Case C‑164/12

DMC Beteiligungsgesellschaft mbH

v

Finanzamt Hamburg-Mitte

(Request for a preliminary ruling from the Finanzgericht Hamburg)

‛Taxation — Corporation tax — Transfer of an interest in a partnership to a capital company — Book value — Value as part of a going concern — Agreement on the prevention of double taxation — Immediate taxation of unrealised capital gains — Different treatment — Restriction on free movement of capital — Preserving the balanced allocation of powers to impose taxes between the Member States — Proportionality’

Summary — Judgment of the Court (First Chamber), 23 January 2014

Free movement of capital and of payments — Restrictions — Tax legislation — Corporation tax — National legislation requiring the immediate taxation of capital gains arising on assets as a result of the transfer of an interest in a partnership to a capital company — Not permissible — Justification — Balanced allocation of the power to impose taxes between the Member States — Condition — Proportionality

Free movement of capital and of payments — Restrictions — Tax legislation — Corporation tax — National legislation requiring the immediate taxation of capital gains arising on assets as a result of the transfer of an interest in a partnership to a capital company — Not permissible — Justification — Balanced allocation of the power to impose taxes between the Member States — Assessment by the national court

Free movement of capital and of payments — Provisions of the Treaty — Scope — National legislation requiring the immediate taxation of capital gains arising on assets as a result of the transfer of an interest in a partnership to a capital company — Included — Provisions governing freedom of establishment not applicable

See the text of the decision. (see paras 24-26)

The legislation of a Member State which requires assets contributed by a limited partnership to the capital of a capital company with its registered office in the territory of that Member State to be assessed at their value as part of a going concern, thus giving rise to the taxation — before they are in fact realised — of the capital gains arising in that territory on those assets, must be examined solely in the light of free movement of capital, enshrined in Article 63 TFEU, since the application of such legislation to an individual case is not dependent on the extent of an investor’s interest in the limited partnership whose share in the partnership is transferred to a capital company in return for company shares. Under such legislation, the investor is not required to have a holding which enables him to exert a definite influence on the partnership’s decisions, or indeed those of the capital company. As a consequence, such legislation has less bearing on the procedure for establishment than on the procedure for the transfer of assets between a limited partnership and a capital company. (see paras 27, 34, 37-38)

Article 63 TFEU must be interpreted as meaning that the objective of preserving the balanced allocation of the power to impose taxes between Member States may justify national legislation which requires assets in a limited partnership contributed to the capital of a capital company with its registered office in the territory of that Member State to be assessed at their value as part of a going concern, thus giving rise to the taxation, before they are actually realised, of the capital gains relating to those assets generated in that territory, if it will in fact be impossible for that Member State to exercise its powers of taxation in relation to those gains when they are in fact realised, which is a matter for the national court to determine. It is true that such legislation is liable to deter investors from having holdings in a limited partnership, since they will be required, in the event of the subsequent conversion of their holdings into shares in a capital company, to pay immediately the tax on any unrealised capital gains. However, such a restriction, which is, in principle, prohibited by the provisions on free movement of capital, may be justified on grounds connected with the preservation of the balanced allocation of powers to impose taxes between the Member States. The simple fact that the conversion of an interest in a limited partnership into shares in a capital company has the effect of removing income from the exercise of the powers of taxation of the Member State on whose territory the income was generated is sufficient justification for such legislation, in so far as it provides that the amount of tax payable on that income is to be established at the time of the conversion. (see paras 41, 43, 49, 55, 58, operative part 1)