tribunal, the notice issued by the Bundesministerium für Finanzen (Federal Ministry of Finance) ( ) in relation to the former legal situation continues to apply, in connection with the imputation method, to proof of foreign taxation. It states that according to that notice, in order to have corporation tax credited, the taxpayer must submit a declaration containing the following:

– the exact name of the company making the distribution in which the taxpayer has the holding;

– a precise indication of the size of the holding;

– a precise indication of the rate of corporation tax to which the company making the distribution is subject in the State in which it is established. If it is not subject to the normal tax regime of the State in which it is established (but, for example, has the benefit of a more favourable rate of tax, a personal tax exemption or far-reaching subject-based tax exemptions/reductions), the rate of tax actually applicable must be given;

– an indication of the foreign charge to corporation tax on the taxpayer’s holding, calculated on the basis of the above parameters;

– a precise indication of the rate of the withholding tax actually levied (restricted to the rate of withholding tax under the double taxation convention);

– a calculation of the tax creditable.

II – Facts and questions referred for a preliminary ruling

5. In 2002, Österreichische Salinen AG (‘Österreichische Salinen’), a capital company governed by Austrian law and established in Austria, recorded an operating loss. In that tax year it received, through domestic (Austrian) investment funds, income comprising dividends paid by foreign capital companies established in Member States of the European Union and in non-member States. Pursuant to the version of the KStG applicable at the time, the competent tax office exempted the national dividends from taxation, but refused to grant exemption for the foreign dividends from holdings of less than 25%.

6. The Unabhängiger Finanzsenat (Independent Finance Tribunal) hearing the appeal brought against the tax notice considered this to be an unjustified breach of the principle of free movement of capital and treated the foreign dividends, by mutatis mutandis application of the rule applicable to national dividends, as tax‑exempt income, while giving no credit for withholding tax.

7. This view was not shared by the Verwaltungsgerichtshof (Administrative Court) before which the matter was brought by the tax office. In its judgment of 17 April 2008, it did likewise confirm there to be an unjustified restriction of the free movement of capital. However, it held that, of several solutions that comply with Community law, it is necessary to opt for the solution which causes least intrusion to the Austrian legislature’s concept. This is the imputation method since if the tax level abroad is lower, only the imputation method leads to taxation that is as high as for national dividends. The Verwaltungsgerichtshof stated that the legislature also made an assessment along these lines itself in that it expressly provided for the imputation method to be applied to holdings in foreign companies which do not carry out any operational activity. The foreign minority holdings through an investment fund which are at issue in the present case likewise do not constitute operational activity. Consequently, the Verwaltungsgerichtshof concluded, rather than the exemption method, the imputation method, which the Court of Justice has recognised as equivalent in principle, must be applied. The case is now at the stage of the resumed proceedings before the referring tribunal.

8. In 2001, Haribo Lakritzen Hans Riegel BetriebsgmbH (‘Haribo’), also a capital company governed by Austrian law and established in Austria, received income from domestic (Austrian) investment funds in the form of dividends from Member States of the European Union and non-member States. On the basis of the legal situation at the time, the competent tax office refused to treat the foreign dividends as tax-exempt. Haribo appealed to the referring tribunal against that notice.

9. By decisions of 29 September 2008, which were received by the Court on 3 October 2008, the Unabhängiger Finanzsenat referred to the Court for a preliminary ruling a number of questions concerning the KStG in the version set out in BGBl. 797/1996 and 161/2005. After the Court had requested clarification pursuant to Article 104(5) of the Rules of Procedure, in the light of the amendment of the KStG in 2009, it reformulated its questions, by letter of 30 October 2009, which was received by the Court on 3 November 2009.

10. In Case C-436/08 (Haribo) the questions now read as follows:

‘(1) Is Community law infringed if foreign portfolio holdings from EEA States are tax free only where procedures for mutual assistance with regard to administrative matters and enforcement exist, although exemption from tax in the case of international inter-company holdings (even for non‑member‑state dividends and even in the case of switchover to the imputation method) is not bound to these conditions?

(2) Is Community law infringed if for foreign portfolio dividends from EU/EEA States the imputation method is to be applied in so far as the requirements for the exemption method are not met, although both the proof of the requirements for the exemption method (comparable taxation, amount of the foreign tax rate, absence of personal or subject-based exemptions of the foreign corporation) and the data necessary for the crediting of foreign corporation tax cannot be provided by the shareholder, or can be provided only with great difficulty?

(3) Is Community law infringed if in the case of earnings from non‑member‑state holdings the law neither contains an exemption from corporation tax nor makes provision for crediting of corporation tax paid, in so far as the size of the holding is under 10% (25%), whereas earnings from domestic holdings are exempt from tax irrespective of the size of the holding?

(4) If Question 3 is answered in the affirmative: Is Community law infringed if, in order to remove discrimination against non-member-state holdings, a national authority applies the imputation method, whereby proof of the (corporation) tax already paid abroad can, on account of the small size of the holding, not be proved or be proved only with disproportionate effort, because according to a decision of the Verwaltungsgerichtshof that result comes closest to the (hypothetical) will of the legislature, whereas in the case of simply not applying the discriminatory 10% (25%) threshold for non-member-state dividends a tax exemption would arise?

(4.1) If Question 4 is answered in the affirmative: Is Community law infringed if earnings from non-member-state holdings are refused exemption in so far as the size of the holding is under 10% (25%) although the exemption of earnings in the case of holdings above 10% (25%) is not linked to the presence of comprehensive procedures for mutual assistance with regard to administrative matters and enforcement?

(4.2) If Question 4 is answered in the negative: Is Community law infringed if earnings from non-member-state holdings are refused credit for foreign corporation tax in so far as the size of the holding is under 10% (25%) although a crediting of tax – prescribed in particular cases – in the case of earnings from non-member-state holdings in the event of a holding above 10% (25%) is not linked to the presence of comprehensive procedures for mutual assistance with regard to administrative matters and enforcement?’

11. In Case C-437/08 (Österreichische Salinen), the questions now read as follows:

‘(1) Is Community law infringed if for foreign dividends in cases of change of method the imputation method is to be applied, but in relation to the corporation tax or withholding tax to be credited a carrying-forward of credit to subsequent years or a credit entry in a loss year is not simultaneously allowed?

(2) Is Community law infringed if the imputation method is to be used for non‑member-state dividends because that result, according to a decision of the Verwaltungsgerichtshof, comes closest to the (hypothetical) will of the legislature, but a carrying-forward of credit or a credit entry in a loss year is not simultaneously allowed?’

12. By order of the President of the Court of Justice of 16 January 2009, the two cases were joined for the purposes of the written and oral procedures and the judgment.

13. Haribo, the Austrian, German, Italian, Netherlands, Finnish and United Kingdom Governments and the European Commission took part in the proceedings before the Court. The Italian and Finnish Governments merely submitted written observations.

III – Legal assessment

14. The second question in Haribo raises the fundamental question of the equivalence of the exemption and imputation methods to prevent economic double taxation of dividends. If such equivalence were to be accepted regardless of the impossibility of proving the foreign corporation tax to be credited, there would be no reason why portfolio dividends from other EU/EEA States should not be exempted only conditionally and the imputation method should not be applicable to them in other respects, whilst national portfolio dividends are always exempt from corporation tax. Since the answer to this question may affect the way the other questions are answered, it should be examined first of all.

A – The second question in Haribo

15. By its second question in Haribo, the referring tribunal is seeking to ascertain whether Article 56(1) EC ( ) is infringed if domestic corporations must, as a rule, pay corporation tax on portfolio dividends from other EU/EEA States because it is impossible or barely possible for them to provide the information on foreign corporation tax previously paid which is required for exemption or at least for credit, whilst national portfolio dividends are always exempt.

1. Preliminary remarks

16. According to the judgment in Test Claimants in the FII Group Litigation, ( ) a Member State which prevents economic double taxation of national dividends must accord equivalent treatment to foreign dividends.

17. The Court has not expressed any fundamental doubts opposing the exemption method being applied to national dividends and the imputation method to foreign dividends. It considers these two methods to be equivalent, provided that the rate of tax applied to foreign dividends is no higher than the rate of tax applied to national dividends and that a credit is granted for the amount paid abroad up to the limit of the national tax. ( )

18. The Court has acknowledged that, compared with an exemption system, an imputation system imposes additional administrative burdens on taxpayers, with evidence being required as to the amount of tax actually paid in the State in which the company making the distribution is resident. This does not in itself constitute an unlawful difference in treatment, however, because these particular administrative burdens are an intrinsic part of the operation of a tax credit system. ( )

19. It is not clear from the judgment at which level of analysis the Court reached this conclusion – in analysing whether there is actually a restriction of free movement of capital, ( ) in analysing whether the situations are comparable or the difference in treatment is justified by overriding reasons in the public interest, or in conducting the proportionality test.

20. However, the level of analysis plays a key role in determining the quality of any equivalence of the exemption and imputation methods. If the Court’s finding that administrative burdens are an intrinsic part of the imputation method is to be understood as meaning that this inseparable link precludes the existence of a restriction of free movement of capital, this would ignore the consequences which the application of the imputation method can have in practice.

21. In the present cases, in which Haribo and Österreichische Salinen received foreign portfolio dividends from domestic investment funds, it is impossible, or barely possible, according to the referring tribunal, to prove the foreign taxation. Whilst this point has been fiercely debated by the parties, the Court cannot assess this matter of fact itself. It is ultimately for the referring tribunal to make the necessary findings. The Court is required in principle to give the interpretation requested on the basis of the factual findings of the referring court or tribunal. ( )

2. Existence of a restriction

22. It must therefore be examined, first of all, whether the provision in question leads to a restriction of the free movement of capital which is prohibited in principle. It is recognised that the measures prohibited by Article 56(1) EC, as restrictions on the movement of capital, include those which are likely 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. ( )

23. Since restrictions are prohibited by the Treaty, even if they are of limited scope or minor importance, ( ) I consider that, at least in a situation like the one at issue as described by the referring tribunal, it must be accepted that there is a restriction of the free movement of capital which is prohibited in principle under Article 56(1) EC.

24. Unlike in the case of national portfolio dividends, the application of the exemption method to portfolio dividends from other EU/EEA States is linked to certain conditions. Where those conditions are not met, the imputation method is applicable, even though it is impossible or barely possible for shareholders to provide proof that those conditions have been met or to provide the information required for the foreign corporation tax credit. Since foreign dividends are, as a rule, subject to full taxation in Austria even though the corporate profits have already been taxed abroad, it is less attractive for a resident investor to acquire or retain a foreign, rather than a national, portfolio holding.

3. Justification

25. It must also be examined whether that restriction of the free movement of capital is nevertheless permitted under the provisions of Articles 57 EC to 60 EC or is justified by an overriding reason in the public interest.

26. Article 58(1)(a) EC permits Member States to distinguish, for tax purposes, between taxpayers who are not in the same situation with regard to the place where their capital is invested. Under Article 58(3) EC, however, this may not lead to arbitrary discrimination.

27. In order for national tax legislation such as that at issue here to be compatible with the provisions on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest. ( )

a) Comparability with regard to the risk of economic double taxation

28. It therefore needs to be examined whether the difference in treatment of capital companies established in Austria according to whether they receive national or EU/EEA portfolio dividends relates to situations which are not comparable having regard to the aim pursued by Paragraph 10(1) of the KStG. ( )

29. Paragraph 10(1) of the KStG seeks to prevent double taxation of corporations’ profits by exempting the dividends from corporation tax at the level of the recipient corporation.

30. It is settled case-law that, with regard to a tax rule which seeks to prevent or to mitigate the double taxation of distributed corporate profits, shareholders receiving foreign dividends and shareholders receiving national dividends are fundamentally in the same situation. In each case, the profits made are, in principle, liable to be subject to a series of charges to tax. ( )

31. It follows that if economic double taxation is prevented in the case of national dividends, such double taxation should also be prevented in the case of similar foreign dividends.

b) Comparability with regard to the method to be applied to prevent economic double taxation

32. The question arises, however, whether there is also comparability between national and foreign dividends with regard to the method used to prevent economic double taxation. ( )

33. If a Member State decides to exempt national dividends from corporation tax – not because it wishes in general to refrain from taxing distributed corporate profits, but because it wishes to prevent the economic double taxation of such profits in that way – it is to be assumed that the desired level of taxation is already guaranteed through the levying of corporation tax on the company making the distribution. This internal link may be partially or entirely absent in a specific case where the corporation making the distribution benefits from specific tax advantages. In my opinion, however, the examination to be conducted must be based not on an analysis of specific cases, but on an overview of the system.

34. Such an internal link between exemption at shareholder level and taxation at company level was fully present in Manninen. ( ) In that case, economic double taxation of national dividends was formally prevented not through exemption, but through the grant of a tax credit amounting to the rate of corporation tax applicable to corporate profits. However, as the rate of income tax on revenue from capital was equally high, this system amounted to an exemption of the dividends. Nevertheless, the Finnish legislation made express provision for an additional tax in case the tax paid by the company which distributed the dividends turned out to be less than the amount of the tax credit for the shareholder. It was thus guaranteed that the level of taxation desired for national dividends was actually achieved.

35. In Test Claimants in the FII Group Litigation, the link between the exemption applicable to national dividends and taxation at the level of the company making the distribution was addressed by the Court only tangentially. The claimants in those main proceedings had argued that exemption of national dividends applied irrespective of whether and to what extent tax was paid by the company making the distribution. ( )

36. The Court therefore asked the referring court to determine whether the tax rates were indeed the same for the company making the distribution and the recipient company and whether different levels of taxation occurred only in certain cases by reason of a change to the tax base as a result of certain exceptional reliefs. ( ) I conclude from this that the Court did not wish its findings on the equivalence of the exemption method and the imputation method ( ) not to apply any longer as soon as it was possible in individual cases that national dividends were exempt even though the underlying profits had not previously been subject to the full corporation tax charge. ( )

37. In the present cases the referring tribunal points out that the effective tax burden on national dividends in Austria may be lower than the nominal rate of tax not just in individual cases, as a result of the various forms of relief laid down in the KStG. For example it mentions the possibility of the loss being carried forward and group taxation.

38. In my opinion, however, these generally common ways to reduce the tax burden by being able to include past losses in the tax base and to tax a corporate group’s profits and losses on a consolidated basis cannot cancel out the close link between exemption and taxation which underlies an exemption system. The same applies to personal or subject-based exemptions from corporation tax granted by way of exception. Only if an overview of the system shows that the link between exemption and advance charges to tax exists merely ostensibly or is even manifestly absent would it have to be found that in reality the system does not serve to eliminate economic double taxation.

39. The referring tribunal must therefore examine whether on an analysis of the Austrian corporation tax system as a whole there is a genuine link between the exemption of national dividends from corporation tax and the taxation situation at the level of the companies making the distribution. If not, it would be a priori arbitrary and therefore unlawful to refuse, unlike in the case of national dividends, an unconditional exemption for EU/EEA dividends.

40. For the purposes of the further analysis I will assume that the exemption system applying to domestic situations in Austria is based on an internal link between exemption and advance charges to tax in the sense described.

41. As far as foreign-sourced dividends are concerned, it is regularly uncertain, from the point of view of the tax authorities, whether corporation tax has previously been levied on them and, if so, in what amount. Thus, it is perfectly possible that the underlying profits are not subject to any tax abroad, ( ) or are subject to a completely different tax or a lower rate of taxation, at the level of the corporation making the distribution. If the exemption method were nevertheless applied unconditionally to foreign dividends, single taxation would not be guaranteed. Furthermore, indiscriminate application of the exemption method would mean that foreign dividends would be treated not only in the same way as, but possibly better than, national dividends.

42. It should be borne in mind in this regard that the economic double taxation of foreign dividends is caused by the fact that two States exercise their power to tax an undertaking’s profits at the same time, one levying corporation tax on the company making the distribution and the other on the recipient company. No hierarchical relationship between the power to impose taxes enjoyed by different Member States or even non-member States follows in this regard from the free movement of capital.

43. Only where a Member State decides to prevent or mitigate economic double taxation of national dividends does the free movement of capital ( ) give rise to the obligation to provide for foreign dividends to be accorded equivalent treatment. ( ) However, in organising its system for preventing or mitigating economic double taxation, a Member State may adhere to the principle that in general corporation tax is also levied on foreign dividends at least the domestic level. ( )

44. Since unconditional exemption is not capable of guaranteeing such taxation in the case of foreign dividends, the situations under examination here are not comparable with regard to the method of preventing economic double taxation to be used.

4. Proportionality

45. Even if there is no comparability, the restrictive measure in question must still comply with the principle of proportionality. It must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it. ( )

a) Appropriateness and necessity

46. The conditional exemption method with a possible switchover to the imputation method is capable of ensuring that the tax advantage represented by the prevention or mitigation of economic double taxation can be enjoyed only if and in so far as levying corporation tax domestically would actually lead to double taxation.

47. It is uncertain, however, whether it goes beyond what is necessary. In the case of foreign EU/EEA portfolio dividends, the Austrian legislation in question not only imposes additional administrative burdens but also generally results in taxation in Austria since, according to the referring tribunal, it is impossible or barely possible to satisfy the conditions governing the application of the exemption method or the successful application of the imputation method.

48. The question therefore arises who ultimately should bear the risk that the necessary information on the foreign taxation situation of the profits on which the dividends are based cannot be collected.

49. According to the referring tribunal, notwithstanding the ex proprio motu principle, the burden of proof relating to the satisfaction of the conditions governing exemption or relief in Austria ultimately rests with the taxpayer. In order to benefit from the exemption method, the investor must be able to prove comparable foreign taxation, the amount of the foreign rate of tax and the absence of personal or subject-based exemptions of the foreign corporation. If that is not possible for him and he is therefore able only to employ the imputation method, he must prove the information necessary for a credit to be granted for the foreign corporation tax. If he is also unable to do this, corporation tax is levied on the foreign EU/EEA portfolio dividends in Austria.

50. Relying on the Court’s case-law, the Austrian, German, Italian, Netherlands and United Kingdom Governments and the Commission have argued in this regard that the tax authorities must be able to require sufficient proof in connection with the tax assessment. The exemption or the tax relief residing in the credit may be refused if such proof is not provided.

51. The Court has indeed already ruled that nothing prevents the tax authorities concerned from requiring the taxpayer himself to provide such evidence as they may consider necessary in order to determine whether the conditions for tax exemption or relief have been met and, if it is not supplied, from refusing the tax exemption or relief claimed. ( )

52. The Court has also found that whilst under Directive 77/799 on mutual assistance ( ) the national tax authorities have the possibility of requesting information from the competent authority of another Member State, such a request does not in any way constitute an obligation. It is for each Member State to assess the specific cases in which information concerning transactions by taxable persons in its territory is lacking and to decide whether those cases justify submitting a request for information to another Member State. ( )

53. It cannot be ruled out that, as the Commission has argued, ( ) a national tax authority could be required under special circumstances to obtain the necessary information itself, namely if, unlike the taxpayer, it has easy access to the information. That obligation could also encompass the use of mutual assistance instruments and in particular Directive 77/799. ( ) However, as the Commission itself has argued, there is nothing in Haribo to suggest that such special circumstances might exist in the present case. It is ultimately for the referring tribunal to conduct this examination.

54. A critical view would have to be taken of the taxpayer’s obligation to provide proof if the reason for which an investor is unable to comply with it resides in the fact that proof is required according to a domestic model which is not appropriate for foreign situations, even though such proof is not absolutely necessary. In its reply to the request for clarification, however, the referring tribunal states that the taxpayer has a free choice as to the form of evidence.

55. In the present cases, the problem actually resides purely in the realm of fact. Thus, Haribo claims that in the case of a portfolio holding in a foreign corporation through a domestic investment fund it is not even possible to ascertain the corporation from which the dividends originate.

56. In my opinion, these problems of proof cannot in themselves make it disproportionate to apply an only conditional exemption method with a possible switchover to the imputation method, as provided for in Austrian law for portfolio dividends from other EU/EEA States.

57. Such a provision does not require anything that is actually impossible. The necessary information is in fact available somewhere, namely from the respective companies which distributed the dividends and possibly also from the domestic investment funds through which the company shares eligible for dividends are held. If obtaining that information entails considerable, cost-intensive effort, the investor must consider which is more favourable for him: proving the previous foreign charge to tax or relinquishing the exemption or credit.

58. Even if such proof should ultimately not be possible because the shareholder is not in a position, de facto or de jure, to obtain that information, this must nevertheless be attributed to the shareholder’s sphere. ( ) It is in the interest of both the foreign companies and the domestic investment fund to organise the portfolio investment as attractively as possible. This includes providing the shareholder with the necessary information so that he can benefit from the possibility of preventing or mitigating economic double taxation in his State of residence. ( ) The inadequate flow of information to the investor is not a problem for which the Member State should have to answer.

59. Because of this distribution of risks (objective burden of proof), it does not go beyond what is necessary if a Member State adheres to the application of the imputation method – possibly with the conditional exemption method beforehand – for portfolio dividends from EU/EEA States even where this does not prevent economic double taxation because the taxpayer is not able to prove the previously paid foreign tax.

60. If the imputation method is applied for such portfolio dividends, it would, however, go beyond what is necessary if account were not taken as far as possible of differences within the national corporation tax system and credits were instead granted statically on the basis of a standard rate of taxation.

61. As was stated above, ( ) the exemption system applicable to national dividends likewise does not guarantee that in each specific case dividends are exempted from corporation tax only in the precise amount of the advance charges to corporation tax. It must therefore also be possible using the imputation method to pass on to the shareholder certain tax advantages enjoyed by the company making the distribution. If a company which is established abroad benefits from a reduced rate of corporation tax there, for research activities for example, and if a comparable domestic company would also be granted such relief in Austria, that advantage would also have to be preserved, in connection with the credit, for the recipient of the foreign dividends.

b) Interim conclusion

62. Overall, it can therefore be stated that although the exemption and imputation methods cannot be described as really equivalent, it is permissible under European Union law, within the identified limits, to apply the exemption method to national portfolio dividends and the imputation method to dividends from other EU/EEA States. The same holds if, rather than the imputation method, a conditional exemption method is initially applicable.

c) Pursuit of the objective in a consistent manner

63. In its more recent case-law, the Court has repeatedly required, in connection with the proportionality test, that national legislation which results in the restriction of a fundamental freedom reflects a concern to attain the objective pursued in a consistent and systematic manner. ( ) If it does not reflect that concern, the Court does not consider it to be appropriate for attaining the stated objective or even for only contributing to its attainment.

64. In my opinion, that criterion is less a question of appropriateness than of proportionality in the stricter sense. A measure certainly often contributes to the attainment of an objective, but cannot attain that objective by itself. That does not detract from its appropriateness, however. Rather, the question must be asked whether it is apparent from the rest of the regulatory framework that the stated objective is not pursued in a consistent and systematic manner and is therefore unjustified.

65. If this case-law were to be applied in the context of the present analysis, doubts could arise as to whether the objective pursued by the conditional exemption method or the imputation method, ensuring the single taxation of foreign dividends at national level, is pursued in a consistent and systematic manner.

66. Under the KStG, dividends from international inter-company holdings benefit much more readily from an exemption than EU/EEA portfolio dividends. Under Paragraph 10(1)(7) of the KStG, they are exempt from corporation tax in principle, without this being linked to the conditions applicable for portfolio holdings. Under Paragraph 10(4) and (6) of the KStG, provision is admittedly also made for a switchover to the imputation method in the case of dividends from international inter-company holdings, but only subject to much stricter limits, namely only if the Federal Minister for Finance so orders by regulation in order to prevent tax evasion and abuses. That can happen in particular in cases where the foreign corporation in which the inter-company holding exists does not engage in any business activities and its income is not subject to any foreign tax comparable to Austrian corporation tax.

67. However, such a comprehensive consistency test would excessively limit the discretion enjoyed by the national legislature in determining what income it wishes to tax and at what level.

68. As the Austrian Government stated in response to a query at the hearing, the aim of according preferential treatment to international inter-company holdings is to promote economic activity of Austrian undertakings abroad. The aim of single taxation is not therefore pursued here to the same degree as in the case of EU/EEA portfolio dividends. However it does not have to be. The mere fact that the legislature pursues a taxation policy for international inter-company holdings that differs from that for EU/EEA portfolio dividends does not make the conditional exemption method with a possible switchover to the imputation method, which is applicable to EU/EEA portfolio dividends, disproportionate. That also holds if economic double taxation generally occurs in practice in the case of EU/EEA portfolio dividends because of difficulties in providing proof in relation to the foreign taxation situation.

69. This conclusion is supported by the parent-subsidiary directive, ( ) with reference to which the Austrian legislature set the 10% threshold and the previously applicable 25% threshold. The directive introduced a common system of taxation for parent companies and subsidiaries in different Member States in order to facilitate the grouping together of companies at Community level. To that end, it provides that, for dividends which a parent company receives from a subsidiary, either an exemption is to be granted or a credit is to be granted for the foreign tax. This emphasises that it may be legitimate to treat inter-company holdings and portfolio holdings differently for tax purposes.

5. Conclusion

70. The answer to the second question in Haribo must therefore be that Article 56(1) EC is not infringed if domestic corporations must, as a rule, pay corporation tax on portfolio dividends from other EU/EEA States because it is impossible or barely possible for them to provide the information on foreign corporation tax previously paid which is required for exemption or at least for credit, whilst national portfolio dividends are always exempt.

B – The first question in Haribo

71. By its first question in Haribo, the referring tribunal is seeking to ascertain whether Article 56(1) EC is infringed if portfolio dividends from an EEA State which is not a member of the European Union are exempt from corporation tax only where procedures for mutual assistance with regard to administrative matters and enforcement exist, although this is not required in the case of dividends from international inter-company holdings.

1. Admissibility of the question

72. The Austrian Government considers the first question to be inadmissible because it is manifestly irrelevant to the decision in the main proceedings. It contends that the description of the facts by the referring tribunal does not contain any statements on whether dividends from Norway, Iceland or Liechtenstein are also envisaged, but mentions only shares in capital companies having their seat in Member States of the European Union and in third States.

73. It is settled case-law that where the questions submitted concern the interpretation of European Union law, the Court is in principle bound to give a ruling. Exceptionally, however, it may refuse to give an answer inter alia where it is quite obvious that the interpretation sought is unrelated to the actual facts of the main action or its purpose, or where the problem is hypothetical. ( )

74. The order for reference in Haribo does only mention, in the description of the facts, ‘dividends from both the European Union area and third States’. No further details in this regard can be inferred from the documents enclosed with the reference.

75. The Austrian Government gives a restrictive reading of the words ‘from third States’ to the effect that they mean all States except the Member States of the European Union and the EEA Contracting States. This restrictive interpretation is supported by the Austrian legislation at issue, which draws a distinction between national, EU, EEA and third-state dividends. The reformulated questions and the discussion of those questions by the referring tribunal clearly reflect this distinction.

76. However, the facts to which the Austrian Government refers are described in the original order for reference. At the time, there was no reason to draw a distinction between the EEA States – Norway, Iceland and Liechtenstein – and other States which are not members of the European Union. The earlier version of the KStG distinguished only, as far as portfolio holdings were concerned, between national and foreign holdings. Since the Verwaltungsgerichtshof, in its judgment of 17 April 2008, and the Federal Ministry of Finance, in its information notice on that subject, ( ) further distinguished – to differing degrees – between EU and non‑member-state holdings, there was only reason for the referring tribunal to take up that distinction in its original order for reference.

77. The words ‘from third States’ in the original order for reference can therefore be readily understood to mean all States which are not members of the European Union, including the EEA States of Norway, Iceland and Liechtenstein.

78. Consequently, the first question is not manifestly hypothetical and is therefore admissible.

2. Answer to the question

a) Restriction

79. The measures prohibited by Article 56(1) EC, as restrictions on the movement of capital, include those which are likely 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. ( )

80. It must be made clear, first of all, that irrespective of the wording of the question, in assessing whether a restriction of the free movement of capital in this sense exists, it is not with dividends from international inter-company holdings that EEA portfolio dividends ( ) should be compared, but – as the Austrian, German and Netherlands Governments and the Commission have also submitted – with national portfolio dividends. Investors looking for opportunities for portfolio investments are not discouraged from making such an investment abroad on the ground that foreign inter-company holdings are treated better for tax purposes in Austria, but because a national portfolio holding is accorded more favourable tax treatment. On the other hand, as will be shown, the tax treatment of international inter-company holdings is relevant in terms of justification, that is to say, in the proportionality test.

81. Under Paragraph 10(1)(6) of the KStG, EEA portfolio dividends are exempt from corporation tax only where comprehensive procedures for mutual assistance with regard to administrative matters and enforcement exist with the EEA State in question. National portfolio dividends, on the other hand, are always tax-exempt.

82. The effect of such legislation is to discourage corporations established in Austria from investing their capital in the form of portfolio holdings in corporations established in the EEA States. This is the case at least where there is no agreement with regard to administrative matters and enforcement, as is the case in relation to Iceland and Liechtenstein, according to Haribo. Since the dividends from those holdings receive less favourable tax treatment than dividends distributed by a national corporation, they are less attractive to corporations established in Austria than national portfolio holdings. ( )

83. A provision like Paragraph 10(1)(6) of the KStG therefore results in a restriction of the movement of capital between Member States and EEA States which is prohibited in principle by Article 56(1) EC.

b) Justification

84. According to the case-law on Article 58(1)(a) and (3) EC, national tax legislation such as that at issue here is, however, capable of being regarded as compatible with the provisions of the Treaty on the free movement of capital inter alia where the difference in treatment concerns situations which are not objectively comparable. ( )

85. It has already been stated in the answer to the second question ( ) that national and foreign dividends are not, as a rule, comparable with regard to the method used to prevent economic double taxation. It is therefore essentially justified to apply the imputation method to foreign dividends and to make the application of the exemption method dependent on proof of advance charges to tax abroad.

86. In the view of the Austrian Government, comprehensive procedures for mutual assistance with regard to administrative matters and enforcement are required in the case of EEA portfolio dividends, since examining whether the imputation method is applicable under Paragraph 10(5) of the KStG, rather than the exemption method, calls for an exchange of information with the tax authorities of the State in which the corporation making the distribution is established. It is necessary, for example, to have information on whether the corporation making the distribution enjoys a comprehensive personal or subject‑based exemption from corporation tax. Only through a procedure for assistance with regard to administrative matters can it be clarified whether the foreign corporation is exempt from corporation tax in the State in which it is established, for example as a shipping company or as a venture capital vehicle. The Austrian Government adds that it is conceivable that an EEA corporation is interposed, by way of an abuse, between a non-member-state corporation and an Austrian corporation in order to evade corporation tax on the dividend distributions at the level of the Austrian parent company. Also, without procedures for mutual assistance with regard to administrative matters and enforcement there would not be the necessary information to be able to refuse tax exemption in the event of abuse.

87. The requirement of comprehensive procedures for mutual assistance with regard to administrative matters and enforcement is thus intended to ensure the proper application of the mechanism for preventing economic double taxation in the case of EEA portfolio dividends. Since national and EEA portfolio dividends are not in the same situation as regards the method for preventing economic double taxation, this also holds with regard to the means for ensuring the proper application of the method in question.

c) Proportionality

88. Even if there is therefore no comparability, the restrictive measure in question must, however, comply with the principle of proportionality. It must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it. ( ) Consideration must again be given to whether the criterion of the objective being pursued in a consistent and systematic manner may be of relevance. ( )

89. With regard to the enforcement assistance requirement, Haribo and the Commission are correct in their view that it is not appropriate for attaining the objective pursued. The matter at issue here is not enforcing a tax claim abroad, but solely a correct tax assessment for a national corporation.

90. The argument put forward by the Austrian Government at the hearing that enforcement assistance is necessary if the taxpayer moves away is not persuasive. Moving away is too remote a possibility to be capable of justifying making the prevention of the economic double taxation of EEA portfolio dividends consistently dependent on an enforcement assistance agreement.

91. In so far as a national provision like Paragraph 10(1)(6) of the KStG requires enforcement assistance in addition to assistance with regard to administrative matters in order for EEA portfolio dividends actually to be eligible for conditional tax exemption, it is not compatible with Article 56(1) EC since it is not appropriate for attaining the objective pursued by the restrictive measure.

92. The requirement for assistance with regard to administrative matters, on the other hand, could be justified in principle.

93. Thus, with regard to non-member States other than the EEA States, the Court held in A ( ) that it is compatible with the free movement of capital if a Member State makes the tax exemption of foreign dividends dependent on the existence of a taxation convention with the non-member State in question where that exemption is subject to conditions compliance with which can be verified by the competent authorities of the Member State only by obtaining information from the State of establishment of the distributing company.

94. The Swedish legislation at issue in that case did not give the Court any cause to undertake a separate examination of dividends from EEA States which are not members of the European Union. However, it follows from the judgment in Commission v Italy ( ) that the finding cited in the preceding point also applies to such EEA States. It is also apparent from that judgment that the requirement for assistance with regard to administrative matters is justified not only exceptionally, but that a fundamental verification requirement may exist.

95. Along similar lines, in his Opinion in Établissements Rimbaud, ( ) Advocate General Jääskinen took the view that, unlike in relations exclusively between Member States, because of the different legal context in relations between Member States and the EEA States the mechanisms laid down for cooperation between tax authorities cannot be replaced with documentary evidence provided by the taxpayer. I share this view. If the information submitted by the taxpayer is to be reliable it must also be possible to verify it.

96. The Court has now confirmed in its judgment in Établissements Rimbaud ( ) that it is in principle justified in relations with an EEA State to make the grant of a tax advantage conditional on the existence of a convention on administrative assistance that enables the information provided by the taxpayer to be effectively checked.

97. The tax exemption of EEA dividends may therefore be made dependent in principle on the existence of an agreement on administrative assistance with the State in which the company making the distribution is established.

98. Unlike in connection with the second question, ( ) however, I consider it permissible and necessary here also to examine the consistency of the national legislation in the context of proportionality. The requirement for assistance with regard to administrative matters does not relate to the discretion enjoyed by the national legislature in determining what income it wishes to tax and at what level, but concerns solely a measure to guarantee the effectiveness of fiscal supervision. The question can certainly be asked in this connection how seriously the legislature has done this.

99. It should be stated in this regard that the requirement for assistance with regard to administrative matters applies only to EEA portfolio dividends, but not to dividends from international, including EEA, inter-company holdings. Such holdings are exempt from tax under Paragraph 10(1)(7) of the KStG, provided they are not EEA inter-company holdings in corporations which do not engage in any business activities and are subject to low taxation abroad. The imputation method applies to the latter under Paragraph 10(4) and (6) of the KStG. However, assistance with regard to administrative matters is required neither for exemption nor for credit.

100. It may be that, as the German Government and the United Kingdom Government argue, the owner of an inter-company holding is better placed, on account of possessing greater influence on the fate of the foreign company, to produce all the necessary proof. That should be all the more true if, as the referring tribunal states, it may be virtually impossible, in the case of holdings through investment funds, for the holder of a portfolio investment to produce the relevant proof.

101. It is not evident, however, why there should be a difference with regard to the risk that erroneous information might be given by virtue of the size of the holding. ( ) Rather, it should be borne in mind that it would be unlawful under European Union law to make the general presumption that foreign portfolio holdings would be acquired or held only in order to evade taxes. A ground of justification based on the fight against tax evasion is permissible only if it concerns purely artificial contrivances, the aim of which is to circumvent tax law. ( )

102. Since the objective of effective fiscal supervision pursued by the requirement for assistance with regard to administrative matters is not pursued in a consistent and systematic manner it is disproportionate.

d) Conclusion

103. The answer to the first question in Haribo must therefore be that Article 56(1) EC is infringed if portfolio dividends from an EEA State which is not a member of the European Union are exempt from corporation tax only where procedures for mutual assistance with regard to administrative matters and enforcement exist, although this is not required in the case of dividends from foreign inter-company holdings.

C – The third question in Haribo

104. By its third question in Haribo, the referring tribunal is seeking to ascertain whether Article 56(1) EC is infringed if provision is not made, in respect of dividends from non-member-state holdings, for either exemption from corporation tax or crediting of corporation tax paid abroad in so far as portfolio holdings are concerned, whilst national portfolio dividends are exempt from tax.

1. Restriction

105. The measures prohibited by Article 56(1) EC, as restrictions on the movement of capital, include those which are likely 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. ( ) The Court has expressly refused to interpret the concept of restrictions on movements of capital in relations between Member States and non-member States differently from in relations exclusively between Member States. ( )

106. It is apparent from the examination of the second question that it is justified to reserve the exemption method for national dividends and only to grant a credit for the corporation tax paid abroad in the case of foreign dividends. ( ) The examination of whether a restriction of the free movement of capital exists must therefore concentrate on the fact that there is no possibility of crediting tax in the case of non-member-state portfolio dividends.

107. Since under Austrian law non-member-state portfolio dividends are always subject to full taxation in Austria even though the underlying corporate profits have already been taxed abroad, it is undoubtedly less attractive for a resident investor to acquire or retain such foreign, rather than national, portfolio holdings. Consequently, there is a restriction of the free movement of capital which is prohibited in principle under Article 56(1) EC.

2. Justification

108. It must therefore be examined whether that restriction of the free movement of capital is nevertheless permitted under the provisions of Articles 57 EC to 60 EC or is justified by an overriding reason in the public interest.

a) Particular characteristics of the non-member-state aspect

109. The Austrian, German, Italian, Netherlands and Finnish Governments take the view, with reference to the Court’s case-law, ( ) that criteria can be applied in relation to non-member States that differ from those for Member States.

110. The Court has indeed recognised that the liberalisation of the movement of capital to and from non-member States may pursue objectives other than those within the European Union, such as, in particular, that of ensuring the credibility of the single Community currency on world financial markets and maintaining financial centres with a world-wide dimension within the Member States. ( ) The Court has also found that movements of capital to or from non-member States take place in a different legal context. ( )

111. The Court has not taken these differences into account, in view of the clear wording of Article 56(1) EC and the scheme of Articles 56 EC to 60 EC, in determining whether a restriction exists which is prohibited in principle under Article 56(1) EC. However, it has attached importance to them in examining whether a restrictive measure is permissible under Articles 57 EC to 60 EC or on the basis of an overriding reason in the public interest. The extent to which the Member States are authorised to apply certain restrictive measures to the movement of capital to and from non-member States cannot be determined without taking account of the fact that such movement of capital takes place in a different legal context from that which occurs within the Community. ( )

112. The Court has therefore held that because of the degree of legal integration that exists between Member States of the European Union, in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities, such as Directive 77/799, the taxation by a Member State of economic activities having cross-border aspects which take place within the Community is not always comparable to that of economic activities involving relations between Member States and non-member States. ( )

113. Also, according to the Court it may be that a Member State will be able to demonstrate that a restriction on the movement of capital to or from non-member countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States. ( )

114. The words ‘not always comparable’ and ‘it may also be’ indicate, however, that the Court has not given the Member States carte blanche to impose restrictions on the movement of capital to and from non-member States. It would also be illogical to attribute the same scope to the prohibition of restrictions under Article 56(1) EC in the case of capital movements to and from non-member States as in the case of capital movements within the European Union, only to remove the importance of that prohibition at the level of justification. It should be borne in mind in particular that the Member States have already taken account of the particular characteristics of the movement of capital to and from non-member States by providing for safeguard clauses and derogations which apply specifically to the movement of capital to or from non-member States in Articles 57 EC, 59 EC and 60 EC. ( )

115. Against this background, it is now necessary to examine the individual grounds of justification cited by the various governments in the present proceedings.

b) Individual grounds of justification

i) Allocation of the power to impose taxes

116. The Austrian and the Finnish Governments argue that the need to safeguard the balanced allocation of the power to impose taxes between the Member States and non-member States can constitute an overriding reason in the public interest which justifies distinguishing, for tax purposes, between dividends from non‑member States and national dividends.

117. It should be stated in this regard that the Court has recognised the need to safeguard the balanced allocation of the power to impose taxes as an overriding reason in the public interest in relations between Member States, initially only in conjunction with other grounds of justification, but recently also by itself. ( ) However, the scope attached hitherto to this ground of justification in case-law is narrower than the term might suggest.

118. Thus, the need to safeguard the balanced allocation of the power to impose taxes may justify a restriction in particular where the restrictive measure in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its tax jurisdiction in relation to activities carried out in its territory. ( ) In this way, the Court has essentially accorded the Member States the right to prevent a taxpayer from freely transferring profits or losses, without regard to the place where they were made, from one Member State to another Member State, thereby undermining the allocation of the power to impose taxes.

119. It should be stated, at the outset, that this ground of justification, in the form outlined hitherto, could not justify the conferral of no possibility of credit for non-member-state portfolio dividends.

120. First, the case concerns not the power to impose taxes in respect of economic activities carried on in Austria, but taxation of foreign income, and, second, Austria’s power to impose taxes would not be jeopardised as such if, in the case of non-member-state portfolio dividends, it permitted the corporation tax levied in the non-member State on the profits used for that purpose to be credited. If and in so far as the foreign tax previously paid does not reach the level of the corporation tax paid on national dividends, national corporation tax must still be paid under the imputation method.

121. It is nevertheless open to question whether this ground of justification is to be attributed greater importance in relations with non-member States. Because of the diversity of the possible situations, however, it is not really possible to give a general answer to this question.

122. In the present context, which concerns whether, in the case of non-member-state portfolio dividends, the free movement of capital at least requires the possibility of grant of a credit for previously paid foreign corporation tax, a more lenient approach would ultimately lead back to the question whether the reduction in tax revenue can justify a refusal to grant a credit for tax. In so far as a requirement of reciprocity is also raised from the point of view of a balanced allocation of the power to impose taxes, I will examine it only in analysing that ground of justification.

123. Without any doubt, granting a credit for the corporation tax owed in a non‑member State can result in a reduction in national tax revenue.

124. It has been consistently held in case-law that reduction in tax revenue cannot in itself be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is, in principle, contrary to a fundamental freedom. ( ) The Court has not ruled thus far whether this also holds in relation to non-member States. ( )

125. Even though it would appear to be justified to question the spirit and purpose of a free movement of capital to and from non-member States that is guaranteed unilaterally by the European Union, the fact remains that the Member States have made an unequivocal commitment to it in Article 56(1) EC. It would be difficult to reconcile with this clear commitment to the free movement of capital to and from non-member States a view that restrictions on such movement of capital resulting from national tax law are lawful simply because tax revenue might otherwise be reduced. Such an understanding would therefore mean that tax law is effectively removed from the scope of the rules on the free movement of capital. It would thus be made possible to restrict that movement of capital not only exceptionally, but systematically and disregarding the special rules laid down in Article 57 EC et seq., in that all the tax advantages which are granted in the case of domestic holdings could in particular be denied with regard to non‑member-state holdings, even though the situation of the holder is no different having regard to the objective of the underlying rules.

126. The refusal to apply the imputation method in the case of non‑member‑state portfolio dividends cannot therefore be justified either by the reduction in tax revenue or by the need to safeguard the balanced allocation of the power to impose taxes between the Member States and non-member States.

ii) Reciprocity

127. The Austrian, German, Netherlands and Finnish Governments also argue that the Member States’ obligation to treat companies from each other Member State like national companies with regard to tax advantages is based on the principle of reciprocity. In relations with non-member States, on the other hand, there is no such reciprocity. If the obligation to accord national treatment to non‑member-state dividends nevertheless existed, this would impair the negotiating position of the Member States vis-à-vis non-member States with regard to the conclusion of double taxation conventions, which are not only intended to safeguard a balanced allocation of the power to impose taxes, but also serve to combat the black economy and crime.

128. The Austrian Government further argues that protection of tax revenue is not merely based on economic motives, but is also intended to ensure international fiscal neutrality in the internal market. Unlike other Member States, non-member States are not required to accept a comparable loss of the tax base. Furthermore, in the case of non-member States there is a lack of mechanisms for safeguarding a financial balance, as provided for in the EC Treaty, inter alia through the possibility of approximation of laws.

129. Recognition of a reciprocity requirement in relations with non-member States may be tempting, but it runs counter to the wording and scheme of Article 56 EC et seq. The Member States have expressly resolved unilaterally to liberalise capital movements to and from non-member States and thus specifically renounced reciprocity. If a reciprocity requirement were now recognised at the level of justification, that would be difficult to reconcile with unilateral liberalisation. For that reason, the other arguments put forward by the Austrian Government must also be rejected. With regard to the absence of an instrument for approximation of laws in relations with non-member States, it must also be pointed out that such an instrument does exist at European Union level, but that it has not been used thus far with regard to the taxation of portfolio holdings.

iii) Fiscal supervision

130. Lastly, as regards the need to guarantee the effectiveness of fiscal supervision, as recognised by case-law, it has been made clear in connection with the first question ( ) that in the case of non-member States the imputation method may be linked to the requirement that an agreement on administrative assistance exists with the non-member State in question, enabling the tax authorities of the Member State in question to verify that the conditions for the grant of the tax advantage represented by the credit are actually satisfied. In this respect the negotiating position of the Member State concerned is not affected by the fact that it may be required under Article 56(1) EC to permit in principle the crediting of foreign corporation tax.

131. The need to guarantee the effectiveness of fiscal supervision cannot be relied on here as a ground of justification because under the KStG grant of a credit for foreign corporation tax previously paid on non-member-state portfolio dividends is refused irrespective of the existence of an agreement on administrative assistance.

c) Conclusion

132. Since none of the grounds put forward can justify the fact that no provision is made for the possibility of granting a credit for foreign corporation tax previously paid in the case of non-member-state portfolio dividends, there is an infringement of Article 56(1) EC.

133. The answer to the third question in Haribo must therefore be that Article 56(1) EC is infringed if provision is not made, in respect of dividends from non-member-state holdings, for crediting of corporation tax paid abroad in so far as portfolio holdings are concerned, whilst national portfolio dividends are exempt from tax.

D – Questions 4, 4.1 and 4.2 in Haribo

134. By Questions 4, 4.1 and 4.2 in Haribo, the referring tribunal is seeking to ascertain whether economic double taxation of non-member-state portfolio dividends which infringes Article 56(1) EC must be prevented by the competent national authorities or courts through the application of the exemption laid down for other dividends or whether granting a credit for the previously paid foreign corporation tax is sufficient in this regard. It would also like to know whether the correctly chosen method – as there is also no such requirement in national law in the case of non-member-state inter-company holdings – is to be applied even where there are no comprehensive procedures for mutual assistance with regard to administrative matters and enforcement.

135. The answer to these questions is largely evident from the answers to the first three questions in Haribo.

136. Thus, the examination of the second question has revealed that it is justified to reserve the exemption method for national dividends and in the case of foreign dividends only to provide for the possibility of granting a credit for the corporation tax paid abroad. This holds even where proof of the corporation tax paid abroad cannot be provided, or can be provided only with disproportionate effort. The examination of the third question has shown that it is not justified not to provide, in respect of dividends from non-member-state holdings, for the crediting of corporation tax paid abroad in so far as portfolio holdings are concerned, whilst national portfolio dividends are exempt from tax.

137. Consequently, economic double taxation of non-member-state portfolio dividends which infringes Article 56(1) EC may in principle be eliminated by their holders being given the possibility of being granted a credit for the previously paid foreign corporation tax.

138. However, here too regard must be had to the more recent case-law according to which national legislation which restricts the fundamental freedoms is proportionate only if it reflects a concern to attain the objective pursued in a consistent and systematic manner. ( ) This must also apply to the solution adopted by the competent national authorities and courts with a view to eliminating the economic double taxation of non-member-state portfolio dividends which infringes European Union law.

139. If, as in the present instances, national law makes provision with regard to similar portfolio dividends from other EU/EEA States not only for the grant of a credit for previously paid foreign corporation tax, but for the application of a conditional exemption method with a possible switchover to the imputation method, it would be disproportionate – since it is inconsistent – solely to apply the imputation method to non-member-state portfolio dividends.

140. So far as the requirement of comprehensive procedures for mutual assistance with regard to administrative matters and enforcement is concerned, it has been found in the answer to the first ( ) question in Haribo, in relation to EEA portfolio dividends, that such a requirement is disproportionate: procedures for assistance with regard to enforcement are not necessary because the taxation of resident corporations is involved and the requirement of assistance with regard to administrative matters is inconsistent, as it is not required in the case of international inter-company holdings.

141. These findings can be readily applied to non-member-state portfolio dividends. Procedures for assistance with regard to enforcement are as unnecessary here as for EEA portfolio dividends. On the other hand, it is justified in principle to make the tax advantage of conditional exemption and/or grant of a credit dependent on the existence of an agreement on administrative assistance with the State in which the company making the distribution is established. However, since there is no such requirement for dividends from non-member-state inter-company holdings under the Austrian legislation, it would be inconsistent and therefore disproportionate to require it in the case of non-member-state portfolio dividends.

142. The answer to Questions 4, 4.1 and 4.2 in Haribo must therefore be that national authorities or courts may in principle eliminate systematic economic double taxation of non-member-state portfolio dividends which infringes Article 56(1) EC by giving their holders the possibility of being granted a credit for the previously paid foreign corporation tax. If, however, national law makes provision with regard to similar portfolio dividends from other EU/EEA States for a conditional exemption method with a possible switchover to the imputation method, it would be disproportionate solely to apply the imputation method to non-member-state portfolio dividends. Grant of a credit or conditional exemption may in principle be made dependent on the existence of a comprehensive agreement on administrative assistance with the non-member State in question. If, however, there is no administrative assistance requirement for dividends from non-member-state inter-company holdings in so far as only a credit or conditional exemption is granted for them too, it would be disproportionate to demand it in the case of non-member-state portfolio dividends.

E – The two questions in Österreichische Salinen

143. By its two questions in Österreichische Salinen, the referring tribunal is seeking to ascertain whether Article 56(1) EC is infringed if under the imputation method foreign portfolio dividends are ultimately subject to double taxation in a year of loss because they reduce the possible loss carried forward to subsequent years and the corporation tax and withholding tax to be credited likewise cannot be carried forward or taken into consideration in some other way, whilst national portfolio dividends are always exempt from corporation tax.

1. Admissibility of the questions

144. The Austrian Government considers both these questions to be inadmissible because they are manifestly irrelevant to the decision in the main proceedings. It states that the question whether a carrying-forward of credit for a subsequent year is to be granted is irrelevant to the notice of assessment to corporation tax for 2002 to which the main proceedings relate.

145. The referring tribunal does not only wish to know, however, whether a carrying-forward of credit is to be granted for the years following the loss year 2002. Rather, it is apparent from the order for reference that it also questions the equivalence of the exemption and imputation methods because, if the imputation method is applied without the credit being carried forward in the event of a loss, foreign dividends would ultimately be subject to double taxation. Seen from this perspective, the questions are not manifestly irrelevant to the decision in the main proceedings.

146. The two questions are therefore admissible.

2. Answer to the questions

147. So far as the withholding tax mentioned in the questions is concerned, it should be borne in mind that the levying of such tax can lead not to economic, but to juridical, double taxation. This situation is created because different States exercise their power to impose taxes in respect of the shareholder – the State in which the company making the distribution is established, in the form of withholding tax which is to be retained by the company, and the State in which the shareholder is resident, in the form of income and corporation tax.

148. However, European Union law as it stands at present does not contain a general prohibition of juridical double taxation. ( ) Consequently, it is likewise not possible to infer from European Union law a general duty on the part of the Member State in which the shareholder is resident to eliminate such juridical double taxation by crediting the foreign withholding tax. ( ) If, however, European Union law does not require a credit to be granted for withholding tax, equally no obligation can arise to eliminate the effects of that taxation, not in a certain tax year in which they cannot be eliminated by a credit on account of the loss situation, but through the carrying-forward of credit for a subsequent year or in some other way.

149. The questions must therefore be examined only with regard to the corporation tax creditable.

150. If a national corporation records a loss in a certain tax year and the foreign dividends are included in the tax base under the imputation method, the losses are reduced by the amount of the dividends. If national law makes provision for the possibility of carrying forward losses to subsequent years, as in the present case, the possible loss carried forward is therefore also reduced by the corresponding amount. Since in a subsequent year in which a profit is recorded only the losses made in the year of loss reduced by the foreign dividends may be deducted from the taxable profits, the amount of the dividends is re-included in the tax base for the profit year and results in correspondingly higher corporation tax in that year.

151. If the foreign corporation tax previously paid on the foreign dividends could no longer be credited in that subsequent year or taken into account in some other way, there would, in the final analysis, be double taxation which, as the referring tribunal states, is specifically to be prevented by the imputation method.

152. In the case of national dividends, on the other hand, economic double taxation is definitively prevented. As an exemption from corporation tax applies to such dividends, they are not included in the tax base and also cannot therefore result in the loss being reduced in years of loss. The losses can thus be carried over in full to subsequent years.

153. I share the view taken by Haribo, the Netherlands Government and the Commission that such discrimination against foreign portfolio dividends is not compatible with Article 56(1) EC. The application of the imputation method to those dividends in years of loss results in a disproportionate restriction of the free movement of capital if, alongside the possibility of carrying forward losses, there is not also the possibility of reducing tax by taking into account in the necessary amount the foreign corporation tax previously paid by carrying forward the credit or in some other way.

154. The Austrian Government bases its view that no carrying-forward of credit or credit entry is required on paragraph 52 of the judgment in Test Claimants in the FII Group Litigation, ( ) according to which a tax credit must be granted only up to the limit of the amount of corporation tax for which the company receiving the dividends is liable. If no domestic tax at all is payable because a loss has been sustained, no grant of a credit for the foreign tax burden or credit entry is required either.

155. However, this argument disregards the fact that, in the passage referred to, the Court merely stated that the prevention of economic double taxation by means of the imputation method must not go so far that the Member State in which the recipient company is established refunds to the recipient the – higher – tax levied abroad, going beyond the credit. That Member State is not required to adjust the overall corporation tax burden on the dividends downward to the national level. Economic double taxation must be prevented only at the amount of the national level of taxation.

156. It will not be prevented, however, if in a year of loss the domestic recipient company does not receive a credit because there is no national tax burden against which a credit might be granted, but the loss carried forward is reduced by the amount of the foreign dividends and national corporation tax is thus imposed indirectly on those dividends in subsequent years.

157. The Court has already dealt with a similar problem in connection with the parent-subsidiary directive. ( ) The judgment in Cobelfret ( ) and the order in KBC‑Bank ( ) concerned Belgian legislation which had the effect of reducing the losses of the parent company by the amount of the dividends received when the parent company did not make other taxable profits in the tax period concerned. Since Belgian tax legislation allowed losses to be carried forward, the reduction of the losses of the parent company which could be carried forward could have the effect, even if the dividends received by the parent company were not subject to corporation tax for the tax year in the course of which those dividends were distributed, that the parent company was subject indirectly to taxation on those dividends in subsequent tax years when its results were positive. The Court found that in such a situation the objective of preventing economic double taxation was not attained.

158. The argument put forward by the Austrian Government must therefore be rejected.

159. The Italian Government takes the view that it cannot be ruled out a priori that, in the corporate group to which the company receiving the dividends and the non-resident company making the distribution belong, practices arise by which the dividends are transferred to the loss-making company, so that that company cannot be taxed, on account of the loss, and the tax exemption of the dividends is also maintained in subsequent years (by carrying forward a credit). In its submission, it can be inferred by way of analogy from the judgment in Glaxo Wellcome ( ) that legislation which, like that at issue, does not provide for a carrying-forward of the credit does not go beyond what is necessary to safeguard the balanced allocation of the power to impose taxes between the Member States and to prevent wholly artificial arrangements which do not reflect economic reality and whose purpose is to obtain an unlawful tax advantage. It is ultimately for the referring tribunal to assess this.

160. That argument cannot hold in the present case because the case does not concern dividend payments within corporate groups, but dividends from portfolio investments which are held collectively with other investors through a domestic investment fund. The wholly artificial arrangements within a corporate group mentioned by the Italian Government appear to be ruled out here.

161. Finally, I would like to point out for clarification purposes that the above considerations apply without distinction to portfolio dividends from EU/EEA States and from non-member States. As is clear from the answer to the third question in Haribo, at least the possibility of crediting must also be granted in the case of portfolio dividends from non-member States if economic double taxation is prevented by way of exemption in the case of national portfolio dividends. Where the recipient company sustains a loss, the problem under consideration therefore exists irrespective of the precise origin of the foreign portfolio dividends.

162. The answer to the two questions in Österreichische Salinen must therefore be that Article 56(1) EC is infringed if under the imputation method foreign portfolio dividends are ultimately subject to double taxation in a year of loss because they reduce the possible loss carried forward to subsequent years and the corporation tax to be credited likewise cannot be carried forward or taken into consideration in some other way, whilst national portfolio dividends are always exempt from corporation tax.

IV – Conclusion

163. In the light of the foregoing considerations, I propose that the Court answer the questions referred by the Unabhängiger Finanzsenat, Außenstelle Linz, in Case C-436/08 (Haribo) as follows:

(1) Article 56(1) EC is not infringed if domestic corporations must, as a rule, pay corporation tax on portfolio dividends from other EU/EEA States because it is impossible or barely possible for them to provide the information on foreign corporation tax previously paid which is required for exemption or at least for credit, whilst national portfolio dividends are always exempt.

(2) Article 56(1) EC is infringed if portfolio dividends from an EEA State which is not a member of the European Union are exempt from corporation tax only where procedures for mutual assistance with regard to administrative matters and enforcement exist, although this is not required in the case of dividends from foreign inter-company holdings.

(3) Article 56(1) EC is infringed if provision is not made, in respect of dividends from non-member-state holdings, for crediting of corporation tax paid abroad in so far as portfolio holdings are concerned, whilst national portfolio dividends are exempt from tax.

(4) National authorities or courts may in principle eliminate systematic economic double taxation of non-member-state portfolio dividends which infringes Article 56(1) EC by giving their holders the possibility of being granted a credit for the previously paid foreign corporation tax. If, however, national law makes provision with regard to similar portfolio dividends from other EU/EEA States for a conditional exemption method with a possible switchover to the imputation method, it would be disproportionate solely to apply the imputation method to non-member-state portfolio dividends. Grant of a credit or conditional exemption may in principle be made dependent on the existence of a comprehensive agreement on administrative assistance with the non-member State in question. If, however, there is no administrative assistance requirement for dividends from non-member-state inter-company holdings in so far as only a credit or conditional exemption is granted for them too, it would be disproportionate to demand it in the case of non-member-state portfolio dividends.

164. Furthermore, I propose that the Court answer the questions referred by the Unabhängiger Finanzsenat, Außenstelle Linz, in Case C‑437/08 (Österreichische Salinen) as follows:

Article 56(1) EC is infringed if under the imputation method foreign portfolio dividends are ultimately subject to double taxation in a year of loss because they reduce the possible loss carried forward to subsequent years and the corporation tax to be credited likewise cannot be carried forward or taken into consideration in some other way, whilst national portfolio dividends are always exempt from corporation tax.