Keywords

Summary



Keywords

1. Freedom to provide services – Free movement of capital – Restrictions – Tax legislation

(Arts 49 EC and 56 EC; Council Directive 77/799)

2. Freedom to provide services – Free movement of capital – Restrictions – Tax legislation

(Arts 49 EC and 56 EC)

Summary

1. Articles 49 EC and 56 EC must be interpreted as not precluding the application by a Member State, where savings balances and income from those balances are concealed from the tax authorities of that Member State and the latter have no evidence of their existence which would enable an investigation to be initiated, of a longer recovery period when the balances are held in another Member State than when they are held in the first Member State. The fact that that other Member State applies banking secrecy is not relevant in that regard.

It is true that such legislation constitutes a restriction both of the freedom to provide services and of the free movement of capital, which is prohibited, in principle, by Articles 49 EC and 56 EC respectively, inasmuch as the application to taxpayers resident in the Member States concerned of an extended recovery period in regard to assets held outside that Member State and their income therefrom is such as to make it less attractive for those taxpayers to transfer assets to another Member State in order to benefit from financial services offered there than to keep the assets, and obtain financial services, in the first Member State.

However, that restriction may be justified by the need to ensure effective fiscal supervision and to prevent tax evasion, subject to compliance with the principle of proportionality, in that it must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it.

Such legislation contributes to ensuring effective fiscal supervision and to preventing tax evasion. Although the extension of a recovery period does not, as such, strengthen the powers of investigation available to the tax authorities of a Member State, it none the less enables them, in the event of the discovery of taxable items held in another Member State of which they had no knowledge, to initiate an investigation and, where it turns out that those items have not been subject to tax, or that too small an amount of tax has been levied, to issue an additional assessment. The same is true when the tax authorities of a Member State are informed of the existence of taxable items held in another Member State which applies banking secrecy. In addition, the application by a Member State of an extended recovery period in the case of taxable items which are held or have arisen in another Member State may dissuade taxpayers holding such assets from concealing them, or their income from them, from the tax authorities, so as not to run the risk later of an additional assessment and, as the case may be, a fine, both of which would be determined on the basis of a period which could be as long as 12 years.

With regard to assessing whether the legislation at issue goes beyond what is necessary to ensure the effectiveness of fiscal supervision and to prevent tax evasion, it is true that the further period accorded to the tax authorities of the Member State concerned to issue an additional assessment in regard to taxable items which are held or have arisen in another Member State does not necessarily correspond to the period which those authorities need in order to verify certain information with that other Member State by having recourse to the mutual assistance provided for in Directive 77/799 concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation or to the system for the exchange of information set up by a bilateral convention. However, it does not therefore follow that the extension of the period during which those authorities may issue an additional assessment in the case of assets or income in another Member State is, as a general rule, disproportionate to the objective of ensuring compliance with national tax legislation. Without prejudice to any Community harmonising provisions which might be applicable, a Member State cannot be required to adapt its rules on fiscal supervision in the light of the specific situation prevailing in every other Member State or non-member country.

In a situation where items which are taxable in one Member State and located in another Member State have been concealed from the tax authorities of the first Member State and the latter do not have any evidence of the existence of those items which would enable an investigation to be initiated, the fact that taxable items which have been concealed from the tax authorities are subject to an extended period during which those authorities may issue an additional assessment does not go beyond what is necessary to ensure the effectiveness of fiscal supervision and the prevention of tax evasion. In that situation, the first Member State is unable to request the competent authorities of the other Member State to communicate to it the information necessary to establish correctly the amount of tax due. Since recourse to a mechanism for the exchange of information is impossible in such a case because there is nothing enabling an investigation to be initiated, the grant to the tax authorities of a Member State of a longer period in which to assess liability to tax in regard to taxable items located in another Member State must be regarded as intended not to provide those authorities with the time needed for obtaining from that other Member State information on taxable items located there, but merely to provide a longer period during which the possible discovery of those taxable items can still give rise to an additional assessment in so far as the investigation resulting from such a discovery may lead to such an assessment being issued before the expiry of that period. Moreover, since the application by a Member State of an extended recovery period in such circumstances does not depend on the possibility of obtaining information from the other Member State, it is also not relevant whether the latter Member State applies banking secrecy. Moreover, the choice by a Member State to limit that period temporally and to determine the limit on the basis of the time-limit applicable to prosecutions for tax evasion does not seem disproportionate. In addition, a Member State cannot be reproached for limiting the scope of the recovery period, longer for taxable items of which the tax authorities had no knowledge, to taxable items not located in its territory.

On the other hand, where the tax authorities of a Member State had evidence enabling them to request the competent authorities of other Member States, whether by way of the mutual assistance provided for in Directive 77/799 or of that provided for under bilateral conventions, to communicate to them the information necessary to establish the correct amount of tax due, the mere fact that the taxable items concerned are located in another Member State does not justify the general application of an additional recovery period which is in no way based on the time needed to have effective recourse to those mechanisms of mutual assistance.

(see paras 39-40, 45, 47, 49-52, 59-61, 63, 67-70, 73, 75-76, operative part 1)

2. Articles 49 EC and 56 EC must be interpreted as not precluding, when a Member State applies a longer recovery period in the case of assets held in another Member State than in the case of assets held in the first Member State and such foreign assets and the income therefrom were concealed from the first Member State’s tax authorities which had no evidence of their existence enabling an investigation to be initiated, the fine imposed for concealment of the foreign assets and income from being calculated as a proportion of the amount to be recovered and over that longer period.

The risk that a resident taxpayer might have a higher fine imposed on him in respect of assets and income in another Member State than when domestic assets and income are involved is merely the consequence of the fact that the period which may be taken into account for determining the additional assessment and, consequently, the basis of the fine is liable to be longer in the case of non-domestic assets and income than in the case of domestic assets and income, inasmuch as the latter are not covered by the extended recovery period. Since Articles 49 EC and 56 EC do not preclude the application by a Member State of a longer recovery period in the case of assets held in another Member State than in the case of assets held in the first Member State when the assets and income in question have been concealed from the tax authorities of the first Member State and those authorities had no evidence of their existence enabling an investigation to be initiated, they also do not preclude, in the same circumstances, the fine imposed for concealment of the foreign assets and income from being calculated as a proportion of the amount to be recovered and over that longer period.

(see paras 84-86, operative part 2)