Opinion of the Advocate-General



Opinion of the Advocate-General

I – Introduction

1. By its reference, the national court seeks a preliminary ruling from the Court on the interpretation of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, (2) and, as the case may be, of Article 52 of the EC Treaty (now, after amendment, Article 43 EC) and Articles 73b and 73d of the EC Treaty (now Articles 56 EC and 58 EC respectively).

2. That reference was made in the context of a dispute between Burda GmbH, formerly Burda Verlagsbeteiligungen GmbH (‘Burda’), and the Finanzamt Hamburg-Am Tierpark (‘Finanzamt’) concerning tax on profits which the company distributed in 1998 for the 1996 and 1997 financial years to one of its parent companies, RCS International Services BV (‘RCS’), established in the Netherlands.

II – Legal framework

A – Community law

3. Article 2 of Directive 90/435, in the version applicable to the facts of the main proceedings, provides as follows:

‘For the purposes of this Directive “company of a Member State” shall mean any company which:

(a) takes one of the forms listed in the Annex hereto;

(b) according to the lax laws of a Member State is considered to be resident in that State for tax purposes and, under the terms of a double taxation agreement concluded with a third State, is not considered to be resident for tax purposes outside the Community;

(c) moreover, is subject to one of the following taxes, without the possibility of an option or of being exempt:

…

– Körperschaftsteuer in the Federal Republic of Germany,

…

or to any other tax which may be substituted for any of the above taxes.’

4. Article 4 of Directive 90/435 provides as follows:

‘1. Where a parent company, by virtue of its association with its subsidiary, receives distributed profits, the State of the parent company shall, except when the latter is liquidated, either:

– refrain from taxing such profits, or

– tax such profits while authorising the parent company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those profits and, if appropriate, the amount of the withholding tax levied by the Member State in which the subsidiary is resident, pursuant to the derogations provided for in Article 5, up to the limit of the amount of the corresponding domestic tax.

…’

5. Under Article 5(1) of Directive 90/435, the profits which a subsidiary distributes to its parent company are exempt from withholding tax, at least where the latter holds a minimum of 25% of the capital of the subsidiary.

6. Article 5(3) of the same directive provides that, notwithstanding paragraph 1, the Federal Republic of Germany may, for as long as it charges corporation tax on distributed profits at a rate at least 11 points lower than the rate applicable to retained profits, and at the latest until mid-1996, impose a compensatory withholding tax of 5% on profits distributed by its subsidiary companies.

7. Article 7 of Directive 90/435 provides as follows:

‘1. The term “withholding tax” as used in this Directive shall not cover an advance payment or prepayment (précompte) of corporation tax to the Member State of the subsidiary which is made in connection with a distribution of profits to its parent company.

2. This Directive shall not affect the application of domestic or agreement-based provisions designed to eliminate or lessen economic double taxation of dividends, in particular provisions relating to the payment of tax credits to the recipients of dividends.’

B – National legislation

1. The Law on Corporation Tax

8. Paragraph 1 of the Law on Corporation Tax 1996, in the version applicable to the facts in the main proceedings (Körperschaftsteuergesetz 1996; ‘the KStG 1996’), (3) provides inter alia that capital companies having their management or registered office in Germany are to be fully liable to corporation tax.

9. Under Paragraph 2 of the KStG 1996, capital companies which have neither their management nor their registered office in Germany are partly liable to corporation tax on their income obtained in Germany.

10. Under Paragraph 23 of the KStG 1996, the normal rate of corporation tax is 45% of the taxable income.

11. Paragraph 27(1) of the KStG 1996 provides that ‘if a company fully liable to [corporation] tax distributes profits, the amount of the tax shall be increased or reduced as a consequence, depending on the difference between the tax on the company’s capital and reserves (tax on retentions) which, under Paragraph 28, are deemed to be used for the distribution of profits, and the tax resulting from the application of a rate of 30% of the profit before the deduction of corporation tax (tax on distribution)’.

12. Paragraph 28 of the KStG 1996 provides as follows:

‘…

3. The available items of capital and reserves shall be deemed to be used for a distribution in the order shown in Paragraph 30, subject to subparagraphs 4, 5 and 7. The amount up to and including which an item is deemed to be used shall be determined by reference to its normal tax.

4. If the capital item or items within the meaning of Paragraph 30(1), third sentence, points 1 and 2, initially deemed to have been used for the purpose of subparagraph 3 are not sufficient subsequently to offset a profit distribution, that distribution shall be charged to the capital item referred to in Paragraph 30(2), point 2, even if that item becomes negative as a result.’

13. Under Paragraph 29(2) of the KStG 1996, at the end of each financial year the capital and reserves are to be divided into capital and reserves available for distribution and other capital and reserves, the former representing the portion of the capital and reserves which exceeds the share capital.

14. Paragraph 30 of the KStG 1996 provides as follows:

‘1. At the end of each financial year, the capital and reserves available for distribution shall be divided according to the tax rules. Each portion shall depend on the division during the preceding financial year. In the division there shall be shown separately the portions which correspond to:

1. income which was subject to the full rate of corporation tax from 31 December 1993;

…

3. additions to assets not subject to corporation tax or which increased the company’s capital and reserves in the course of the financial years prior to 1 January 1977.

2. The amount indicated in subparagraph 1, point 3, shall be subdivided into:

1. Capital and reserves originating from foreign income during the financial years subsequent to 31 December 1976 …;

2. Other additions to assets not subject to corporation tax and not falling within categories 3 and 4;

3. Capital and reserves available for distribution generated before the end of the financial year preceding 1 January 1977;

4. Contributions by shareholders which augmented the capital and reserves in the course of the financial years subsequent to 31 December 1976.’

15. The portion of income referred to in Paragraph 30(1), point 1, of the KStG 1996 and subject to corporation tax at the full rate (45%) is designated as ‘EK 45’.

16. The additions to assets referred to in Paragraph 30(1), point 3, of the KStG 1996, not subject to corporation tax, is designated as ‘EK 0’ and, in relation to the four categories set out in Paragraph 30(2) of the KStG 1996, as ‘EK 01’ to ‘EK 04’.

17. Paragraph 40 of the KStG 1996 provides as follows:

‘Pursuant to Paragraph 27, corporation tax shall not be increased:

1. for the distribution of portions covered by the provisions of Paragraph 30(2), point 1 [EK 01];

2. for the distribution of portions covered by the provisions of Paragraph 30(2), point 4 [EK 04].’

18. Paragraph 44 of the KStG 1996 provides:

‘1. If an entity fully liable to the tax supplies services for its own account, which are equivalent, for the shareholders, to earnings within the meaning of Paragraph 20(1), points 1 and 2, of the Law on Income Tax, it shall ... provide its shareholders, on demand, with a certificate containing the following particulars on the appropriate official administrative form:

1. the shareholder’s name and address;

2. the amount of the services;

3. the settlement date;

4. the amount of corporation tax deductible under Paragraph 36(2), point 3, first sentence, of the Law on Income Tax;

5. the amount of corporation tax to be repaid for the purpose of Paragraph 52 [of the KStG 1996]; it shall be sufficient if the particulars relate to a single share or a single right to dividend;

6. the amount of the service for which the capital item within the meaning of Paragraph 30(2), point 1, is deemed to be used;

7. the amount of the service for which the capital item within the meaning of Paragraph 30(2), point 4, is deemed to be used.

…’

19. Paragraph 50(1), point 2, of the KStG 1996 provides, inter alia, that the corporation tax on income subject to withholding tax is to be paid by deduction at source where the recipient is only partly taxable and where the income does not originate from a commercial, agricultural or forestry enterprise.

20. Paragraph 51 of the KStG 1996 states as follows:

‘If the shareholder is not liable to income tax within the meaning of Paragraph 20(1), points 1 to 3, or subparagraph (2), point 2(a), of the Law on Income Tax or if that income is not taken into account in determining the basis of assessment in accordance with Paragraph 50(1), point 1 or 2, the corporation tax which may be set off under Paragraph 36(2), point 3, of the Law on Income Tax shall not be set off or repaid.’

21. Under Paragraph 52 of the KStG 1996:

‘1. The corporation tax which cannot be set off pursuant to Paragraph 51 shall be repaid, on demand, to shareholders who are fully liable, but exempt from corporation tax, to legal persons governed by public law and to shareholders partly liable to corporation tax under Paragraph 2(1) [of the KStG 1996], in so far as that tax increases, in accordance with Paragraph 27, because the capital and reserves within the meaning of Paragraph 30(2), point 3, are deemed to have been used for the distribution or for a similar payment.

…’

2. The Law on Income Tax

22. Paragraph 20 of the Law on Income Tax 1990, in the version applicable to the facts in the main proceedings (Einkommensteuergesetz 1990; ‘the EStG 1990’), (4) provides as follows:

‘…

1. Investment income comprises:

1. dividend distributions;

…

3. The amount of corporation tax which is deductible under Paragraph 36(2), point 3.

…’

23. Paragraph 36(2), point 3, of the EStG 1990 states that corporation tax paid by a company or an association of persons fully liable to corporation tax will be deducted from income tax in an amount up to 3/7 of income within the meaning of Paragraph 20(1), point 1 (dividends) or 2, in so far as such income does not originate from distributions for which capital or reserves within the meaning of Paragraph 30(2), point 1, of the Law on Corporation Tax have been used.

24. Under Paragraph 43(1) of the EStG 1990, investment income within the meaning of Paragraph 20(1), points 1 and 2, of the EStG 1990 is subject to income tax by deduction from investment income (investment income tax).

C – Convention law

25. Article 13(1) and (2) of the Convention of 16 June 1959 between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation (5) is worded as follows:

‘1. If a person domiciled in one of the Contracting States receives dividends from the other Contracting State, the State of residence shall have the right to tax such income.

2. If, in the other Contracting State, the tax payable on investment income is recovered by way of deduction (at source), the right to make the deduction shall not be affected.’

III – The facts giving rise to the dispute and the questions referred for a preliminary ruling

26. Burda is a limited liability company governed by German law, its registered office and management being located in Germany. During the period relevant to the main proceedings, it was owned in equal shares by RCS, established in the Netherlands, and by Burda International Holding GmbH, a company situated in Germany.

27. In 1998 Burda decided to carry out a profit distribution in respect of the financial years 1996 and 1997 to its parent companies in equal shares. The distribution of those profits was taxed under Paragraph 27(1) of the KStG 1996 at the rate of 30%.

28. In accordance with Paragraph 44 of the KStG 1996, only Burda International Holding GmbH received a certificate of deductibility of corporation tax in respect of the profit distribution by Burda.

29. The order for reference shows that, following a tax audit, Burda had distributed profits in an amount greater than the taxable income. The Finanzamt reduced the various available capital and reserve items subject to corporation tax at the full rate (EK 45) from DEM 6 049 925 to DEM 4 915 490 and, in accordance with Paragraph 28(4) of the KStG 1996, set off the distributions, which, after reduction, were no longer covered by the taxed available capital and reserves, against the capital and reserves within the meaning of Paragraph 30(2), point 2, of the KStG 1996 (EK 02).

30. That set-off gave rise to increases in corporation tax for the two years in question and, therefore, to the issue by the Finanzamt of two amended tax assessments.

31. Burda brought an action before the Finanzgericht Hamburg (Finance Court, Hamburg) against the assessments, disputing the application of Paragraph 28(4) of the KStG 1996 on the ground that setting off the profit distributions to RCS against EK 02 was erroneous. In that connection, Burda claimed that it had available cash contributions falling within category EK 04 which were sufficient to finance the profit distributions and that in any case it had no additional assets falling within EK 02.

32. By judgment of 29 April 2005, the Finanzgericht Hamburg allowed Burda’s claim. That court found, in substance, that Paragraph 28(4) of the KStG 1996 should be applied in the sense that the part of the distribution paid to RCS ought to have been charged to EK 04.

33. The Finanzamt appealed to the Bundesfinanzhof (Federal Finance Court) on a point of law against the judgment. The latter found that the Finanzgericht Hamburg’s interpretation of Paragraph 28(4) of the KStG 1996 should be rejected. According to the Bundesfinanzhof, the scope of that provision cannot be limited to shareholders with a right of set-off, thus excluding shareholders such as RCS who are not entitled to a tax credit.

34. However, the Bundesfinanzhof expressed doubt as to whether the assessment of tax on distributions made from EK 02 is compatible with Directive 90/435 and, as the case may be, with the provisions of the EC Treaty on the free movement of capital or the freedom of establishment. In those circumstances, it decided to stay judgment and to refer the following two questions to the Court for a preliminary ruling:

‘(1) Is there withholding tax within the meaning of Article 5(1) of Council Directive 90/435 …, in the case in which national law provides that, where profits are distributed by a subsidiary to its parent company, income and asset increases of the capital company are to be taxed which, under national law, would not be taxed if they remained with the subsidiary and were not distributed to the parent company?

(2) Should Question 1 be answered in the negative: is it compatible with [Articles 52, 73b and 73d of the Treaty] for a national rule to provide for divergent set-off arrangements for the distribution of profits by a capital company using portions of its own capital, resulting in consequent tax liability even in cases in which the capital company demonstrates that it has distributed dividends to non-resident shareholders, even though, under national law, such non-resident shareholders, unlike resident shareholders, are not entitled to set off against their own tax the corporation tax thus determined?’

IV – Procedure before the Court

35. Burda, the German Government and the Commission of the European Communities lodged written observations pursuant to Article 23 of the Statute of the Court of Justice. They also presented oral argument at the hearing on 13 June 2007.

V – Analysis

A – Introductory remarks

36. In view, inter alia, of the undeniable complexity of the legal and factual framework of the main proceedings, it seems appropriate to make four preliminary remarks in the light of the observations submitted by the parties to the present case.

37. First, it is clear from the KStG 1996 that the profits of a capital company such as Burda are, as a rule, subject to corporation tax of 45% if they are retained, whereas that tax is reduced to 30% if they are distributed to its shareholders in the form of dividends.

38. Secondly, the KStG 1996 classifies the capital and reserves available for distribution of a capital company such as Burda as income shares subject to corporation tax (at 45% in the case of retention and 30% in the case of distribution) and also as increases in assets which are, as a rule, exempt from the tax. The first category is commonly designated as ‘EK 45’, while the second is divided into four subcategories, namely EK 01 to EK 04, corresponding to different types of increases in assets. With regard to the last category, however, profit distributions chargeable to increases in assets are subject to a tax rate of 30%, save for the distribution of income falling within subcategories EK 01 and EK 04, which remain exempt from tax in accordance with Paragraph 40 of the KStG 1996.

39. In view of the system which I have just described, it follows that, under Paragraph 27(1) of the KStG 1996, the corporation tax payable by a company such as Burda fluctuates according to the difference between, on the one hand, the tax on undistributed capital and reserves (tax on retentions) and, on the other hand, the 30% rate of tax on distributed profits (tax on distribution). However, under Paragraph 30 of the KStG 1996, the capital and reserves available for distribution and subject to corporation tax (category EK 45) are the first to be distributed, followed by those originating from additional assets (categories EK 01 to EK 04).

40. Thirdly, if, following a tax audit such as that in the main proceedings, it is found that, in practice, the amount of income stated to have been used for distribution is not correct, the tax authorities will propose a correction, in the present case a reduction in that amount. As in the main proceedings, the reduction in the distributed income subject to the 30% rate gives rise to a reduction in the distribution tax and, consequently, an increase in the retention tax of 45%. In that situation, as the national court in the main proceedings pointed out, the company will owe more tax.

41. Fourthly, if the remaining capital and reserves available for distribution in category EK 45 are however not sufficient to cover the correction required by the tax authorities and, consequently, in order to cover the profit distribution already carried out, Paragraph 28(4) of the KStG 1996 requires the distribution to be charged to subcategory EK 02, by way of exception to the sequence for charging laid down by Paragraph 30 of the KStG 1996.

42. It follows that the exception provided for by Paragraph 28(4) of the KStG 1996 enables the 30% rate of distribution tax to be maintained after correction.

43. In that connection, it is common ground that the exception provided for by Paragraph 28(4) of the KStG 1996 aims to prevent the recipients of a distribution from profiting, under the German tax system, (6) from a tax credit allowed on the basis of a tax certificate issued by the company which made the distribution, equivalent to the tax deducted in its hands without tax having in reality been paid by that company because of the correction. If, after correction, the distribution had been charged to subcategory EK 01 which, as shown above, is exempt from tax even in the event of distribution, and even though the tax certificates enabling the recipients of the distribution to obtain a tax credit (equivalent to the 30% tax on the company making the distribution) could not be called into question, the recipients would have obtained a tax credit which was not due. The distribution is therefore charged to category EK 02, even where the balance in that category is negative, as in the main proceedings in this case.

44. In the present case, it is the exception provided for by Paragraph 28(4) of the KStG 1996, in the particular situation of the profit distribution by Burda to RCS, the parent company established in the Netherlands, which has given rise to the dispute in the main proceedings. More precisely, as the reasoning of the order for reference shows, although the national court considers that Paragraph 28(4) does indeed apply to the situation at issue in the main proceedings, it also notes that, because RCS is established outside German territory, it does not possess the certificate enabling it to obtain a tax credit equivalent to the corporation tax paid by Burda.

45. It is in that context that the Bundesfinanzhof asks, first, whether a tax on profit distributions such as that affecting category EK 02 is a withholding tax prohibited by Article 5(1) of Directive 90/435 and, second, in the event of a negative reply to the first question, whether the freedom of establishment and/or the free movement of capital must be interpreted as precluding the combined application of provisions such as Paragraphs 27(1) and 28(4) of the KStG 1996.

B – The first question

46. Before a determination is made as to whether a tax measure such as that at issue in the present case is a withholding tax within the meaning of Article 5(1) of Directive 90/435 and prohibited by that provision, three preliminary points merit consideration.

47. First, with regard to certain aspects of this case, there is no doubt, as the file shows, that the parent-subsidiary relationship between Burda and RCS falls within the scope of Directive 90/435, as all the conditions in that respect are fulfilled. It must be observed in particular that Burda is subject to corporation tax (Körperschaftsteuer) in Germany, in accordance with Article 2(c) of the directive, and that RCS has a sufficient holding, that is to say, a minimum of 25%, in the share capital of Burda, in accordance with Article 3(1)(a) of the directive.

48. Second, it is common ground that the derogation from Article 5(1) of Directive 90/435, provided for by Article 5(3) in favour of the Federal Republic of Germany, allowing it temporarily to impose a withholding tax of 5% on distributed profits, is not applicable in the present case. As Article 5(3) of Directive 90/435 states, that arrangement was applicable until mid-1996 at the latest. (7) The order for reference indicates that the distributions at issue in the main proceedings were effected by Burda in 1998 in respect of the financial years 1996 and 1997. Moreover, neither the German tax authorities in the main proceedings nor the German Government in the observations which it submitted to the Court relied on the possible application of the exception provided for by Article 5(3) of Directive 90/435, the German Government pointing out that, in accordance with the directive, no tax on investment income had been deducted at source in Burda’s hands, a point not disputed by the latter.

49. Thirdly, I note, as did the Commission, that the national court is uncertain only as to whether the tax on distributions based on category EK 02 is a withholding tax within the meaning of Article 5(1) of Directive 90/435, but not as to whether the initial tax on distributions, namely that paid before the correction by the tax authorities, is also a withholding tax within the meaning of that provision. However, as will be shown below, I do not think that the question whether the rules at issue provide for a withholding tax within the meaning of Article 5(1) of Directive 90/435 falls to be considered solely in the light of Paragraph 28(4) of the KStG 1996, as applied in the main proceedings; rather, since this is an exercise in classifying a given set of tax rules, it must be appraised in the context of the tax system of which that provision forms a part.

50. Having said this, and with regard to the first question from the national court, it must be observed that Directive 90/435 is intended to eliminate, by the introduction of a common system for the taxation of distributed profits, any disadvantage to parent companies and subsidiaries resident in different Member States and thereby to facilitate the grouping together of companies at Community level. (8) The directive thus aims to prevent the double taxation of profits distributed by a subsidiary to its parent company where they are established in different Member States. (9)

51. In that regard, it should be borne in mind that, in the procedure for the taxation of profits distributed in the form of dividends by companies, they are generally taxed in two ways: first, as profits of the distributing company in the framework of corporation tax and then in the hands of the shareholder; second, by the imposition of income tax on the shareholder receiving the dividends and/or of withholding tax paid by the distributing company on the shareholder’s behalf on the distribution date of the dividends.

52. The existence of two possible methods of taxation may give rise, on the one hand, to economic double taxation, that is to say, double taxation of the same income borne by two different taxpayers and, on the other, to legal double taxation, that is to say, double taxation of the same income in the hands of the same taxpayer in two different States. There is, for example, economic double taxation where the profits of the distributing company are taxed for corporation tax and are then subject to income tax or corporation tax in the shareholder’s hands as profits distributed in the form of dividends. Legal double taxation is confirmed where the shareholder is subject, first, to withholding tax on dividends received and then to income or corporation tax recovered in another State. (10)

53. Within the scope ratione personae and ratione materiae of Directive 90/435, by prohibiting in principle a ‘withholding tax’, Article 5(1) of the directive aims to prevent legal double taxation of distributed profits in the hands of the parent company. In other words, the source Member State, that is to say, the Member State in whose territory the subsidiary is established, is not permitted to tax the dividends received by the parent company.

54. That interpretation may be inferred from the negative definition given by Article 7(1) of Directive 90/435 to the term ‘withholding tax’ for the purpose of the directive, which states that the term does not cover an advance payment or prepayment (précompte) of corporation tax to the Member State where the subsidiary is situated, when it is made in connection with a distribution of profits to its parent company. (11)

55. In other words, while Article 5(1) of the directive prohibits the collection at source of a tax on dividends paid to a parent company established in another Member State, the prohibition does not extend to the payment by the subsidiary of corporation tax on income generated by its economic activity, even if that tax is deducted at source and it is paid in conjunction with the distribution of profits.

56. As stated above, in so far as economic double taxation may always occur in that situation, Directive 90/435 provides that, except in the case of liquidation, the Member State of the parent company either refrains from taxing such profits or taxes them while authorising the parent company to deduct from the amount of tax due the fraction of the tax paid by the subsidiary which relates to those profits, (12) without, furthermore, the directive affecting the application of domestic or agreement-based provisions designed to eliminate or lessen economic double taxation of dividends, in particular provisions relating to the payment of tax credits to the recipients of dividends. (13)

57. In my view, these observations show why, in the absence of a positive definition of ‘withholding tax’ for the purpose of Article 5(1) of Directive 90/435, the Court has held that the term covered any tax on income received in the Member State in which dividends are distributed where, first, the chargeable event for the tax is the payment of dividends or of any other income from shares, second, the taxable amount is the income from those shares and, third, the taxable person is the holder of the shares. (14)

58. In the main proceedings, Burda and the Commission consider that the charge provided for by Paragraph 28(4) of the KStG 1996 fulfils the three criteria set out above, so that a charge of that kind must be prohibited by virtue of Article 5(1) of Directive 90/435. The German Government, on the other hand, submits that the tax in question falls only upon the subsidiary established in Germany so that, in particular, the third criterion formulated by the Court in its case-law is not met.

59. For my part, I think the charge provided for by Paragraph 28(4) of the KStG 1996 cannot be assessed in isolation as otherwise the objective characteristics of that tax may be misunderstood . It must not be forgotten that the tax is charged only in the event of an initial ‘error’ on the part of the subsidiary in an excessive distribution of profits set off against the company’s capital and reserves. In other words, if the charge, after correction, provided for by Paragraph 28(4) of the KStG 1996 is to be a withholding tax within the meaning of Article 5(1) of Directive 90/435, the same should apply (and with greater reason) to the initial tax, namely the tax charged before the correction by the German tax authority. An ordinary correction by a national tax authority of an initial tax assessment cannot, in my view, change the legal nature of that tax in relation to Directive 90/435.

60. In that connection, it is common ground that the distribution of profits obtained by Burda was initially subject to corporation tax of 30% whereas, if it had retained the profits, they would have been taxed at a rate of 45%. Consequently, the tax before correction does not affect income which is taxed only when dividends are paid, but affects the income generated by Burda’s economic activity in Germany. Furthermore, it entails the charging of corporation tax to the subsidiary situated in Germany, and not on dividends paid to the shareholders of Burda, namely its parent companies.

61. It is no doubt true that, after correction, the corporation tax was charged to income in category EK 02 which would not have been taxed or taxed at the nil rate had there not been a profit distribution.

62. However, in the present case, this circumstance does not appear to me decisive.

63. First of all, generally speaking, it must be observed that, in relation to the British advance corporation tax (ACT), the Court has stated that it is a payment of corporation tax in advance, even though it is levied in advance when dividends are paid and calculated by reference to the amount of those dividends. (15)

64. Secondly, it must be borne in mind that the correction by the German tax authority in accordance with Paragraph 28(4) of the KStG 1996 was made after payment of the dividends to the shareholders so as to ensure that the tax rate would remain at 30% on the profits originally distributed by the subsidiary, without affecting the possibility of setting off the corporation tax paid by Burda against the corporation tax collected from their shareholders on their profits. To sum up, the tax calculated after correction does not alter the overall tax charge of the subsidiary resident in Germany and appears rather to be an accounting procedure enabling the corporation tax rate originally paid by the subsidiary to remain the same after the dividends are paid to the parent companies.

65. Finally, as the German Government pointed out in its written observations, without being contradicted by the other parties lodging observations in the present case, apart from the deduction at source of tax on investment income which, following the implementation in national law of Directive 90/435, is not applicable in the present case (see point 48 above), the dividends received by the non-resident parent company were not subject to tax in Germany.

66. Therefore, after correction, the tax in question is borne by the subsidiary and not by the parent companies.

67. Burda and the Commission consider that this is of no importance, however. Referring to the Opinion of Advocate General Alber in Athinaïki Zythopoiïa , (16) they consider that no decisive importance attaches to the fact that the tax burden is imposed on the subsidiary, but rather it is necessary to look to the economic effect of taxation of the subsidiary, which is tantamount to taxation of the parent company, since the tax is retained and paid directly to the tax authority by the company making the distribution. According to Burda and the Commission, this approach was approved in Athinaïki Zythopoiïa.

68. I must confess that I am not persuaded by this argument.

69. In the first place, the approach suggested by Burda and the Commission tends to disregard the distinction, made in Directive 90/435 itself, between, on the one hand, a deduction at source affecting, in the Member State where the profit distribution is carried out, parent companies established in another Member State and, on the other hand, a prepayment of corporation tax affecting, in the Member State of distribution, the subsidiary company residing in that State. Even after the judgment in Athinaïki Zythopoiïa , the Court repeated that one of the criteria for identifying a withholding tax is the fact that the taxable person was the holder of the shares, that is to say, the parent company residing in a Member State other than that where the profit distribution was made. (17)

70. Second, even if the economic approach favoured by Burda and the Commission were to be upheld, it would not necessarily follow that the levy in question in the main proceedings is a withholding tax within the meaning of Directive 90/435, similar to that which was the subject‑matter in Athinaïki Zythopoiïa .

71. It will be recalled that, in that case, the Court held that there is a withholding tax within the meaning of Article 5(1) of Directive 90/435 where national legislation provides that, in the event of distribution of profits by a subsidiary to its parent company, in order to determine the taxable profits of the subsidiary, its total net profits, including income which has been subject to special taxation entailing extinction of tax liability and non-taxable income, must be reincorporated into the basic taxable amount, when income falling within those two categories would not be taxable on the basis of the national legislation if they remained with the subsidiary and were not distributed to the parent company. (18)

72. This conclusion is clearly based on the fact that it is not the subsidiary’s profits themselves which are subject to the withholding tax, but the distribution of those profits to the parent company. In the Athinaïki Zythopoiïa case, the inclusion of income which was subject to special taxation entailing extinction of tax liability and non-taxable income in the subsidiary’s basic taxable amount on a profit distribution gave rise to an increase in the tax charge borne ultimately by the parent companies.

73. As I have already pointed out, the subsequent application of Paragraph 28(4) of the KStG 1996, namely after dividends were actually distributed to the shareholders by the subsidiary, does not alter either the tax rules to which that company was subject before the correction by the tax authority or the overall tax charge borne by that company because the distributed profits remain taxed at the rate of 30%. Nor does it affect the initial dividend distribution to the parent companies for the two financial years at issue in the main proceedings.

74. Furthermore, the fact that the shareholders who are non-resident in Germany do not receive a tax credit equivalent to the corporation tax paid by Burda is not due to the application of Paragraph 28(4) of the KStG 1996, but in fact results from the application of the provisions of the KStG 1996 on the initial 30% tax on distributed profits, which is less than if the profits were retained by the subsidiary. In my view, the fact that that advantage is not available to the non-resident parent companies does not alter the legal nature of the tax in relation to Directive 90/435. In that connection, the question whether the Member State in whose territory the distribution is carried out must, in such a situation, allow a tax credit to the non-resident parent companies does not form part of the problem of the classification of the measure in issue as a withholding tax within the meaning of Directive 90/435, but relates rather to the national court’s second question concerning the interpretation of the fundamental freedoms of movement provided for by the Treaty.

75. I must also point out that the fact that the subsidiary’s tax burden may be increased because, as a result of the excessive profit distribution by Burda, more profits set off against the capital and reserves will be deemed to have been retained and will therefore be subject to the 45% rate (see point 40 above) is ultimately a circumstance unrelated to the application of Paragraph 28(4) of the KStG 1996.

76. Therefore, particularly since the circumstances of the main proceedings differ from those of Athinaïki Zythopoiïa , I do not think that the latter can be applied by analogy to the present case.

77. For all those reasons, I consider that the application of a provision of national law, such as Paragraph 28(4) of the KStG 1996, as part of the general scheme of tax rules of which it forms a part, is not a withholding tax within the meaning of Article 5(1) of Directive 90/435.

78. I would add that, if Court were to reply in that manner to the first question from the national court, it would not be necessary to interpret the derogation in Article 7(2) of Directive 90/435, on which the German Government also relies, and which states, again, that that directive ‘shall not affect the application of domestic or agreement-based provisions designed to eliminate or lessen economic double taxation of dividends, in particular provisions relating to the payment of tax credits to the recipients of dividends’. (19) In any event, it seems to me that this exception to Article 5(1) of Directive 90/435 cannot be applied to the main proceedings. As the Commission rightly observed in its reply to the written question from the Court, whereas the scope of Directive 90/435 covers the relationship between a subsidiary and its parent company residing in different Member States, the tax credit for shareholders of the subsidiary, provided for by the German legislation and alleged by the German Government to fulfil the conditions of Article 7(2) of the directive, is paid, after the issue of a tax certificate, only to the parent companies established in German territory.

79. The mention of that issue now leads me to examine the national court’s second question.

C – The second question

80. By its second question, the national court asks in essence whether, if the tax at issue in the main proceedings is not a withholding tax within the meaning of Article 5(1) of Directive 90/435, it is compatible with the freedom of establishment (Article 52 of the EC Treaty) or the free movement of capital (Articles 73b and 73d of the EC Treaty) where it applies to a non-resident parent company which cannot, unlike resident parent companies, be given a tax credit equivalent to the amount of corporation tax paid by the subsidiary (Burda) resident in Germany.

81. Before suggesting a reply to that question, it is appropriate to make a few remarks about the applicability of the two freedoms of movement referred to by the national court.

82. It must be borne in mind that, according to the case-law, where a national of a Member State holds shares in the capital of a company established in another Member State which enable the shareholder to exercise definite influence over the company’s decisions and to determine the company’s activities, it is the provisions of the Treaty on the freedom of establishment that are to be applied and not those relating to the free movement of capital. (20)

83. As I have already had occasion to observe in another case, it is not always easy to delimit those two freedoms, particularly in the context of a reference for a preliminary ruling, where the national court is better able to assess, in a particular case, the rights conferred upon a shareholder by the shares he holds in the company concerned. (21)

84. As I have already noted in the present Opinion, the dispute in the main proceedings concerns a company resident in Germany, Burda, 50% of whose shares are held by a non-resident company, RCS. As the Commission correctly points out, a holding of that size normally confers a right of veto concerning the subsidiary’s strategic decisions and therefore generally enables the company holding the shares to exercise a definite influence over the subsidiary’s activity. (22) Furthermore, the order for reference provides no evidence of a contractual nature, such as a shareholders’ agreement, which would negate joint control of the subsidiary by the parent companies.

85. It follows that the Treaty provisions on freedom of establishment may apply to a situation such as that in the dispute in the main proceedings. In that context, any interference with the free movement of capital is merely a consequence of the alleged impediment to the freedom of establishment. The present question must therefore be examined in the light of Article 52 of the EC Treaty, while bearing in mind that similar reasoning would be valid for Article 73b of the EC Treaty.

86. It has consistently been held that the freedom of establishment entails for Community nationals access to, and pursuit of, activities as employed persons and the forming and management of undertakings in the same conditions as those laid down for its own nationals by the laws of the Member State where establishment is effected. It also includes the right of companies or firms formed in accordance with the laws of a Member State and having their registered office, central administration or principal place of business within the Community to pursue their activities in the Member State concerned through a subsidiary, a branch or an agency. (23)

87. The Court has also held that acceptance of the proposition that the Member State of establishment may freely apply different treatment merely by reason of a company’s registered office being situated in another Member State would deprive Article 52 of the EC Treaty of all meaning. (24) Freedom of establishment thus aims to guarantee the benefit of national treatment in the host Member State, by prohibiting any discrimination based on the place in which companies have their seat. (25)

88. To determine whether a difference in tax treatment is discriminatory and therefore, in principle, prohibited by Article 52 of the EC Treaty it is first necessary to examine the objective comparability of the situation of the companies concerned in relation to the disputed tax legislation. (26)

89. In the present case, the national court appears to consider that the situation at issue in the main proceedings leads to applying the same rule, namely Paragraph 28(4) of the KStG 1996, to different situations. (27) The national court observes that the objective of Paragraph 28(4) is to prevent a company established in Germany, which has initially distributed excess profits set off against capital and reserves, from being able retrospectively to avoid corporation tax on that distribution of profits if, after the correction by the German tax authority, they were set off against income exempt from corporation tax, while its parent companies would already have obtained a tax credit as a result of the initial, but excessive, distribution of profits taxed at 30%. According to the national court, to apply Paragraph 28(4) to a situation such as that in the main proceedings, when a non-resident parent company such as RCS cannot obtain a tax credit equivalent to the corporation tax paid by Burda, would be disproportionate by reference to the objective of that provision. In the national court’s opinion, the Federal Republic of Germany could be required, under the Treaty provisions relating to the freedom of establishment, to refrain, in favour of the subsidiary, from taxing the income from EK 02 deemed to have been used for the profit distribution, if the subsidiary proves that it made the distribution to non-resident parent companies, which therefore cannot obtain the tax credit equivalent to the portion of corporation tax paid by Burda.

90. While Burda agrees with that reasoning, the German Government considers, on the other hand, that there is no discrimination against Burda according to whether it distributes profits to its resident parent company or the non-resident parent company, or against RCS. On this point, the German Government observes that, because of the distribution of taxation powers between the Member State of the source of dividends and the Member State of residence of the parent company, recognised both by Directive 90/435 and by primary law, in principle it is for the latter Member State, in order to avoid double taxation of the parent company, to set off in the hands of that company the corporation tax paid by the subsidiary which distributed the profits. Although the German Government agrees that, under the system for the avoidance of double taxation in the Member State of residence of the parent company, the amount of tax to be paid by the parent may be greater than what would be paid in a purely national situation, the German Government nevertheless considers that this would only be the consequence of the coexistence of different tax systems and would not interfere with one of the freedoms of movement provided for by the Treaty. The Commission concurs in essence with the German Government’s line of argument, pointing out however that it is not necessary in the present case to settle the problem of the tax treatment of parent companies as the tax in question in the present case concerns only the subsidiary resident in Germany.

91. It must be noted, first of all, that the national court focuses only on the consequences of applying Paragraph 28(4) of the KStG 1996, that is to say, Burda’s tax resulting from the correction in accordance with that provision in relation to the fact that it is impossible for a non-resident parent company to set off the tax paid by Burda against its own tax. Nevertheless, as I mentioned when considering the national court’s first question, the fact that the non-resident parent company cannot be given a tax credit for the portion of corporation tax paid by Burda is not due to the application of Paragraph 28(4), but it is also impossible before the correction under that provision in relation to the corporation tax initially levied on Burda in respect of the profit distribution. In my view, the context in which Paragraph 28(4) is to be applied cannot be ignored.

92. To reply to the question from the national court, it seems to me necessary to distinguish the tax treatment of the subsidiary which carries out a profit distribution from that of the parent company.

93. With regard to the subsidiary, it is clear that its overall tax charge under the KStG 1996 does not differ according to whether it distributes profits to a resident or a non-resident parent company. Whether before or after the correction provided for by Paragraph 28(4) of the KStG 1996, the tax charge of the subsidiary established in Germany does not depend on the location of the parent companies’ registered office.

94. Nor do I think that it can be suggested, as Burda attempts to do, that the application of Paragraph 28(4) of the KStG 1996 leads, so far as the subsidiary is concerned, to the same treatment of different situations. The subsidiary is not in fact in a different position in relation to the law of its State of residence, in the present case the Federal Republic of Germany, depending on whether it distributes its profits to a non-resident or a resident parent company.

95. In other words, if there really is the same treatment of different situations, the difference in situations could be found only in relation to the parent companies .

96. On that point, it is clear from the reasoning of the order for reference that the national court is uncertain primarily as to whether Article 52 of the EC Treaty prohibits the Member State of the source of the dividends from applying the same tax provision, in the present case Paragraph 28(4) of the KStG 1996, irrespective of the fact that a resident and a non-resident parent company are in different situations (same treatment of different situations). It therefore focuses less on whether, under the Treaty provisions on freedom of establishment, the non-resident parent company, in the present case RCS, should be entitled to a tax credit, like the parent company resident in Germany, on the ground that the two companies must be regarded as being in a similar situation in relation to application of the tax law of that Member State (different treatment of similar situations).

97. However, as I shall show below, it seems to me that, for the purpose of preventing economic double taxation, the answer to this question from the national court calls for consideration of the distribution of taxation powers as between the Member State of the source of the distributed profits and the Member State of residence of the parent company.

98. The assumption from which the second question proceeds, namely that, so far as the tax legislation of the Member State of the source of the distributed profits is concerned, resident and non-resident parent companies in that State are in different situations, appears, in itself, to be correct.

99. A similar conclusion was reached in Test Claimants in Class IV of the ACT Group Legislation . In that case, the Court had to determine whether there was a discriminatory difference in tax treatment by the United Kingdom of Great Britain and Northern Ireland, as the Member State of the source of distribution of profits, between, on the one hand, the situation of a company resident in the United Kingdom which received dividends from another resident company and was granted in that Member State a tax credit equal to the portion of the advance corporation tax (ACT) paid by the latter and, on the other hand, that of a non‑resident company receiving dividends from a resident company not entitled to a tax credit, unless there was an agreement preventing economic double taxation between the Member State of its residence and the United Kingdom.

100. On the question of the distribution of powers between the Member State of the source of the distributed profits and the Member State of residence of the parent company with regard to the prevention of economic double taxation, the Court observed, with reference to the relationship between a subsidiary and its parent company covered by Directive 90/435, that Article 4, read in conjunction with Article 3 of that directive, obliges each Member State either to exempt profits received by a resident parent company from a subsidiary residing in another Member State or to authorise that parent company to deduct from the amount of its tax the portion of the subsidiary’s tax relating to those profits. (28)

101. As for the relationship between a subsidiary and its parent company not covered by the provisions of Directive 90/435, regarding which the Court interpreted Article 43 EC, it found that the situation of the recipient shareholders resident in the Member State of the source of the profit distribution and that of recipient shareholders residing in another Member State are not necessarily comparable as regards the application of the tax legislation of the Member State of residence of the distributing company. (29)

102. In that connection, where the company making the distribution and the shareholder to whom it is paid are not resident in the same Member State, the Court distinguished between the obligations of the Member State of residence of the shareholder receiving the distribution and those of the Member State of residence of the company making the distribution, that is to say, the Member State in which the profits are derived, as regards the prevention or mitigation of a series of charges to tax and of economic double taxation. (30) More particularly, the Court pointed out inter alia that to require the Member State of the source of the profits to ensure that profits distributed to a non-resident shareholder are not liable to a series of charges to tax or to economic double taxation, either by exempting those profits from tax at the level of the company making the distribution or by granting the shareholder a tax advantage equal to the tax paid on those profits by the company making the distribution, would mean in point of fact that that Member State would be obliged to abandon the right to tax a profit generated through an economic activity undertaken on its territory. (31)

103. In those circumstances, if the Member State of the source of the profits exercises its taxation powers only in relation to parent companies residing in its territory, allowing them a tax credit equal to the portion of corporation tax paid by the company generating the distributed profits, but not non-resident parent companies, does not amount to discriminatory tax treatment of the latter.

104. It would be different if the Member State of the source of the profits exercised, unilaterally or on the basis of an agreement, its taxation powers not only in relation to profits generated on its territory, but also in relation to income arising in that Member State and paid to non-resident companies receiving dividends. That Member State must then, in accordance with the Treaty provisions on freedom of establishment, ensure that, under the procedures laid down by its national law in order to prevent or mitigate double taxation, non-resident shareholder companies are subject to the same treatment as resident shareholder companies. (32) That was possibly the case in Test Claimants in Class IV of the ACT Group Litigation , by virtue of double taxation conventions concluded by the United Kingdom under which, where a company not resident in that Member State was entitled to a full or partial tax credit in that same Member State, it was liable to income tax in the United Kingdom on the dividends which it received from a resident company. (33)

105. The dichotomy highlighted in Test Claimants in Class IV of the ACT Group Litigation may be validly transposed to the present case.

106. If the Federal Republic of Germany were to exercise a taxation power on income from the profit distribution received by the non-resident parent company, it would be obliged, under the procedures laid down by German tax legislation for the prevention of economic double taxation, to grant a non-resident parent company the same treatment as a parent company resident in Germany and receiving income from a subsidiary established in that same State. The difference in treatment, based on the location of the parent company’s registered office, does not seem to me to be justified in any way because it appears to be based on purely economic grounds relating to the risk of loss of tax revenue. (34) In any event, even if it were to be considered that the purpose of the national legislation is to prevent the loss of the possibility of taxing income generated in national territory, since the Member State in question has chosen to exempt, by allowing a tax credit, parent companies established in its territory with regard to income received from a subsidiary residing in the same territory, reliance cannot be placed on the need to safeguard the balanced allocation between the Member States of the power to tax in order to justify, in the context of exercising its taxation power, the taxation of parent companies established in another Member State. (35)

107. In practice, the Federal Republic of Germany could therefore continue to levy corporation tax on the subsidiary residing in its territory because it is only a matter of taxing it on income generated by an economic activity undertaken on German territory, whilst nevertheless permitting the non-resident parent company in relation to which the Federal Republic of Germany exercises its taxation powers to receive treatment equal to that of the resident parent company.

108. If, on the other hand, the Federal Republic of Germany were not to exercise its taxation powers on income arising in Germany received by the non-resident parent company, the further question would then arise of whether the Federal Republic of Germany would be obliged, under Article 52 of the EC Treaty, to refrain from applying Paragraph 28(4) of the KStG 1996 to a situation such as that at issue in the main proceedings, as the national court suggests.

109. In that connection, I note that the application of Paragraph 28(4) of the KStG 1996 permits the continuation, after correction, of the rate of corporation tax paid by Burda. That tax is levied on the income generated by Burda’s economic activity on German territory. To refrain from applying Paragraph 28(4) in a situation such as that in the main proceedings would amount to permitting a company established in Germany, a subsidiary of a company established in another Member State, to avoid a subsequent corporation tax charge in respect of its economic activity because the distribution would then be deemed to have been set off against income not subject to corporation tax. In such a case, the Member State of the source of the profits would have to waive its right to tax income generated by economic activity on its territory. That would undoubtedly mean disregarding the taxing power retained by the Member States and the rule that it is for each Member State to organise, in compliance with Community law, its system of taxation of distributed profits and, in that context, to define the tax base as well as the tax rates which apply to the company making the distribution in so far as it is liable to tax in that Member State. (36)

110. Furthermore, it is possible that the situation envisaged by the national court may lead ultimately to the Member State of the source of the profits eliminating economic double taxation when, in principle, it is for the Member State where the parent company resides to mitigate or prevent it in the context of the distribution of taxation powers among the Member States.

111. No doubt there could be unfavourable consequences for the parent company if the Member State where it resides made it impossible for the company to obtain a tax credit for the portion of corporation tax paid by the subsidiary in the Member State of the source of the profit distribution. As we know, the Member States retain the power to define, unilaterally or by treaty, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation, (37) without being obliged, in the absence of unifying or harmonisation measures at Community level, to achieve any such result. (38)

112. Although that question is not the subject of the present reference for a preliminary ruling, it would receive a satisfactory reply in a situation like that in the main proceedings, which falls within the scope ratione personae and ratione materiae of Directive 90/435, Article 4 of which requires the Member State of the parent company’s residence either to refrain from taxing profits received by that company or to authorise it to deduct from the amount of its tax the fraction of the subsidiary’s tax relating to those profits and paid in the Member State of the subsidiary’s residence.

113. It is for the national court to ascertain which of the two situations set out in points 106 and 108 respectively of this Opinion is present in the main proceedings, taking into account all the provisions of its tax legislation and, if necessary, any relevant provision of the double taxation convention concluded with the Kingdom of the Netherlands.

114. For all those reasons, I consider that Articles 52 and 73b of the EC Treaty must be interpreted as meaning that they do not preclude national legislation which subjects to corporation tax the profits distributed by a company, including where that distribution is, after a correction made under that legislation, set off against income other than that which was initially distributed, even where that company proves that it distributed dividends to a non-resident parent company which, unlike a resident parent company, is not entitled under national law to deduct from its own tax the portion of corporation tax paid by the company. The situation would be different if the Member State in which the company is resident exercised its taxation powers in relation to the income arising in that Member State received by the non-resident parent company, in which case it would be for that Member State to accord to the non-resident parent company the same treatment as a resident parent company in that Member State receiving income from the company resident in that same Member State. It is for the national court to ascertain which of those situations is present in the main proceedings, taking into account all the provisions of its tax legislation and, if necessary, any relevant provisions of the double taxation convention concluded with the Kingdom of the Netherlands.

VI – Conclusion

115. In the light of the foregoing considerations, I suggest that the Court should give the following answers to the questions referred to it by the Bundesfinanzhof:

(1) A provision of national law which keeps the level of corporation tax initially paid by a company on a profit distribution to its parent companies by setting off, when a correction is made pursuant to that provision, the distribution against income of the company other than that which was used for the initial distribution is not, in the context of the general scheme of the tax rules of which it forms a part, a withholding tax within the meaning of Article 5(1) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

(2) Article 52 of the EC Treaty (now, after amendment, Article 43 EC) and Article 73b of the EC Treaty (now Article 56 EC) must be interpreted as meaning that they do not preclude national legislation which subjects to corporation tax the profits distributed by a company, including where that distribution is, after a correction made under that legislation, set off against income other than that which was initially distributed, even where that company proves that it distributed dividends to a non-resident parent company which, unlike a resident parent company, is not entitled under national law to deduct from its own tax the portion of corporation tax paid by the company.

The situation would be different if the Member State in which the company is resident exercised its taxation powers in relation to the income arising in that Member State received by the non-resident parent company, in which case it would be for that Member State to accord to the non-resident parent company the same treatment as a resident parent company in that Member State receiving income from the company resident in that same Member State.

It is for the national court to ascertain which of those situations is present in the main proceedings, taking into account all the provisions of its tax legislation and, if necessary, any relevant provisions of the Convention of 16 June 1959 between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation.

(1) .

(2) – OJ 1990 L 225, p. 6. It should be noted that this directive was partly amended by Council Directive 2003/123/EC of 22 December 2003 (OJ 2004 L 7, p. 41), which however for time reasons is not applicable to the main proceedings.

(3) – BGBl. 1996 I, p. 340.

(4) – BGBl. 1990 I, p. 1898.

(5) – BGBl. 1960 II, p. 1781.

(6) – See Paragraph 36 of the EStG 1990, partly reproduced in point 23 of this Opinion.

(7) – See also, to that effect, Joined Cases C‑283/94, C‑291/94 and C‑292/94 Denkavit and Others [1996] ECR I‑5063, paragraph 38.

(8) – See, inter alia, Case C-58/01 Océ Van der Grinten [2003] ECR I‑9809, paragraphs 45 and 80.

(9) – See, to that effect, Case C-294/99 Athinaïki Zythopoiïa [2001] ECR I‑6797, paragraph 5.

(10) – See points 23 and 24 of my Opinion in Case C-379/05 Amurta [2007] ECR I-0000.

(11) – In my view, by giving a negative definition to ‘withholding tax’, Article 7(1) of Directive 90/435 cannot be interpreted as an exception to the requirement that the Member State in which the distribution is made is not to charge withholding tax within the meaning of the directive. On the contrary, that provision contributes to delimiting ‘withholding tax’ by specifying the scope ratione materiae of Directive 90/435. Article 7(1) of the directive cannot therefore, it seems to me, be interpreted restrictively.

(12) – Article 4(1) of Directive 90/435. See also Case C-446/04 Test Claimants in the FII Group Litigation [2006] ECR I‑11753, paragraph 104.

(13) – Article 7(2) of Directive 90/435.

(14) – Case C-375/98 Epson Europe [2000] ECR I‑4243, paragraph 23; Océ Van der Grinten , paragraph 47; and Test Claimants in the FII Group Litigation , paragraph 108.

(15) – Test Claimants in the FII Group Litigation , paragraph 88.

(16) – Opinion delivered on 10 May 2001, point 32.

(17) – Océ Van der Griten , paragraph 47, and Test Claimants in the FII Group Litigation , paragraph 108.

(18) – See paragraph 29 and the operative part of the judgment.

(19) – By way of reminder, in Océ Van der Grinten , paragraphs 86 to 89, the Court held that Article 7(2) of Directive 90/435 could authorise a withholding tax within the meaning of Article 5(1) of the same directive.

(20) – See, inter alia, to that effect, Case C-231/05 Oy AA [2007] ECR I-6373, paragraph 20; Case C‑112/05 Commission v Germany [2007] ECR I-8995, paragraph 13; and Case C-298/05 Columbus Container Services [2007] ECR I-0000, paragraph 29.

(21) – See point 51 of my Opinion delivered on 29 March 2007 in Columbus Container Services .

(22) – See also, to that effect, Case T-282/02 Cementbouw Handel & Industrie v Commission [2006] ECR II-319, paragraph 67. It should be noted that an appeal was lodged against that judgment on other points, leading to Case C-202/06 P Cementbouw Handel & Industrie v Commission [2007] ECR I-0000.

(23) – See, inter alia, Case C-307/97 Saint-Gobain ZN [1999] ECR I-6161, paragraph 35; Case C‑446/03 Marks & Spencer [2005] ECR I-10837, paragraph 30; and Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I‑11673, paragraph 42.

(24) – See, to that effect, Case 270/83 Commission v France [1986] ECR 273, paragraph 18; Marks & Spencer , paragraph 37; Test Claimants in Class IV of the ACT Group Litigation , paragraph 43; and Oy AA , paragraph 30.

(25) – See Test Claimants in Class IV of the ACT Group Litigation , paragraph 43, and Oy AA , paragraph 30.

(26) – See, to that effect, Case C-311/07 Royal Bank of Scotland [1999] ECR I-2651, paragraph 26, and Test Claimants in Class IV of the ACT Group Litigation , paragraph 46.

(27) – It must be borne in mind that the Court has consistently held that discrimination consists in treating differently situations which are identical, or treating in the same way situations which are different. See Royal Bank of Scotland , paragraph 26, and Test Claimants in Class IV of the ACT Group Litigation , paragraph 46.

(28) – Test Claimants in Class IV of the ACT Group Legislation , paragraph 53.

(29) – Ibid., paragraph 57.

(30) – Ibid., paragraph 58.

(31) – Ibid., paragraph 59 (emphasis added).

(32) – Ibid., paragraph 70. See also Amurta , paragraph 39.

(33) – Test Claimants in Class IV of the ACT Group Litigation , paragraphs 15, 69 and 70.

(34) – See, inter alia, Case C-35/98 Verkooijen [2000] ECR I‑4071, paragraph 59, and Marks & Spencer , paragraph 44.

(35) – See, to that effect, Amurta , paragraphs 58 and 59.

(36) – See, to that effect, Test Claimants in Class IV of the ACT Group Litigation , paragraph 50.

(37) – See, inter alia, Case C-336/96 Gilly [1998] ECR I‑2793, paragraphs 24 and 30; Saint-Gobain ZN , paragraph 57; and Test Claimants in Class IV of the ACT Group Litigation , paragraph 52.

(38) – See Case C-513/04 Kerckhaert and Morres [2006] ECR I-10967, paragraphs 22 to 24, regarding the applicability of the free movement of capital, in which the Court ruled that Article 73b(1) of the EC Treaty does not preclude legislation of a Member State which, in the context of tax on income, makes dividends from shares in companies established in the territory of that State and dividends from shares in companies established in another Member State subject to the same uniform rate of taxation, without providing for the possibility of setting off tax levied by deduction at source in that other Member State.