OPINION OF ADVOCATE GENERAL

MENGOZZI

delivered on 18 December 2014 ( 1 )

Case C‑560/13

Finanzamt Ulm

v

Ingeborg Wagner-Raith, successor in title to Maria Schweier

(Request for a preliminary ruling from the Bundesfinanzhof (Germany))

‛Question not referred for a preliminary ruling — Free movement of capital — Article 73c of the EC Treaty — Article 57 EC — ‘Standstill’ clause — Third country — Overseas countries and territories (OCTs) — Legislation of a Member State which provides for the flat-rate taxation of income from foreign investment funds that do not send investors a breakdown of the profits (‘schwarze Fonds’) — Provision of financial services — Direct investment’

I – Introduction

1. By the present request for a preliminary ruling, the Bundesfinanzhof (Federal Finance Court, Germany) raises questions about the scope of the words ‘movement of capital to or from third countries involving direct investment [or] the provision of financial services’, contained in Article 73c of the EC Treaty and, from 1 May 1999, Article 57(1) EC. ( 2 )

2. This request has arisen from a dispute between Ms Wagner-Raith, the successor in title to Ms Maria Schweier, and the Finanzamt Ulm (Tax Office, Ulm) concerning the taxation of investment income from holdings in investment funds established in the Cayman Islands, in respect of the tax years 1997 to 2003.

3. It is common ground that, throughout the period at issue, the taxation in Germany of holders of units in investment funds was governed by the Law on the Sale of Foreign Investment Units and the Taxation of Income from Foreign Investment Units (Gesetz über den Vertrieb ausländischer Investmentanteile und über die Besteuerung der Erträge aus ausländischen Investmentanteilen) ( 3 ) (‘the AuslInvestmG’), which distinguished between three categories of foreign investment fund — commonly termed ‘white’, ‘grey’ and ‘black’ funds respectively — depending on the extent to which those funds complied with the provisions of the AuslInvestmG.

4. Thus, under Paragraph 17(3) of the AuslInvestmG, a fund was regarded as falling within the first category if the foreign investment company had either notified the German supervisory authority of its intention to sell units in foreign investment funds to the public in Germany or, if those units had been admitted to official trading or the regulated market on a German stock exchange, had appointed an agent established in Germany, and, in addition, satisfied certain notification and publication obligations. In that case, unit-holders were generally taxed in accordance with the same principles of ‘transparency’ as holders of units in a fund set up by a German investment company, that is to say, as if they had themselves directly earned the income derived from their holdings in the collective portfolio. ( 4 ) The basis of assessment consisted of the profits actually distributed as well as certain items of income that could be equated with distributed profits. ( 5 )

5. If a foreign investment company did not satisfy the requirements of Paragraph 17(3) of the AuslInvestmG, but furnished proof, in the form of documentation, of the distribution of actual profits as well as of certain ‘income to be regarded as distributed’ and, in addition, appointed an agent established in Germany, pursuant to Paragraph 18(2) of the AuslInvestmG, then the fund fell within the category of ‘grey’ funds. In that case, unit-holders were in principle taxed in the same way as in the case of ‘white’ funds, in accordance with Paragraph 18(1) of the AuslInvestmG.

6. If a foreign investment company did not satisfy either the requirements of Paragraph 17(3) of the AuslInvestmG or those of Paragraph 18(2) of that law, the fund was regarded as being a ‘black’ fund, the taxation of unit-holders of which was governed by Paragraph 18(3). That provision stated that a lump sum was to be deemed to have been distributed and attributed to unit-holders. That lump sum represented 90% of the positive difference between the first and last redemption prices of the unit established in the course of the calendar year, and amounted to at least 10% of the final redemption price established during the financial year. If no such redemption price was established, the stock exchange or market value was to be applied. That lump sum was mandatory and could not be challenged by furnishing proof to the contrary based, in particular, on accounting documents attesting to the income earned but not distributed to unit-holders.

7. The dispute in the main proceedings arose precisely as a result of the application of the flat-rate taxation regime relating to investment income from black funds.

8. Ms Schweier, the holder of an account with LGT Bank in Liechtenstein AG (‘LGT Bank’) comprising, inter alia, holdings in investment funds established in the Cayman Islands, declared her income for the years 1997 to 2003 to the German tax authorities, enclosing, in reliance upon Paragraph 18(3) of the AuslInvestmG, documents which LGT Bank had supplied to her.

9. The German tax authorities amended the tax assessment notices for the years in question and determined for each of those years the amount of investment income which had accrued to Ms Schweier from the funds at LGT Bank, the total amounting to more than EUR 623 000.

10. Ms Schweier lodged an objection against that decision, claiming that the flat-rate taxation provided for in Paragraph 18(3) of the AuslInvestmG was incompatible with the free movement of capital, and asked the German tax authorities to assess her actual income in accordance with Paragraph 18(1) of that law, while making available to them the documents and calculations necessary for that purpose.

11. After the German tax authorities dismissed her objection, Ms Schweier brought proceedings before the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg), which largely upheld the action, holding that Paragraph 18(3) of the AuslInvestmG was contrary to the free movement of capital. As a result, that court amended the calculation of the amount of investment income received by Ms Schweier during each of the tax years in question, on the basis of the actual profits evaluated by her. The total amount arrived at by that court was in the region of EUR 285 000.

12. The German tax authorities then lodged before the Bundesfinanzhof an appeal on a point of law in which they claimed that Paragraph 18(3) of the AuslInvestmG was covered by the ‘standstill’ clause in Article 57(1) EC regarding capital movements between Member States and third countries. Those authorities took the view that that provision should apply in a dispute such as that in the main proceedings because the situations governed by the AuslInvestmG relate either to the provision of financial services or to the concept of ‘direct investment’, within the meaning of Article 57(1) EC.

13. The Bundesfinanzhof takes the view that, whereas the AuslInvestmG satisfies the conditions ratione temporis and ratione personae laid down in Article 57(1) EC, since that legislation has remained essentially unchanged since 31 December 1993 and relates in this instance to units in investment funds whose management companies were established in a third country, the condition ratione materiae appears not to be satisfied and the appeal on a point of law brought by the German tax authorities would on that basis have to be dismissed. According to the referring court, there is no doubt that, if Article 57(1) EC is not applicable in the main proceedings, as that court is inclined to consider, the flat-rate taxation provided for in Paragraph 18(3) of the AuslInvestmG, combined, first, with the fact that it is impossible for an investor to furnish proof of the actual amount of his income where an investment fund does not satisfy the conditions laid down in Paragraph 17(3) of that law and, second, with the fact that no agent has been appointed in accordance with Paragraph 18(2) of that law, is manifestly not compatible with the free movement of capital provided for in Article 56 EC and cannot be justified by reference to the provisions of Article 58 EC or by overriding reasons in the public interest. Consequently, with reference to the judgment in Cilfit and Others, ( 6 ) the referring court considers that there is no need to refer a question concerning the interpretation of Articles 56 EC and 58 EC.

14. However, since there might still be some doubts as to the substantive scope of Article 57(1) EC, in particular following the judgment in VBV — Vorsorgekasse ( 7 ) concerning the interpretation of the concept of direct investment, the Bundesfinanzhof decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling: ‘1. In the case of holdings in third-country funds, does the free movement of capital provided for in Article [56 EC] not preclude national legislation (in this instance Paragraph 18(3) of the AuslInvestmG) which provides that, in certain circumstances, national investors in foreign investment funds are deemed to have received, in addition to distributions, notional earnings in the amount of 90% of the difference between the first and last redemption price of the year, but of at least 10% of the final redemption price (or of the stock exchange or market value), because that legislation, which has essentially remained unchanged since 31 December 1993, is concerned with the provision of financial services within the meaning of the [“standstill” clause] contained in [Article 57(1) EC]? If the answer to Question 1 is in the negative: 2. Does the holding in such an investment fund established in a third country always constitute a direct investment within the meaning of Article [57(1) EC] or is the answer to this question dependent on whether, under the national law of the State in which the investment fund is established or on other grounds, the holding allows the investor to be actually involved in the management or control of the investment fund?’

15. Written observations on those questions have been submitted by the German, Italian and United Kingdom Governments and the European Commission. Ms Wagner-Raith, the German Government and the Commission also presented oral argument at the hearing held on 20 November 2014, at which the other parties were not represented.

II – Analysis

A – The scope of the reference for a preliminary ruling

16. As is clear from the wording of, and the reasoning set out in, the request for a preliminary ruling, the referring court’s questions are concerned only with the interpretation of Article 57(1) EC, to the exclusion of Article 56 EC, which, of course, prohibits all restrictions on capital movements between Member States and between Member States and third countries.

17. Taking the view that the tax regime at issue in the dispute in the main proceedings is manifestly incompatible with the free movement of capital provided for in Article 56 EC, the referring court thus considers, unequivocally, that there is no need to refer a question to the Court in this regard.

18. The Court’s answer must therefore start from the premiss that the tax regime in question, which is applicable to investors holding units in black investment funds, is, in principle, contrary to Article 56 EC.

19. It is true, as I have already had occasion to note, that, with a view to giving an answer that will be of use to the referring court and despite that court’s delimitation of the reference for a preliminary ruling, the Court sometimes allows itself either to verify, in the light of the facts at issue in the case in the main proceedings and the arguments put forward by the interested parties during the proceedings, whether a provision of EU law which was not the subject of the request for a preliminary ruling is nevertheless capable of being applicable to the proceedings or to reformulate the questions raised so as to include in the interpretation of EU law one or more provisions of EU law at the request of the parties or of its own motion. ( 8 )

20. However legitimate and commendable it may be, that approach, which, moreover, the Commission asks the Court to take in this instance, must nevertheless be reconciled with the general line of case-law to the effect that it is for the referring court alone to determine the subject-matter and wording of the questions which it intends to refer to the Court. ( 9 ) That approach must also accord with the case-law, which the referring court moreover cites, recognising that a court or tribunal against whose decisions there is no judicial remedy under national law is not automatically bound to refer a question to the Court about a provision of EU law which it has to apply to a dispute before it, in particular if the point of law at issue has been resolved by established case-law of the Court or if the correct application of EU law is so obvious as to leave no scope for any reasonable doubt. ( 10 )

21. In a situation such as that in this case, where, although presented with a reference for a preliminary ruling under Article 267 TFEU, the Court nevertheless has not been entrusted by the referring court with the task of providing an answer to all of the points of EU law raised before that court, I consider that the Court must, in principle, show restraint by confining itself to answering only the questions that have been referred to it concerning the interpretation of Article 57 EC, and not extend the subject-matter of the request for a preliminary ruling to the question that was deliberately not referred, that is to say, the interpretation of Article 56 EC.

22. As I indicated in point 19 of my Opinion in Fonnship and Svenska Transportarbetareförbundet, ( 11 ) it follows from the Court’s case-law that the Court has to date systematically refrained from modifying or extending the subject-matter of a request for a preliminary ruling beyond the framework defined by the national court where that court, explicitly or implicitly, refuses to refer a (further) question on the interpretation of EU law which has been expressly raised before it by a party to the main proceedings.

23. That approach was not invalidated by the judgment in Fonnship and Svenska Transportarbetareförbundet, ( 12 ) since the Court, sitting as the Grand Chamber, confined itself to answering the question which had been put to it by the national court of last instance.

24. Although the procedural issue in the present case has arisen in a context different from that which gave rise to Fonnship and Svenska Transportarbetareförbundet, it none the less does not differ therefrom to such an extent as to make it appropriate to suggest that the Court should address the question which has not been submitted to it.

25. First of all, the fact that, in principle, the question not referred by the national court is, logically, one that is preliminary to the examination of the question which it decided to put to the Court, whereas the reverse was true in Fonnship and Svenska Transportarbetareförbundet, should not, in my opinion, be of any particular consequence.

26. As I have already said, and as the Italian and United Kingdom Governments understood entirely in their written observations, it is in fact entirely conceivable that the Court, in order to answer the question referred, simply proceeds on the assumption or the premiss that the tax regime at issue is contrary to Article 56 EC, it being for the referring court, once the Court has answered the question referred, to confirm in its final decision, if necessary, the analysis which it contemplates in its request for a preliminary ruling with respect to the application of Article 56 EC.

27. Indeed, from that point of view, the aforementioned situation is not so different from that with which the Court was faced in the judgment in Pedro IV Servicios. ( 13 ) In that case, the Court had received a request for the interpretation of block exemption regulations applying Article 81(3) EC to categories of exclusive purchasing agreements and vertical agreements between undertakings, even though the referring court had not in any way raised the, necessarily prior, question of whether the agreements at issue in that case actually infringed Article 81(1) EC.

28. Having found, in essence, that there was nothing to stop it answering the questions referred relating to the interpretation of the block exemption regulations, without any need to embark first of all on a complex economic and legal examination of the conditions governing the application of Article 81(1) EC and in the light of the judgment in Cilfit and Others (EU:C:1982:335), ( 14 ) the Court confined itself to answering only the questions that had been referred to it.

29. It is true that, unlike the situations that gave rise to Pedro IV Servicios and Fonnship and Svenska Transportarbetareförbundet, in which the national courts had not given any indication of the lines along which they planned to dispose of the questions not submitted to the Court, the referring court makes unequivocally clear in the grounds of its request for a preliminary ruling its intention to reject the argument put forward by the German tax authorities and the German Government to the effect that the regime established by Paragraph 18(3) of the AuslInvestmG is compatible with Article 56 EC or justified by overriding reasons in the public interest.

30. I do not think that it must be concluded from this that it is the referring court’s intention to seek explicit confirmation from the Court for the answer which it proposes to give to the question not referred to the Court, given that, in specifically mentioning the degree of discretion available to the national courts, including courts of last instance, since the judgment in Cilfit and Others (EU:C:1982:335), the referring court clearly considers it to be obvious from the Court’s case-law that Paragraph 18(3) of the AuslInvestmG infringes the free movement of capital enshrined in Article 56 EC.

31. I see this position of open sincere cooperation, rather, as a desire to provide, first of all, the governments of the Member States and the interested parties as referred to in Article 23 of the Statute of the Court of Justice of the European Union, to whom the request for a preliminary ruling is notified and, next, the Court itself with an opportunity to challenge the interpretation advocated by the referring court if the proposed answer to the question not referred by that court rests on a manifestly erroneous interpretation of the provisions of EU law or is based on clearly incorrect legal premisses.

32. In such a situation, I consider that it would in fact be of paramount importance, in the light of the need to ensure the uniform interpretation of EU law and protect the rights of individuals, that the Court should be able to rectify such errors on the part of a court of last instance, even though they relate to a question which such a court has intentionally declined to put to it. ( 15 )

33. Those are not, however, the circumstances of this case.

34. Far from being manifestly erroneous, the referring court’s assessment warrants endorsement, as the dissuasive nature of the tax regime at issue is entirely beyond doubt, as the Commission, too, submitted in its written observations.

35. In this instance, while holdings in national investment funds are never taxed on a flat-rate basis, holdings in foreign funds are, and, indeed, in the case of black funds, compulsorily so, without any possibility for unit-holders to prove the actual level of income received. As the situation involving the investment income received by Ms Wagner-Raith illustrates, the basis of assessment used for flat-rate taxation is considerably higher than the basis of assessment formed from actual income that is used in the case of white or grey funds, both for the entire period from 1997 to 2003 and for each individual tax year.

36. Moreover, it must be pointed out that, in its recent judgment in van Caster, ( 16 ) the Court held that the German legislation which, from 2003, replaced the tax regime at issue in the main proceedings was contrary to the free movement of capital.

37. Relying on its case-law, the Court thus held that the free movement of capital precludes national legislation, such as that giving rise to that judgment, which provides that the failure by a non-resident investment fund to comply with the obligations to communicate and publish certain information required by that legislation, which are applicable without distinction to resident and non-resident funds alike, results in the flat-rate taxation of the income that the taxpayer earns from that investment fund, since that legislation does not allow the taxpayer to provide evidence or information that could prove the actual size of that income. ( 17 )

38. It is undeniable that such an assessment is at the very least transposable to the regime established by Paragraph 18(3) of the AuslInvestmG.

39. Lastly, that assessment should not be invalidated by the fact, specific to the main proceedings, that Ms Schweier purchased units in investment funds established in an overseas country and territory (‘OCT’) that is a dependency of the United Kingdom — in this case the Cayman Islands, ( 18 ) which is among the OCTs listed, first, in Annex IV to the EEC Treaty, following the Act of Accession of the United Kingdom, ( 19 ) and then in Annex II to the EC Treaty.

40. It should be noted that, since the European Economic Community was established, the bases of the legal status of OCTs have remained fundamentally unchanged. ( 20 ) Those entities, although legally and/or constitutionally linked to a Member State, are excluded from the territorial scope of the Treaties, as was made clear, under the EEC Treaty, in Article 227(3) thereof and, under the EC Treaty, in Article 299(3) thereof, but benefit from ‘the special arrangements for association set out in Part Four’ of those respective Treaties. This is still the case under the FEU Treaty. ( 21 )

41. The purpose of those special arrangements is to promote the economic and social development of the OCTs and to establish close economic relations between them and the Community (the European Union) as a whole. ( 22 )

42. The existence of such special arrangements for association with countries and territories that are linked to certain Member States but are not European raises a number of issues in connection with whether they are to be treated as Member States or as third countries for the purposes of determining the applicability to them of the general provisions of the Treaties, issues in respect of which the Court has not responded unambiguously, probably because of the hybrid nature of those entities and the sui generis nature of the association that links them to the European Union. ( 23 )

43. At least when it comes to applying the fundamental freedoms of movement granted by EU law, the starting point for the Court’s reasoning is the finding that, because of their special association arrangements, the general provisions of EU law do not, failing express reference, apply to OCTs. ( 24 )

44. Although Part Four of the successive Treaties does not contain any provision relating to the free movement of capital, the Court has nevertheless not inferred from this that such provisions were not applicable to OCTs. Since that freedom also extends to third countries, it would have been at the very least incongruous if entities benefiting from special association arrangements intended to establish close economic relations with the European Union could not benefit from a freedom specifically extended to all third countries. That is why, in its judgment in Prunus and Polonium, concerning the taxation of direct investments made in France by a company established in the British Virgin Islands, the Court held that OCTs benefit from the liberalisation of the movement of capital provided for in Article 63 TFEU in their capacity as third countries, ( 25 ) even though, in my opinion, it would have been more correct to say that OCTs benefit from a liberalisation of the movement of capital equivalent to that afforded to third countries, taking into account the sui generis nature of their status.

45. Thus, as regards the classification of a national measure as constituting a restriction on movements of capital between Member States and OCTs, the Court’s assessment in the judgment in Prunus and Polonium (EU:C:2011:276), which extends the application of Article 63 TFEU to OCTs, is valid in so far as no specific provision, at the very least equivalent in scope to Article 63 TFEU, governs those movements.

46. There was no such provision during the period that elapsed between the entry into force of the Maastricht Treaty — that is to say, the liberalisation in principle of free movements of capital in relation to third countries too, as provided for in Article 73b of the EC Treaty — and 2 December 2001, since the Council did not adopt any decision under Part Four of the EC Treaty prescribing a free movement of capital regime between Member States and OCTs that was equivalent to that applicable to third countries. However, 2 December 2001 marks the entry into force of Council Decision 2001/822/EC of 27 November 2001 on the association of the overseas countries and territories with the European Community (‘the OCT Decision’), ( 26 ) Article 47(1) of which was recently regarded by the Court in its judgment in X and TBG ( 27 ) as having a particularly broad scope similar to that of Article 56 EC in the relations between Member States and third countries.

47. The fact that, in the main proceedings, the investments made by Ms Schweier, which, I would reiterate, relate to the period from 1997 to 2003, fall in part within the scope of Article 73b of the EC Treaty and in part within the scope of Article 47(1) of the OCT Decision does not detract from the restrictive nature of the regime provided for in Paragraph 18(3) of the AuslInvestmG in the light of those provisions.

48. Taking into account all the foregoing considerations, I propose that the Court should refrain from examining the question that was not submitted by the referring court in connection with the interpretation of Article 56 EC.

B – The questions referred and the interpretation of Article 57(1) EC

49. By its two questions, the referring court is, in essence, asking whether the ‘standstill’ clause contained in Article 57(1) EC, which is specifically concerned with restrictions on the free movement of capital in relation to third countries, is applicable to a tax regime such as that at issue in the main proceedings.

50. According to the first sentence of that provision, ‘[t]he provisions of Article 56 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national … law adopted in respect of the movement of capital to or from third countries involving direct investment … [or] the provision of financial services’.

51. The application of that provision, which authorises Member States to maintain restrictions on the movement of capital, is therefore made subject to the fulfilment of three cumulative criteria, namely a ‘personal’ criterion, that is to say, the national measure in question must concern or apply to one or more third countries, a temporal criterion, that is to say, the restrictions in question must have existed on 31 December 1993, and a substantive criterion, that is to say, the capital movements in question must involve one of the operations exhaustively listed in the first sentence of Article 57(1) EC. ( 28 )

52. That provision also applies in the context of capital movements between Member States and OCTs, including after 2 December 2001. Article 47(2) of the OCT Decision provides, inter alia, that Member States and OCTs are entitled to adopt mutatis mutandis the measures referred to in Article 57 EC in accordance with the conditions laid down therein. ( 29 )

1. The temporal and personal criteria laid down in Article 57(1) EC

53. Neither the referring court nor the parties which have lodged written observations are in any doubt that the first two criteria are satisfied.

54. Indeed, there is no need to dwell on the matter of whether the temporal criterion is satisfied since, as the referring court and the Commission have pointed out, the tax regime provided for in Paragraph 18(3) of the AuslInvestmG existed as long ago as 1969 and has not been amended substantially since then. ( 30 )

55. The personal criterion is also satisfied since, as I have just indicated, whether OCTs are regarded as being third countries or simply treated as such, the conditions laid down in Article 57(1) EC apply to them in any event, either directly or through Article 47(2) of the OCT Decision.

56. Nor, in my view, must the proposition that the personal criterion laid down in Article 57(1) EC is satisfied be rejected on the ground that Ms Schweier’s holdings in the investment funds in question and the income from them were deposited at a financial institution which, in all probability, is established in a State that is a Contracting Party to the Agreement on the European Economic Area, signed on 2 May 1992 ( 31 ) (‘the EEA Agreement’), namely the Principality of Liechtenstein, as against which, of course, the Member States have not been able to rely on Article 57(1) EC since 1 May 1995, the date on which the EEA Agreement entered into force in respect of that principality. ( 32 )

57. If, irrespective of the criteria applied by national legislation, Member States were deprived of the possibility of relying on Article 57(1) EC whenever capital moving to or from the territory of a third country passes through the territory of another Member State or a State party to the EEA Agreement, that provision would be divested of most of its practical effect. Moreover, none of the parties to the main proceedings or of the interested parties have submitted otherwise.

58. Furthermore, as is apparent from the order for reference, the application of Paragraph 18(3) of the AuslInvestmG depends above all on where the company managing the investment fund is established, in this instance the Cayman Islands, and not on the place where the investment certificates are deposited. ( 33 )

59. Nevertheless, as I have already mentioned, the nub of the concerns raised by the referring court lies in the scope of the substantive criterion laid down in Article 57(1) EC.

2. The substantive criterion laid down in Article 57(1) EC

60. The questions which the referring court asks the Court are concerned more specifically with ascertaining the meaning to be given to the words ‘the movement of capital … involving direct investment … [or] the provision of financial services’ in order to enable it to determine whether, taking into account the situation in the main proceedings, the tax regime provided for in Paragraph 18(3) of the AuslInvestmG might legitimately be maintained under Article 57(1) EC.

61. To my mind, its first question, concerning the concept of ‘provision of financial services’, must be answered in the affirmative and this should, if the Court shares that view, mean that the second question, concerning the concept of ‘direct investment’, need not be answered. In any event, the referring court’s doubts in connection with the latter issue will be quickly dispelled.

a) The term ‘provision of financial services’, within the meaning of Article 57(1) EC

62. By the first question, the Court is asked to determine whether the tax regime provided for in Paragraph 18(3) of the AuslInvestmG could be maintained in a situation such as that in the main proceedings on the ground that it applies to capital movements involving the provision of financial services, within the meaning of Article 57(1) EC.

63. Noting that the Court has not yet clarified that term, the referring court takes the view, in the light of the need to interpret Article 57(1) EC strictly, that only rules which relate to providers of financial services in the third countries themselves and which determine the conditions or mechanisms for the provision of services are linked to that term, to the exclusion, in any event, of provisions of national law which are concerned with the taxation of investors.

64. While the Commission agrees with that interpretation, the German, Italian and United Kingdom Governments reject it. Those three parties maintain, in essence, (i) that the concept of provision of financial services may include measures aimed at the recipient of those services and (ii) that there is in this instance a close link between the subject-matter of the national measure, that is to say, the taxation of investors in foreign investment funds, and the behaviour of funds that do not satisfy the requirements of Paragraph 17(3) and Paragraph 18(2) of the AuslInvestmG. In other words, the national tax legislation concerns the provision of financial services since the investment funds are, at the very least, indirectly encouraged to comply with the national rules on transparency laid down by that legislation.

65. For my part, I would point out first of all that I have already had the opportunity to put forward a number of views concerning the concept of ‘provision of financial services’, contained in Article 57(1) EC, in my Opinion in Emerging Markets Series of DFA Investment Trust Company. ( 34 )

66. As I stated in that Opinion, in the absence of a definition of the concept in question, it is correct to assume that the services concerned are those provided by financial institutions, such as banks, insurance companies, investment companies and other institutions of a similar nature. There can be no doubt that an investment fund (or, to be more precise, the company managing it) falls within that category of institution.

67. Moreover, I am still of the view that, in the light of the wording of Article 57(1) EC, its scope extends only to movements of capital ‘involving’ the provision of financial services and not, conversely, to the provision of financial services involving or entailing the movement of capital. That distinction is crucial. Only national measures which are concerned at least principally with movements of capital fall within the scope of Article 57(1) EC. National measures which are principally concerned with the provision of financial services fall outside its scope, because they must be examined from the point of view of the provisions of the Treaty relating to freedom to provide services, which, of course, do not extend to relations either with third countries or with OCTs. ( 35 )

68. Consequently, when Article 57(1) EC states that it relates to movements of capital involving the provision of financial services, it does not, in my view, include within its scope national measures concerned with the conditions or mechanisms for the provision of services. In that case, such a measure would simply not fall within the scope of the provisions on the free movement of capital and, therefore, of Article 57(1) EC, but within the scope of the provisions on the freedom to provide services.

69. Article 57(1) EC cannot be interpreted as simply reiterating the general distinction drawn by the Treaty between the scope of the provisions relating to the provision of services, even if solely ‘financial’ services, and that of the provisions relating to movements of capital. Although the reservation contained in that article must, with all due respect to the German Government, be interpreted strictly, ( 36 ) it must none the less be capable of retaining practical effect.

70. That is why Article 57(1) EC covers movements of capital ‘involving’, that is to say entailing, the provision of financial services. ( 37 )

71. In Emerging Markets Series of DFA Investment Trust Company (EU:C:2013:710), which concerned the taxation in Poland of shares which a third-country investment fund held in the capital of Polish companies, the movements of capital in question did not involve a provision of financial services by the investment fund for the companies in question. Moreover, I had also explained in my Opinion that the contested national measure was also not concerned with movements of capital linked to the provision of financial services by the investment fund to its unit-holders, whether the latter reside in the territory of a Member State or in that of a third country. Article 57(1) EC could not therefore be relied on. ( 38 )

72. The Court did not have to examine that issue, since the ‘standstill’ clause contained in Article 57(1) EC was rightly held to be inapplicable on the sole ground that the Polish legislation at issue in the case did not satisfy the temporal criterion laid down in that article. ( 39 )

73. In the present case, the movements of capital in question, that is to say, the operations connected with the purchase of units in investment funds which are established in an OCT and from which the investor receives dividends subject to the flat-rate taxation at issue necessarily involve, in my view, the provision of financial services by the investment funds concerned to the investor. Without those services, the purchase of such holdings would simply not make sense, in particular in the case of a non-institutional investor, who benefits in that way from a range of investment options, depending on various relevant criteria, which would not generally be available to him if he decided to invest directly on the capital market. Furthermore, it is precisely those financial services that optimise and increase the profits on the basis of which the national tax could have been levied.

74. The fact that the national measure is concerned primarily with the investor and not the service provider as such does nothing to alter that finding, since the decisive criterion in Article 57(1) EC is concerned with the causal link between the movements of capital and the provision of financial services and not with the personal scope of the contested national measure or its relationship with the provider, rather than the recipient, of such services. If those movements necessarily entail such a provision of services, Article 57(1) EC must apply, assuming, of course, that the other conditions laid down in that provision are satisfied.

75. Furthermore, contrary to what the Commission maintained at the hearing, there is nothing to suggest that Member States’ tax legislation is excluded from the scope of Article 57(1) EC or, henceforth, that of Article 64(1) TFEU. Proof of this lies in the fact that, in its judgments in Holböck, ( 40 )Prunus and Polonium (EU:C:2011:276), Welte (EU:C:2013:662) and Emerging Markets Series of DFA Investment Trust Company (EU:C:2014:249), the Court did indeed examine the applicability of that provision in the context of national tax measures.

76. I therefore consider that the answer to the first question referred for a preliminary ruling should be that national legislation, such as Paragraph 18(3) of the AuslInvestmG, which has remained fundamentally unchanged since 31 December 1993 and which, in certain circumstances, provides that flat-rate taxation is to be applied to national investors in investment funds situated in third countries or in OCTs treated as third countries relates to the movement of capital involving the provision of financial services within the meaning of Article 73c of the EC Treaty and, from 1 May 1999, within the meaning of Article 57(1) EC.

77. Accordingly, there would be no need to examine the second question, which was asked solely in the event of a negative reply to the first.

78. It is therefore only in the alternative, in the event that the Court does not agree with the proposal which I have just made, that I shall analyse the second question submitted by the referring court.

b) ‘Direct investment’ within the meaning of Article 57(1) EC

79. As I have already explained in my Opinion in Emerging Markets Series of DFA Investment Trust Company, ( 41 ) since the concept of direct investment is not defined by the EC Treaty, the Court has to date relied on the definitions contained in the nomenclature in Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty ( 42 ) and the associated explanatory notes. ( 43 )

80. According to those definitions, the concept of direct investment concerns investments made by natural or legal persons which serve to establish or maintain lasting and direct links between the person providing the capital and the company to which that capital is made available in order to carry out an economic activity. ( 44 )

81. It is on the basis of those definitions that the Court draws a distinction, among capital movements, between ‘direct’ investments, in the form of participation in an undertaking through a shareholding which confers the possibility of effectively participating in its management and control, and ‘portfolio’ investments, which involve the acquisition of securities on the capital market solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking. ( 45 )

82. While both those categories of investment fall within the concept of capital movements, it is, on the other hand, only ‘direct investments’, including the payment of dividends arising from them, which are the subject of the derogation permitted by Article 57(1) EC. ( 46 )

83. Although, for the purposes of the application of Article 57(1) EC, the referring court states that it is a priori inclined to adhere to that dividing line between direct investments and portfolio investments, taking the view that, in this instance, the position of holders of units in investment funds does not in principle fall within the first category, it none the less wonders whether in its judgment in VBV — Vorsorgekasse of 7 June 2012 ( 47 ) the Court qualified or even invalidated that case-law.

84. I have already examined and rejected such an argument in my Opinion in Emerging Markets Series of DFA Investment Trust Company. ( 48 ) It had been relied on by the Polish Government but the Court did not need to respond to it.

85. I shall therefore confine myself largely to referring to the relevant considerations in that Opinion. In particular, it must be pointed out that, although the judgment in VBV — Vorsorgeskasse (EU:C:2012:327) concerned restrictions on the purchase by a legal person (a severance fund), an institutional investor established in Austria, of units in an investment fund established in another Member State, a transaction which the Court classified, by way of preamble to its reasoning, as a ‘direct investment’, the question referred to the Court was concerned not with Article 64(1) TFEU, which has replaced Article 57(1) EC, but only with Article 63 TFEU. While Article 63 TFEU has a very broad scope and can tolerate a degree of ‘woolliness’ in the use of terms designating the various categories of capital movement, the same is not true of the categories listed in Article 64(1) TFEU, which — I would reiterate — as a derogation from a freedom provided for by EU law, must be interpreted strictly, in accordance with case-law. ( 49 ) Not having been presented with a question concerning the interpretation of Article 64(1) TFEU, the Court obviously did not intend to extend the scope of the concept of direct investment within the meaning of that provision.

86. It is true that, as the Commission argues in its written observations, it is not entirely inconceivable that a holder of units in an investment fund might effectively participate in the management or control of the company managing that fund, with the result that, depending on the circumstances of each individual case, the conclusion could be drawn that the holding in question constitutes a direct investment.

87. The matters of fact and law set out in the judgment in VBV — Vorsorgekasse (EU:C:2012:327) unfortunately do not allow it to be stated for certain whether that was true of the Austrian severance fund’s purchase of units in the investment fund situated in Luxembourg.

88. However, and in any event, it seems unlikely to say the least, given the nature and volume of the investments made by her, that Ms Schweier acquired units entitling her to a right of control over the investment funds the management companies of which are established in the Cayman Islands. On the contrary, it is much more likely, taking into account the information contained in the documents before the Court, that, as a private investor, Ms Schweier simply had a holding in a collective portfolio established by those funds, with the sole intention of making a financial investment. It is common ground that the tax regime provided for in Paragraph 18(3) of the AuslInvestmG applies where such portfolio investments have been made.

89. Consequently, I consider that the judgment in VBV — Vorsorgekasse (EU:C:2012:327) does not have any bearing on the interpretation of the concept of direct investment referred to in Article 57(1) EC and that, in the light of all the matters of fact and law set out in the documents before the Court, the derogation laid down by that provision cannot be relied on inasmuch as the situation in the main proceedings does not concern ‘the movement of capital to or from third countries involving direct investment’.

III – Conclusion

90. In the light of all the foregoing considerations, I propose that the Court should reply as follows to the questions referred for a preliminary ruling by the Bundesfinanzhof (Germany): National legislation, such as Paragraph 18(3) of the Law on the Sale of Foreign Investment Units and the Taxation of Income from Foreign Investment Units (Gesetz über den Vertrieb ausländischer Investmentanteile und über die Besteuerung der Erträge aus ausländischen Investmentanteilen), which has remained fundamentally unchanged since 31 December 1993 and which, in certain circumstances, provides that flat-rate taxation is to be applied to national investors in investment funds situated in third countries or in overseas countries and territories treated as third countries relates to the movement of capital involving the provision of financial services, within the meaning of Article 73c(1) of the EC Treaty and, from 1 May 1999, within the meaning of Article 57(1) EC.

( 1 ) Original language: French.

( 2 ) Except where it is necessary to do otherwise for reasons concerning the temporal application of the Treaties, in the remainder of this Opinion I shall, for convenience of drafting, refer only to Article 57(1) EC since the conditions laid down by those two articles have remained unchanged.

( 3 ) BGBl. 1998 I, p. 2820.

( 4 ) Under the provisions of the Law on Investment Management Companies (Gesetz über Kapitalanlagegesellschaften; ‘the KAGG’) in the version applicable until 31 December 2013.

( 5 ) See Paragraph 38b of the KAGG.

( 6 ) 283/81, EU:C:1982:335, paragraph 21.

( 7 ) C‑39/11, EU:C:2012:327.

( 8 ) See my Opinion in Fonnship and Svenska Transportarbetareförbundet (C‑83/13, EU:C:2014:201, point 17 and the case-law cited).

( 9 ) See, in particular, judgments in Kerafina-Keramische und Finanz-Holding and Vioktimatiki (C‑134/91 and C‑135/91, EU:C:1992:434, paragraph 16); Consiglio nazionale dei geologi and Autorità garante della concorrenza e del mercato (C‑136/12. EU:C:2013:489, paragraph 29); and Belgian Electronic Sorting Technology (C‑657/11, EU:C:2013:516, paragraph 28).

( 10 ) See, in particular, judgments in Cilfit and Others (EU:C:1982:335, paragraph 21); Pedro IV Servicios (C‑260/07, EU:C:2009:215, paragraph 36); and Boxus and Others (C‑128/09 to C‑131/09, C‑134/09 and C‑135/09, EU:C:2011:667, paragraph 31).

( 11 ) EU:C:2014:201.

( 12 ) C‑83/13, EU:C:2014:2053.

( 13 ) EU:C:2009:215.

( 14 ) Ibid. (paragraph 36).

( 15 ) See, to that effect, my Opinion in Fonnship and Svenska Transportarbetareförbundet (EU:C:2014:201, point 22).

( 16 ) C‑326/12, EU:C:2014:2269.

( 17 ) Ibid. (paragraph 58 and operative part).

( 18 ) Until 2002, the Cayman Islands held the status of ‘British dependent territory’ under the British Nationality Act 1981 (see Schedule 6 to that act). In 2002, that status was renamed ‘British overseas territory’ under the British Overseas Territories Act of 26 February 2002.

( 19 ) The list of OCTs covered by Annex IV to the EEC Treaty was amended by Article 24 of the Act concerning the conditions of accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland and the adjustments to the Treaties (OJ 1972 L 73, p. 14), which included the Cayman Islands, among others, in that list.

( 20 ) See the reasoning set out in this regard in the Opinion of Advocate General Cruz Villalón in Prunus and Polonium (C‑384/09, EU:C:2010:759, points 24 to 29).

( 21 ) See Article 355(2) TFEU.

( 22 ) See the second subparagraph of Article 131 of the EEC Treaty, the second subparagraph of Article 182 of the EC Treaty and, now, the second subparagraph of Article 198 TFEU.

( 23 ) See Opinion of Advocate General Cruz Villalón in Prunus and Polonium (EU:C:2010:759, points 31 to 39).

( 24 ) Judgments in Prunis and Polonium (C‑384/09, EU:C:2011:276, paragraph 29) and X and TBG (C‑24/12 and C‑27/12, EU:C:2014:1358, paragraph 45).

( 25 ) EU:C:2011:276, paragraph 31. The Court used the term ‘non-Member States’, but it would be more appropriate to say ‘third countries’, in view of the fact that, under public international law, those entities are not sovereign States. This accords, moreover, with the wording of Article 73b and 73c of the EC Treaty, Articles 56 EC and 57 EC, and Articles 63 TFEU and 64 TFEU.

( 26 ) OJ 2001 L 314, p. 1. In accordance with Article 63 thereof, that decision was applicable until 31 December 2011.

( 27 ) EU:C:2014:1385, paragraph 48.

( 28 ) See in particular, to that effect, my Opinion in Emerging Markets Series of DFA Investment Trust Company (C‑190/12, EU:C:2013:710, point 53).

( 29 ) See also, to that effect, judgment in Prunus and Polonium (EU:C:2011:276, paragraph 32).

( 30 ) With regard to examination of the temporal criterion laid down in Article 57(1) EC, see, most recently, judgment in Emerging Markets Series of DFA Investment Trust Company (C‑190/12, EU:C:2014:249, paragraphs 47 to 52).

( 31 ) OJ 1994 L 1, p. 3.

( 32 ) See, in this regard, judgment in Ospelt and Schlössle Weissenberg (C‑452/01, EU:C:2003:493, paragraph 31), which was concerned even then with Article 73c of the EC Treaty.

( 33 ) Although, at the hearing, counsel for Ms Wagner-Raith stated that the funds deposited were managed by LGT Bank alone, this was not stated in the order for reference and does nothing to alter the fact, as indicated by the referring court, that the investment funds were managed by a company established in the Cayman Islands, a fact which, inter alia, triggered the application of the contested national legislation.

( 34 ) EU:C:2013:710, points 73 to 79.

( 35 ) With regard to the fact that the provisions of the Treaty on the freedom to provide services do not apply to third countries, see judgment in Fidium Finanz (C‑452/04, EU:C:2006:631, paragraphs 25 and 47). In the case of OCTs, it should be noted that Part Four of the Treaty does not refer to the freedom to provide services and that the OCT Decision refers only to a long-term objective of progressively liberalising trade in services on the basis of the commitments made under the General Agreement on Trade in Services (GATS).

( 36 ) See judgment in Welte (C‑181/12, EU:C:2013:662, paragraph 29).

( 37 ) See my Opinion in Emerging Markets Series of DFA Investment Trust Company (EU:C:2013:710, point 77).

( 38 ) Ibid. (points 78 and 79).

( 39 ) See judgment in Emerging Markets Series of DFA Investment Trust Company (EU:C:2014:249, paragraph 53).

( 40 ) C‑157/05, EU:C:2007:297, paragraphs 37 to 45.

( 41 ) EU:C:2013:710, points 60 and 61.

( 42 ) OJ 1988 L 178, p. 5.

( 43 ) See, in particular, judgments in Holböck (EU:C:2007:297, paragraph 34 and the case-law cited) and Welte (EU:C:2013:662, paragraph 32).

( 44 ) See, in particular, judgment in Welte (EU:C:2013:662, paragraph 32).

( 45 ) On that distinction, see, in particular, judgments in Orange European Smallcap Fund (C‑194/06, EU:C:2008:289, paragraphs 98 to 102); Glaxo Wellcome (C‑182/08, EU:C:2009:559, paragraph 40 and the case-law cited); and Commission v Portugal (C‑212/09, EU:C:2011:717, paragraph 47).

( 46 ) See, to that effect, judgment in Haribo Lakritzen Hans Riegel and Ősterreichische Salinen (C‑436/08 and C‑437/08, EU:C:2011:61, paragraphs 137 and 138) and my Opinion in Emerging Markets Series of DFA Investment Trust Company (EU:C:2013:710, point 64).

( 47 ) EU:C:2012:327.

( 48 ) EU:C:2013:710, points 69 to 72. That Opinion was delivered a few days after the present request for a preliminary ruling had been notified to the Court.

( 49 ) See judgment in Welte (EU:C:2013:662, paragraph 29).