Case C-493/09

European Commission

v

Portuguese Republic

‛Failure of a Member State to fulfil obligations — Article 63 TFEU and Article 40 of the EEA Agreement — Free movement of capital — Foreign and national pension funds — Corporation tax — Dividends — Exemption — Difference in treatment’

Opinion of Advocate General Mengozzi delivered on 25 May 2011 I - 9250

Judgment of the Court (First Chamber), 6 October 2011 I - 9264

Summary of the Judgment

Free movement of capital — Restrictions — Tax legislation — Corporation tax

(Art. 63 TFEU; EEA Agreement, Art. 40)

A Member State that reserves the benefit of a corporation tax exemption to pension funds resident in its territory alone fails to fulfil its obligations under Article 63 TFEU and Article 40 of the Agreement on the European Economic Area.

Owing to such a law, investment that may be made in a resident company by a non-resident pension fund is less attractive than an investment that may be made by a resident pension fund. The effect of this difference in treatment it to dissuade non-resident pension funds from investing in resident companies and resident savers from investing in such pension funds.

Such a restriction of the free movement of capital is not justified by the objective relating to the necessity of preserving the coherence of the national tax system, since it has not satisfactorily been shown that a direct link exists between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question.

Moreover, if the corporation tax exemption is consideration for pension funds’ satisfying the strict requirements as concerns management, operations, capitalisation and financial responsibility laid down by Directive 2003/41 on the activities and supervision of institutions for occupational retirement, and by the national law, the restriction at issue cannot, however, find justification in the need to supervise observance of those requirements and, therefore, to guarantee the effectiveness of tax supervision, given that the national law absolutely prevents a pension fund from submitting evidence that it satisfies the requirements that would allow it to benefit from the corporation tax exemption. It cannot be excluded, a priori, that pension funds resident in another Member State may be able to provide relevant documentary evidence enabling the national tax authorities to ascertain, clearly and precisely, that they meet requirements equivalent to those laid down by national law, in their State of residence.

In any event, the fact that it is absolutely impossible for non-resident pension funds to benefit from the exemption granted to resident pension funds cannot be considered to be proportionate with regard to the difficulties pleaded by the Member State concerned in relation to the collection of information and the recovery of tax debts.

Firstly, in relation to funds residing in another Member State, Directive 77/799 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, and also Directive 2008/55 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures provide the national authorities with a cooperation and assistance framework enabling them to obtain the information required by national law, and also the means of recovering possible tax debts from non-resident pension funds. Secondly, in relation to pension funds residing in an EEA Member State, while it is true that the abovementioned mechanisms are not applicable as things stand, nonetheless the law at issue cannot be considered to be proportionate, for it does not make the benefit of the exemption from corporation tax subject to a bilateral assistance agreement between the Member State concerned and the EEA Member States which would enable cooperation and assistance equivalent to that put in place between the EU Member States. Moreover, measures less restrictive of the free movement of capital than those in the law at issue could be envisaged in order to ensure the recovery of tax debts, such as the obligation to provide, a priori, the necessary financial guarantees for the payment of those debts.

(see paras 30, 36-37, 46, 48-50, 52, operative part)