CELEX: 62006CJ0194
Language: en
Date: 2008-05-20 00:00:00
Title: Judgment of the Court (Grand Chamber) of 20 May 2008.#Staatssecretaris van Financiën v Orange European Smallcap Fund NV.#Reference for a preliminary ruling: Hoge Raad der Nederlanden - Netherlands.#Articles 56 EC to 58 EC - Free movement of capital - Taxation of dividends - Concession granted to a fiscal investment enterprise on account of tax deducted at source by another State from dividends received by that enterprise - Restriction of that concession to the amount that a shareholder resident in the Member State of establishment of that enterprise who has made an investment without such an enterprise acting as intermediary could have had credited to income tax on the basis of a convention for the prevention of double taxation - Restriction of that concession by reference to the shares of non-resident shareholders in the capital of that enterprise.#Case C-194/06.

Case C-194/06
      Staatssecretaris van Financiën
      v
      Orange European Smallcap Fund NV
      (Reference for a preliminary ruling from the Hoge Raad der Nederlanden)
      (Articles 56 EC to 58 EC – Free movement of capital – Taxation of dividends – Concession granted to a fiscal investment enterprise on account of tax deducted at source by another State from dividends
         received by that enterprise – Restriction of that concession to the amount that a shareholder resident in the Member State of establishment of that enterprise
         who has made an investment without such an enterprise acting as intermediary could have had credited to income tax on the
         basis of a convention for the prevention of double taxation – Restriction of that concession by reference to the shares of non-resident shareholders in the capital of that enterprise)
      
      Summary of the Judgment
      1.        Free movement of capital – Restrictions – Tax legislation – Corporation tax – Taxation of dividends received by collective
            investment enterprises
      (Arts 56 EC and 58 EC)
      2.        Free movement of capital – Restrictions – Tax legislation – Corporation tax – Taxation of dividends received by collective
            investment enterprises
      (Arts 56 EC and 58 EC)
      3.        Free movement of capital – Restrictions – Meaning – Same interpretation with regard to relations with third countries and
            within the Community – Limits 
      (Art. 56(1) EC)
      4.        Free movement of capital – Restrictions on movements of capital to or from third countries – Restrictions on capital movements
            involving direct investment which existed on 31 December 1993 – Meaning of ‘direct investment’
      (Art. 57(1) EC)
      1.        Articles 56 EC and 58 EC do not preclude legislation of a Member State which grants a concession to fiscal investment enterprises
         established in that Member State on account of tax deducted at source in another Member State from dividends received by those
         enterprises, and restricts that concession to the amount which a natural person resident in the first Member State could have
         had credited, on account of similar deductions, on the basis of a double taxation convention concluded with that other Member
         State.
      
      It is true that, by excluding from the concession (relating to the taxation at source of dividends received abroad) dividends
         originating in certain Member States, such legislation makes investment in those Member States less appealing than investment
         in the Member States in which the taxation at source of those dividends gives rise to that concession. The legislation in
         question is therefore liable to deter a collective investment enterprise from investing in the Member States in which the
         taxation of dividends does not give rise to the concession and accordingly constitutes a restriction on the free movement
         of capital prohibited in principle by Article 56 EC.
      
      Nevertheless, such legislation seeks to make dividends received by a shareholder investing directly subject as far as possible
         to the same treatment for tax purposes as those received by a shareholder investing through the intermediary of a fiscal investment
         enterprise, so as to prevent investments abroad by such an enterprise from being regarded as less appealing than direct investments.
         However, under that legislation, where a fiscal investment enterprise receives dividends from Member States with which the
         Member State in which that enterprise is established has concluded a convention providing for shareholders who are natural
         persons to be entitled to credit the tax which those Member States have deducted from the dividends to the income tax for
         which those shareholders are liable in the Member State of establishment, the situation of that enterprise is different from
         that in which it finds itself when receiving dividends from Member States with which no such convention has been concluded,
         as there is no such entitlement in respect of those dividends. In fact, it is only as regards investments in the Member States
         with which such a bilateral tax convention has been concluded that, without the concession granted, the decision to invest
         through the intermediary of a fiscal investment enterprise runs the risk of being less advantageous to a shareholder who is
         a natural person than direct investment. By contrast, as regards the Member States with which the Member State of establishment
         of such an enterprise has not concluded such a convention, the decision, by a natural person, to invest through the intermediary
         of such an enterprise does not involve the risk of losing a benefit which he could have enjoyed if he had chosen to invest
         directly in those Member States. Accordingly, that situation is not objectively comparable to the situation in which the Member
         State of establishment of that enterprise has concluded such a tax convention.
      
      It follows that, in the case of legislation pursuant to which – in order to make the tax treatment of direct investments the
         same, as far as possible, as that of investments made through the intermediary of investment enterprises – a Member State
         has decided to grant those enterprises a concession in respect of tax deducted at source on dividends from Member States vis-à-vis
         which it has undertaken, under the terms of bilateral agreements, to allow natural persons to credit those deductions to the
         income tax for which they are liable under national law, Articles 56 EC and 58 EC do not preclude that Member State from withholding
         that concession in respect of dividends from other Member States with which it has not concluded bilateral agreements containing
         such provisions, as these are not objectively comparable situations.
      
      (see paras 56, 60-65, operative part 1)
      2.        Articles 56 EC and 58 EC preclude legislation of a Member State which grants a concession to fiscal investment enterprises
         established in that Member State on account of tax deducted at source in another Member State or third country from dividends
         received by those enterprises, and reduces that concession where and to the extent to which the shareholders of those enterprises
         are natural or legal persons resident or established in other Member States or in third countries, since such a reduction
         adversely affects all the shareholders of those enterprises without distinction, because it has the effect of reducing the
         total amount of profit for distribution.
      
      Such a reduction of the concession in proportion to the interest held by shareholders resident or established in another Member
         State creates a restriction on the free movement of capital, which is prohibited in principle by Article 56 EC, in so far
         as it is liable to impede the raising of capital by a fiscal investment enterprise in Member States other than that in which
         that enterprise is established, and is also liable to deter investors from those other Member States from acquiring shares
         in that enterprise.
      
      The exercise by a Member State of its fiscal sovereignty over the dividends paid by the fiscal investment enterprises established
         in that Member State both to shareholders resident or established in that Member State and to shareholders resident or established
         in other Member States – where such a concession is provided for – justifies the need to extend it to the fiscal investment
         enterprises that include shareholders who are not resident or established in that Member State.
      
      Even though such legislation seeks to distinguish between shareholders of collective investment enterprises according to whether
         they are resident and non-resident, so that the concession granted to them by means of a profit distribution by those enterprises
         corresponds to the rates of taxation to which those shareholders are respectively subject in the Member State of establishment
         of those enterprises, it must be noted that that objective cannot be achieved by a reduction of that concession in proportion
         to the interest in those enterprises held by shareholders resident or established in other Member States. Such a reduction
         adversely affects all the shareholders of fiscal investment enterprises without distinction, as it has the effect of reducing
         the total amount of profit for distribution.
      
      A reduction in tax revenue in relation to dividends paid by companies established in other Member States cannot be regarded
         as an overriding reason in the public interest which may be relied on to justify a measure which is contrary to a fundamental
         freedom.
      
      The approach in relation to situations in which shareholders of a fiscal investment enterprise are resident or established
         in another Member State can apply equally to situations in which shareholders of a collective investment enterprise are resident
         or established in third countries.
      
      In so far as, on the one hand, a Member State taxes dividends distributed by a fiscal investment enterprise established in
         that Member State to shareholders who are resident or established in third countries and, on the other hand, the concession
         granted to such an enterprise is reduced in proportion to the interest in that fiscal investment enterprise held by shareholders
         resident in third countries, without the fiscal treatment of those shareholders in the third countries being relevant in that
         regard, the need to guarantee the effectiveness of fiscal supervision cannot justify such a restriction on the movement of
         capital to or from third countries.
      
      On the assumption that the avoidance of a reduction in tax revenue may be relied upon as justification for a restriction on
         the movement of capital to or from third countries, such a justification cannot be taken into consideration inasmuch as that
         reduction affects all shareholders of the collective investment enterprise concerned without distinction, whether resident
         or established in the Member States or in third countries.
      
      In respect of such legislation, whether the foreign shareholders of a fiscal investment enterprise are resident or established
         in a State with which the Member State of establishment of that enterprise has concluded a convention providing for reciprocal
         crediting of tax deducted at source from dividends is irrelevant.
      
      (see paras 72, 74, 79, 82, 84, 92-97, 108, 113-114, operative part 2)
      3.        The concept of restrictions on movement of capital must be interpreted in the same manner with regard to relations between
         Member States and third countries as it is with regard to relations between Member States. Even if the liberalisation of the
         movement of capital with third countries may pursue objectives other than that of establishing the internal market, such as,
         in particular, that of ensuring the credibility of the single Community currency on world financial markets and maintaining
         financial centres with a worldwide dimension within the Member States, when the principle of free movement of capital was
         extended, pursuant to Article 56(1) EC, to movement of capital between third countries and the Member States, the latter chose
         to enshrine that principle in that article and in the same terms for movements of capital taking place within the Community
         and those relating to relations with third countries.
      
      However, movements of capital to or from third countries take place in a different legal context from that which occurs within
         the Community, since, because of the degree of legal integration that exists between Member States of the European Union,
         in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities,
         the taxation by a Member State of economic activities having cross-border aspects which take place within the Community is
         not always comparable to that of economic activities involving relations between Member States and third countries. It may
         also be that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third countries
         is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction
         on capital movements between Member States.
      
      (see paras 87-90)
      4.        A restriction is covered by Article 57(1) EC as being a restriction on the movement of capital involving direct investment
         in so far as it relates to investments of any kind undertaken by natural or legal persons and which serve to establish or
         maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is
         made available in order to carry out an economic activity.
      
      (see para. 102, operative part 3)
JUDGMENT OF THE COURT (Grand Chamber)
      20 May 2008 (*)
      
      (Articles 56 EC to 58 EC – Free movement of capital – Taxation of dividends – Concession granted to a fiscal investment enterprise on account of tax deducted at source by another State from dividends
         received by that enterprise – Restriction of that concession to the amount that a shareholder resident in the Member State of establishment of that enterprise
         who has made an investment without such an enterprise acting as intermediary could have had credited to income tax on the
         basis of a convention for the prevention of double taxation – Restriction of that concession by reference to the shares of non-resident shareholders in the capital of that enterprise)
      
      In Case C‑194/06,
      REFERENCE for a preliminary ruling under Article 234 EC by the Hoge Raad der Nederlanden (Supreme Court of the Netherlands),
         made by decision of 14 April 2006, received at the Court on 26 April 2006, in the proceedings
      
      Staatssecretaris van Financiën
      v
      Orange European Smallcap Fund NV,
      
      THE COURT (Grand Chamber),
      composed of V. Skouris, President, C.W.A. Timmermans, A. Rosas, K. Lenaerts, L. Bay Larsen, Presidents of Chambers, R. Silva
         de Lapuerta, K. Schiemann, P. Kūris, E. Juhász, E. Levits (Rapporteur), A. Ó Caoimh, P. Lindh and J.‑C. Bonichot, Judges,
      
      Advocate General: Y. Bot,
      Registrar: J. Swedenborg, Administrator,
      having regard to the written procedure and further to the hearing on 24 April 2007,
      after considering the observations submitted on behalf of:
      –        Orange European Smallcap Fund NV, by B.J. Kiekebeld, J. van Eijsden and D. Smit, belastingadviseurs,
      –        the Netherlands Government, by H.G. Sevenster and M. de Grave, acting as Agents,
      –        the Commission of the European Communities, by R. Lyal and A. Weimar, acting as Agents,
      after hearing the Opinion of the Advocate General at the sitting on 3 July 2007,
      gives the following
      Judgment
      1        The reference for a preliminary ruling concerns the interpretation of articles 56 EC to 58 EC.
      
      2        This reference has been made in the context of proceedings between the Staatssecretaris van Financiën (Netherlands State Secretary
         for Finance) and Orange European Smallcap Fund NV (‘OESF’) concerning the amount of the concession to be granted pursuant
         to the special tax scheme for fiscal investment enterprises provided for under Netherlands legislation in respect of tax deducted
         abroad on dividends received by OESF during the 1997/1998 financial year.
      
       Legal context
      3        According to Article 28 of the 1969 Law on corporation tax (Wet op de vennootschapsbelasting 1969) (Stb. 1969, No 469) (‘the
         Law on corporation tax’), a fiscal investment enterprise is defined as being any enterprise having the form of a public limited
         company (‘naamloze vennootschap’), private limited company (‘besloten vennootschap’) or pooled investment fund (‘fonds voor
         gemene rekening’) established in the Netherlands, the object and actual activity of which consist in investment and which
         satisfies a number of other conditions.
      
      4        Such an enterprise is liable to corporation tax, but its profits are taxed at a rate of 0%. On pain of losing its status,
         that enterprise is required to make available, within a particular period of time, its entire profits (less certain amounts
         which may be legally set aside) for distribution to its shareholders.
      
      5        Where such an enterprise receives dividends distributed by a company established in the Netherlands, tax on those dividends
         is deducted at source pursuant to Article 1(1) of the 1965 Law on the taxation of dividends (Wet op de dividendbelasting 1965)
         (Stb. 1965, No 621) (‘the Law on the taxation of dividends’).
      
      6        However, under Article 10(2) of that Law, such an enterprise may, on application made within the period of six months following
         the end of a financial year, obtain a refund of the tax deducted in respect of those dividends.
      
      7        With regard to dividends received in other States, from which tax has been deducted by those States, as the referring court
         indicates, Netherlands legislation sets off that foreign taxation against Netherlands corporation tax only up to the amount
         of Netherlands corporation tax proportionately attributable to the dividends in question. According to the referring court,
         since fiscal investment enterprises are taxed at a rate of 0%, no corporation tax is attributable to dividends from abroad,
         and it is therefore impossible for the foreign tax levied on those dividends to be credited.
      
      8        Article 28 of the Law on corporation tax and Article 6 of the Royal Decree on collective investment enterprises (Besluit beleggingsinstellingen)
         of 29 April 1970 (Stb. 1970, No 190), in the version in force at the material time (‘the Royal Decree’), set up a special
         scheme for fiscal investment enterprises. That scheme seeks to make the tax burden on investment proceeds through fiscal investment
         enterprises the same as that on direct investments by private investors, by establishing a system of concessions designed
         to take account of foreign tax deducted from dividends issued to those enterprises.
      
      9        Thus, Article 28(1)(b) of the Law on corporation tax, in the version in force at the time of the facts in the main proceedings,
         allowed the executive to lay down, by a measure of general administration, ‘the rules pursuant to which collective investment
         enterprises shall receive a concession on account of the deduction outside the Netherlands of tax on the yield from the securities
         and claims of those enterprises, which may not exceed the amount of tax which, in the event of direct investment, would be
         deductible from income tax pursuant to the Taxation rules for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk)
         or a treaty for the prevention of double taxation by the holders of shares or units resident or established in the Netherlands’.
      
      10      Article 6 of the Royal Decree is worded as follows:
      
      ‘1.      Where, at the time of a distribution in respect of the year preceding that to which the concession [referred to in Article
         28(1)(b) of the Law on corporation tax] relates, investors having an interest in the capital of a collective investment enterprise
         are exclusively natural persons resident in the Netherlands or bodies liable to corporation tax which are established in the
         Netherlands, [that] concession ... shall be equal to the amount of the tax referred to in [Article 28(1)(b) of the Law on
         corporation tax] which would be deductible from income tax if the yield from securities and claims received by the collective
         investment enterprise in the year to which the concession relates had been received exclusively by natural persons resident
         in the Netherlands. …
      
      2.      Where investors having an interest in the capital of a collective investment enterprise do not, at the date referred to in
         paragraph 1, consist exclusively of the persons or bodies liable to tax referred to in paragraph 1, the concession shall be
         calculated using the formula 
      
      T = B x (7 Sr) / (10 S – 3 Sr),
      where
      T is the concession;
      B is the amount of tax referred to in paragraph 1;
      Sr is the amount paid, on the date referred to in paragraph 1, on the shares or units in the collective investment enterprise
         which are held directly or through other investment enterprises by natural persons resident in the Netherlands or by bodies
         liable to corporation tax, other than collective investment enterprises, which are established in the Netherlands; and
      
      S is the amount paid, on the date referred to in paragraph 1, on all shares or units in the collective investment enterprise
         which are in circulation.
      
      …’
      11      According to the referring court’s explanations, where a fiscal investment enterprise pays dividends received by it from the
         Netherlands or from outside the Netherlands as profits to its shareholders, a Netherlands tax on dividends is deducted by
         the fiscal investment enterprise in respect of those shareholders. With regard to those shareholders resident or established
         in the Netherlands, this taxation of dividends constitutes an advance payment of tax. The tax may be credited against the
         income or corporation tax owed by them and, so far as the taxation of dividends exceeds that amount, it is repaid. The tax
         on dividends deducted in respect of other shareholders is refunded only if a convention for the prevention of double taxation
         or the Taxation rules for the Kingdom of the Netherlands provide for this.
      
      12      The tax convention concluded on 16 June 1959 between the Federal Republic of Germany and the Kingdom of the Netherlands, as
         amended by the protocols of 13 March 1980 and 21 May 1991, made no provision, as regards the 1997/1998 financial year, for
         a right to set off German tax deducted from dividends paid in Germany to a Netherlands resident. No convention for the prevention
         of double taxation was in force during the 1997/1998 financial year between the Kingdom of the Netherlands and the Portuguese
         Republic.
      
       The dispute in the main proceedings and the questions referred for a preliminary ruling
      13      OESF is a company with variable capital established in Amsterdam (Netherlands). The company’s object is the investment of
         money in securities and other assets in such a way that the risks are spread, so that its shareholders can share the proceeds.
         The company actively manages a portfolio of securities issued by listed European undertakings. According to the referring
         court, in the 1997/1998 financial year, OESF had no interests in companies established outside the Netherlands of such a kind
         as to enable it to determine the activities of those companies.
      
      14      OESF’s shareholders are natural and legal persons. In the 1997/1998 financial year, the majority of those shareholders were
         individuals resident in the Netherlands and bodies established in the Netherlands and either liable or not liable to Netherlands
         corporation tax. The rest of the share capital was held essentially by individuals established in the Netherlands Antilles
         and in other Member States (namely, the Kingdom of Belgium, the Federal Republic of Germany, the French Republic, the Grand-Duchy
         of Luxembourg and the United Kingdom of Great Britain and Northern Ireland), and by bodies established in Belgium. Lastly,
         OESF’s shareholders included bodies and individuals resident in Switzerland and individuals resident in the United States.
      
      15      In the 1997/1998 financial year, OESF received dividends on shares in foreign companies corresponding to NLG 5 257 519.15.
         It was taxed abroad on those dividends; the sum of NLG 735 320 was deducted at source, of which NLG 132 339 was by way of
         German tax and NLG 9 905 by way of Portuguese tax.
      
      16      As a result of the payment of those foreign taxes, OESF applied for the concession provided for in Article 28(1)(b) of the
         Law on corporation tax, in conjunction with Article 6 of the Royal Decree. OESF calculated that concession at NLG 518 270,
         taking as a basis for the calculation the whole of the abovementioned sum of NLG 735 320, being the total foreign taxation.
      
      17      The competent tax authority allowed that application only in part, taking NLG 593 076 – namely that sum of NLG 735 320, less
         the German and Portuguese taxation (NLG 132 339 and NLG 9 905 respectively) – as a basis for the calculation, and fixed the
         amount of the concession at NLG 418 013. Following an objection, that decision was confirmed.
      
      18      Hearing an appeal by OESF, the Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam) annulled that decision and increased
         the disputed concession to NLG 622 006. The Gerechtshof took the view that the exclusion of the tax deducted in Germany and
         Portugal from the basis for calculation of the concession, and the reduction of that concession in proportion to the shares
         in OESF held by shareholders resident or established outside the Netherlands, amounted to an unjustified restriction on the
         free movement of capital.
      
      19      The Staatssecretaris van Financiën lodged an appeal in cassation before the referring court against the judgment of the Gerechtshof
         te Amsterdam in so far as the latter (i) took into account the taxes deducted in Germany and Portugal in the calculation of
         the concession, and (ii) failed to reduce the concession in proportion to the shares held in OESF by shareholders who are
         not resident or established in the Netherlands. 
      
      20      The Hoge Raad der Nederlanden (Supreme Court of the Netherlands) took the view that an interpretation of Community law was
         necessary in order for it to reach a decision in the main action. It accordingly decided to stay the proceedings and submit
         the following questions to the Court of Justice for a preliminary ruling:
      
      ‘(1)  Must Article 56 EC, in conjunction with Article 58(1) EC, be interpreted as meaning that the prohibition in Article 56 EC
         is incompatible with a rule in a Member State under which … a concession to be granted to a fiscal investment enterprise on
         account of taxation at source deducted in another Member State from dividends received by the fiscal investment enterprise
         is restricted:
      
      (a)      to the amount which a natural person resident in the Netherlands could have had credited on the basis of a tax treaty concluded
         with the other Member State; 
      
      (b)      where and to the extent to which the shareholders of the fiscal investment enterprise are not natural persons resident in
         the Netherlands or bodies subject to Netherlands corporation tax?
      
      (2)      If the answer to Question 1 is wholly or partly in the affirmative:
      (a)      Does “direct investment” in Article 57(1) EC also include the holding of a block of shares in a company if the holder of the
         shares holds them only as an investment and the size of the block does not put the holder in a position to exercise a decisive
         influence over the management or control of the company?
      
      (b)      Under Article 56 EC, is any restriction of the movement of capital connected with the levying of tax that would be impermissible
         if it related to cross-border movement of capital within the EC similarly impermissible in the case of the same movement of
         capital – in otherwise similar circumstances – to and from third countries?
      
      (c)      If the answer to Question 2(b) is in the negative, must Article 56 EC then be interpreted as meaning that a restriction by
         a Member State of a tax concession granted to a fiscal investment enterprise with regard to taxation at source of a dividend
         received from a third country, that restriction being based on the fact that not all shareholders of the fiscal investment
         enterprise have their place of residence in the Member State concerned, is incompatible with that article?
      
      (3)      Is the answer to the above questions affected by whether:
      (a)      the tax deducted in another country from the dividend received from that country is higher than the tax on the payment of
         that dividend to foreign shareholders in the Member State of establishment of the fiscal investment enterprise;
      
      (b)      the shareholders of the fiscal investment enterprise who have their place of residence outside the Member State of establishment
         of the fiscal investment enterprise are resident or established in a country with which the abovementioned Member State has
         a treaty providing for reciprocal credit of taxation of dividends at source;
      
      (c)      the shareholders of the fiscal investment enterprise who have their place of residence outside the Member State of establishment
         of the fiscal investment enterprise are resident or established in another country of the EC?’
      
       The questions referred for a preliminary ruling
       Question 1(a)
      21      By its Question 1(a), the referring court asks, in essence, whether Articles 56 EC and 58 EC must be interpreted as precluding
         legislation of a Member State, such as that at issue in the main proceedings, under which a concession to be granted to a
         fiscal investment enterprise established in that Member State on account of tax deducted at source in another Member State
         from dividends received by that fiscal investment enterprise is restricted to the amount which a natural person resident in
         the first Member State could have had credited on the basis of a convention for the prevention of double taxation concluded
         with the other Member State.
      
      22      With regard to the case in the main proceedings, the effect of such legislation is that tax on dividends deducted at source
         in Germany and Portugal is not taken into account in the calculation of that concession because, at the material time, the
         convention between the Kingdom of the Netherlands and the Federal Republic of Germany made no provision for a right to set
         off tax deducted in Germany against Netherlands income tax, and no convention had been concluded between the Kingdom of the
         Netherlands and the Portuguese Republic.
      
      23      It follows from the order for reference that the referring court queries the compatibility of such legislation with the provisions
         of the EC Treaty on the free movement of capital, in view of the fact that, under Netherlands law, a fiscal investment enterprise
         established in the Netherlands which receives dividends from companies established in the Netherlands is entitled to a full
         refund of the Netherlands tax on dividends which is deducted at source by those companies.
      
      24      In that regard, OESF and the Commission of the European Communities submit that, since the Kingdom of the Netherlands reimburses
         in full the tax deducted from dividends distributed by Netherlands companies, it must also offset the tax deducted from dividends
         in Germany and Portugal.
      
      25      Failure to do so, they argue, would mean that the Kingdom of the Netherlands treats dividends issued in Germany or Portugal
         less favourably than those paid by Netherlands companies.
      
      26      That less favourable treatment, they continue, has the effect of deterring OESF from investing in Germany and Portugal and
         of making it more difficult for undertakings established in those Member States to raise capital in the Netherlands, and therefore
         constitutes a restriction on the free movement of capital that is in principle prohibited by the Treaty.
      
      27      The Netherlands Government, by contrast, contends that the Kingdom of the Netherlands cannot be accused of treating dividends
         from German or Portuguese companies differently from those received from Netherlands companies, inasmuch as no tax is deducted
         from dividends received by OESF, irrespective of their origin, and therefore those dividends are treated identically under
         Netherlands tax law.
      
      28      In addition, the refund scheme at issue in the main proceedings does not generally aim to relieve a fiscal investment enterprise
         of a tax on incoming dividends. In fact, in domestic situations, the taxation of dividends operates as an advance payment
         for the purposes of corporation tax. Given that fiscal investment enterprises established in the Netherlands are zero-rated
         with regard to corporation tax and that Netherlands tax on dividends is therefore not levied in respect of dividends received
         by those enterprises, the tax deducted at source from dividends received by those enterprises is refunded to them.
      
      29      It is necessary therefore to determine whether, in view of the fact that a fiscal investment enterprise established in the
         Netherlands which receives dividends from companies established in the Netherlands is entitled to a full refund of the Netherlands
         tax on dividends which is deducted at source by those companies, national legislation such as that at issue in the main proceedings
         constitutes a restriction on the free movement of capital prohibited by Articles 56 EC and 58 EC.
      
      30      As a preliminary point, it must be observed that it is for each Member State to organise, in compliance with Community law,
         its system for taxing distributed profits and to define, in that context, the tax base and the tax rate which apply to the
         shareholder receiving them (see, to that effect, Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I‑11673, paragraph 50, and Case C‑446/04 Test Claimants in the FII Group Litigation [2006] ECR I‑11753, paragraph 47).
      
      31      Therefore, the dividends distributed by a company established in one Member State to a company established in another may
         be subject to taxation at several levels. First of all, those dividends may be subject to a series of charges to tax in the
         Member State of establishment of the distributing company, which occurs where the distributed profits are subject, initially,
         to the corporation tax owed by that company and, subsequently, to a tax deducted from the dividends paid to the recipient
         company. Second, those dividends may be subject to juridical double taxation, which occurs when they are taxed again with
         respect to the recipient company in the State in which it is established. Third, the taxation of dividends received by the
         recipient company in the State in which it is established – where the company distributing the dividends has been taxed on
         distributed profits – may also give rise to a series of charges to tax in that Member State.
      
      32      In addition, in the absence of any unifying or harmonising Community measures, Member States retain the power to define, by
         treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double
         taxation (Case C‑336/96 Gilly [1998] ECR I‑2793, paragraphs 24 and 30; Case C‑307/97 Saint-Gobain ZN [1999] ECR I‑6161, paragraph 57; and Case C‑379/05 Amurta [2007] ECR I‑0000, paragraph 17). Apart from 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 (OJ 1990 L 225, p. 6), the Convention
         of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises
         (OJ 1990 L 225, p. 10) and Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest
         payments (OJ 2003 L 157, p. 38), the application of which in the dispute in the main proceedings has not been invoked, no
         unifying or harmonising measure designed to eliminate cases of double taxation has as yet been adopted at Community-law level.
      
      33      With regard to the legislation at issue in the main proceedings, the Kingdom of the Netherlands decided to make fiscal investment
         enterprises liable to corporation tax, but at a rate of 0%, provided that all the profits of those enterprises, less certain
         amounts which may be legally set aside, are distributed to their shareholders.
      
      34      As the Advocate General noted at points 85 to 87 of his Opinion, it follows that, whatever the origin of the dividends, enterprises
         such as OESF are not subject to tax on them under Netherlands law. As regards dividends from a company established in the
         Netherlands, the tax initially deducted from those dividends – which, according to the Netherlands Government’s explanations,
         constitutes an advance payment of corporation tax – is refunded, given that no amount of corporation tax is due from a fiscal
         investment enterprise. As far as dividends from companies established in Germany or Portugal are concerned, no tax is deducted
         in the Netherlands with respect to such an enterprise.
      
      35      Consequently, by not charging fiscal investment enterprises tax on dividends from Germany or Portugal, the Kingdom of the
         Netherlands treats those dividends in the same way as dividends from Netherlands companies, in respect of which those enterprises
         are not taxed either. In addition, by refraining from taxing dividends from other Member States, the Kingdom of the Netherlands
         avoids the imposition of a series of charges to tax arising from the exercise of its own fiscal power, just as it does in
         respect of dividends paid by Netherlands companies.
      
      36      Therefore, contrary to the assertions of OESF and the Commission, Netherlands legislation, such as that at issue in the main
         proceedings, does not treat dividends from Germany or Portugal differently from dividends distributed by Netherlands companies.
      
      37      While, in those circumstances, dividends from Germany or Portugal are subject to a greater tax burden than are dividends distributed
         by Netherlands companies, that disadvantage is not attributable to the Netherlands legislation at issue in the main proceedings,
         but is the product of the parallel exercise of fiscal sovereignty by the Member States in which the distributing companies
         are established and the Member State in which the recipient company is established, whereby the former chose to impose a series
         of charges to tax on distributed dividends and the latter opted to refrain from any taxation of dividends with respect to
         fiscal investment enterprises (see, to that effect, Case C‑513/04 Kerckhaert and Morres [2006] ECR I‑10967, paragraph 20).
      
      38      The Commission contends, however, that, in its capacity as the Member State of residence of the company in receipt of dividends,
         it is for the Kingdom of the Netherlands to offset the foreign tax burden on those dividends in the same way as it offsets
         the domestic tax burden to which those dividends are subject.
      
      39      That argument cannot be accepted. Admittedly, it follows from the case-law that, where a Member State has a system for preventing
         or mitigating a series of charges to tax or economic double taxation for dividends paid to residents by resident companies,
         it must treat dividends paid to residents by non-resident companies in the same way (Test Claimants in Class IV of the ACT Group Litigation, paragraph 55 and the case-law cited).
      
      40      Under such systems, the situation of shareholders resident in a Member State and receiving dividends from a company established
         in that State is comparable to that of shareholders who are resident in that State and receive dividends from a company established
         in another Member State, inasmuch as both the dividends deriving from a national source and those deriving from a foreign
         source may be subject to a series of charges to tax (see Test Claimants in Class IV of the ACT Group Litigation, paragraph 56). 
      
      41      However, the status of Member State of residence of the company in receipt of dividends cannot include the obligation for
         that Member State to offset a fiscal disadvantage arising where a series of charges to tax is imposed entirely by the Member
         State in which the company distributing those dividends is established, since the dividends received are neither taxed nor
         treated differently by the first Member State as regards investment enterprises established in that State.
      
      42      It follows that, in a situation where the greater tax burden imposed on dividends distributed by companies established in
         Germany or Portugal to a fiscal investment enterprise established in the Netherlands than that which is imposed on dividends
         distributed to that same enterprise by companies also established in the Netherlands does not arise as a result of a difference
         in treatment attributable to the tax regime in the Netherlands, but stems from the decision of the Federal Republic of Germany
         and the Portuguese Republic to make a deduction at source from those dividends, and from the decision of the Kingdom of the
         Netherlands not to tax those dividends, the fact that the latter Member State has not granted a concession in respect of the
         deduction at source for which the first two States have opted does not constitute a restriction on the free movement of capital.
      
      43      However, OESF also submits that its investments in Germany and Portugal are treated differently from those made in other Member
         States in respect of which it is entitled to the concession provided for in Article 28(1)(b) of the Law on corporation tax,
         in conjunction with Article 6 of the Royal Decree, so as to avoid the imposition of a series of charges to tax incurred in
         those Member States. According to OESF, Articles 56 EC and 58 EC prohibit such a difference in treatment on the basis of the
         seat of the company distributing the dividends.
      
      44      The Netherlands Government observes that, since a fiscal investment enterprise is taxed at a rate of 0%, no corporation tax
         is attributable to dividends from another Member State, thus making it impossible for that enterprise to credit the tax deducted
         at source from those dividends. In order to prevent investments abroad which are made through such an enterprise from being
         regarded as less appealing than direct investment, the aim of that concession is to make the tax burden on the proceeds from
         investments made through fiscal investment enterprises the same as that on direct investments made by individuals.
      
      45      Consequently, in order to calculate the amount of the concession in question, the legislature took as a basis the situation
         in which investments are made without such an enterprise acting as intermediary. For that reason, in the case of dividends
         received abroad, that concession is restricted to the circumstances in which there is, as a result of a tax convention, a
         right to credit the foreign tax deducted against Netherlands taxation.
      
      46      In addition, it follows from the judgment in Case C‑376/03 D. [2005] ECR I‑5821 that the situation in which an investor receives a dividend from Germany or Portugal differs from that
         in which the dividend comes from a Member State with which the Kingdom of the Netherlands has concluded such a convention,
         such as the Italian Republic. Since the concession to be granted is indissociably linked to the right of the shareholder of
         a fiscal investment enterprise, pursuant to such a convention, to set off the foreign tax deducted at source, that concession
         should, like the right of set-off, be regarded as an integral part of that convention, rather than as a benefit which is separable
         from it.
      
      47      As is apparent from paragraph 42 of this judgment, Community law does not require a Member State to grant a concession in
         response to offset the disadvantage resulting from a series of charges to tax that is exclusively due to the parallel exercise
         of the various Member States’ fiscal sovereignty. However, where that Member State has decided to grant such a concession,
         that power must be exercised in accordance with Community law.
      
      48      In that respect, it must be noted that, as has been observed in paragraphs 30 and 32 of this judgment, it is for the Member
         States to organise their systems for taxing distributed profits and to define, in that context, the tax base and the tax rate
         which apply to the shareholder receiving them, and that, in the absence of any unifying or harmonising Community measures,
         Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation.
      
      49      Consequently, given the resulting disparities between the tax laws of the various Member States, a Member State may find it
         necessary, by treaty or unilaterally, to treat dividends from the various Member States differently so as to take account
         of those disparities.
      
      50      As regards the bilateral tax conventions concluded by the Member States, the Court has previously noted that the scope of
         such a convention is limited to the natural or legal persons referred to in it (see D., paragraph 54, and Test Claimants in Class IV of the ACT Group Litigation, paragraph 84).
      
      51      In those judgments, the Court held that, where a benefit granted by a bilateral tax convention cannot be classified as a benefit
         that is separable from that convention, but contributes to its overall balance (the fact that the reciprocal rights and obligations
         arising under that convention apply only to persons resident in one of the two contracting Member States being an inherent
         consequence of bilateral conventions), Community law does not preclude the benefit in question from not being conferred on
         the resident of a third Member State, in so far as that resident is not in a situation comparable to that of residents covered
         by the convention in question (see, to that effect, D., paragraphs 59 to 63, and Test Claimants in Class IV of the ACT Group Litigation, paragraphs 88 to 93).
      
      52      In the present case, as regards the payment of a concession in respect of a deduction made at source in another Member State
         from the dividends received by a fiscal investment enterprise established in the Netherlands, the application of Article 28(1)(b)
         of the Law on corporation tax results in different treatment of dividends from different Member States.
      
      53      It is common ground, in the particular legal context of the case in the main proceedings, that a concession is granted in
         those situations in which the Kingdom of the Netherlands has, under the terms of a tax convention concluded with the Member
         State which made the deduction at source, undertaken to allow natural persons to credit that deduction to the Netherlands
         income tax for which they are liable.
      
      54      However, as the Advocate General noted at point 107 of his Opinion, the payment of the concession granted in Article 28(1)(b)
         of the Law on corporation tax, in conjunction with Article 6 of the Royal Decree, results, not from the automatic application
         of such a bilateral tax convention, but from the unilateral decision of the Kingdom of the Netherlands to extend the benefit
         of such conventions to fiscal investment enterprises.
      
      55      While, for the reasons set out in paragraphs 48 and 49 of this judgment, such a unilateral decision cannot, by itself, be
         regarded as being contrary to Community law, it is necessary to determine whether the resulting difference in treatment entails
         a restriction on the free movement of capital.
      
      56      By excluding from the concession (relating to the taxation at source of dividends received abroad) dividends originating in
         certain Member States, legislation such as that at issue in the main proceedings makes investment in those Member States less
         appealing than investment in the Member States in which the taxation at source of those dividends gives rise to that concession.
         Such legislation is therefore liable to deter a collective investment enterprise from investing in the Member States in which
         the taxation of dividends does not give rise to the concession and accordingly constitutes a restriction on the free movement
         of capital prohibited in principle by Article 56 EC.
      
      57      However, Article 58(1)(a) EC provides that ‘[t]he provisions of Article 56 [EC] shall be without prejudice to the right of
         Member States … to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same
         situation with regard to … the place where their capital is invested’.
      
      58      It must also be noted that the derogation under Article 58(1)(a) EC is itself restricted by Article 58(3) EC, which provides
         that the national provisions referred to in paragraph 1 of that article ‘shall not constitute a means of arbitrary discrimination
         or a disguised restriction on the free movement of capital and payments as defined in Article 56 [EC]’ (see Case C‑319/02
         Manninen [2004] ECR I‑7477, paragraph 28).
      
      59      Therefore, the unequal treatment permitted under Article 58(1)(a) EC must be distinguished from the discrimination prohibited
         by Article 58(3) EC. According to case-law, a national tax provision which distinguishes between taxpayers depending on the
         place where their capital is invested could be regarded as being compatible with the Treaty provisions on the free movement
         of capital provided that the difference in treatment applies to situations which are not objectively comparable or is justified
         by overriding reasons in the general interest (see, to that effect, Case C‑35/98 Verkooijen [2000] ECR I‑4071, paragraph 43; Manninen, paragraph 29; and Case C‑512/03 Blanckaert [2005] ECR I-7685, paragraph 42).
      
      60      As the Netherlands Government explains, by granting the concession, the Netherlands legislation at issue in the main proceedings
         seeks to make dividends received by a shareholder investing directly subject as far as possible to the same treatment for
         tax purposes as those received by a shareholder investing through the intermediary of a fiscal investment enterprise, so as
         to prevent investments abroad by such an enterprise from being regarded as less appealing than direct investments.
      
      61      However, under such legislation, where a fiscal investment enterprise receives dividends from Member States with which the
         Kingdom of the Netherlands has concluded a convention providing for shareholders who are natural persons to be entitled to
         credit the tax which those Member States have deducted from the dividends to the income tax for which those shareholders are
         liable in the Netherlands, the situation of that enterprise is different from that in which it finds itself when receiving
         dividends from Member States with which the Kingdom of the Netherlands has not concluded such a convention, as there is no
         such entitlement in respect of those dividends.
      
      62      In fact, it is only as regards investments in the Member States with which the Kingdom of the Netherlands has concluded such
         a bilateral tax convention that, without the concession granted by the legislation at issue in the main proceedings, the decision
         to invest through the intermediary of a fiscal investment enterprise runs the risk of being less advantageous to a shareholder
         who is a natural person than direct investment.
      
      63      By contrast, as regards the Member States with which the Kingdom of the Netherlands has not concluded such a convention, the
         decision, by a natural person, to invest through the intermediary of such an enterprise does not involve the risk of losing
         a benefit which he could have enjoyed if he had chosen to invest directly in those Member States. Accordingly, that situation
         is not objectively comparable to the situation in which the Kingdom of the Netherlands has concluded such a tax convention.
      
      64      It follows that, in the case of legislation such as that at issue in the main proceedings, pursuant to which – in order to
         make the tax treatment of direct investments and of those made through the intermediary of investment enterprises the same,
         as far as possible – a Member State has decided to grant those enterprises a concession in respect of tax deducted at source
         on dividends from Member States vis-à-vis which it has undertaken, under the terms of bilateral agreements, to allow natural
         persons to credit those deductions to the income tax for which they are liable under national law, Articles 56 EC and 58 EC
         do not preclude that Member State from withholding that concession in respect of dividends from other Member States with which
         it has not concluded bilateral agreements containing such provisions, as these are not objectively comparable situations.
      
      65      In the light of the foregoing, the answer to Question 1(a) must be that Articles 56 EC and 58 EC do not preclude legislation
         of a Member State, such as the legislation at issue in the main proceedings, which grants a concession to fiscal investment
         enterprises established in that Member State on account of tax deducted at source in another Member State from dividends received
         by those enterprises, and restricts that concession to the amount which a natural person resident in the first Member State
         could have had credited, on account of similar deductions, on the basis of a double taxation convention concluded with that
         other Member State.
      
       Question 1(b)
      66      By its Question 1(b), the referring court asks, in essence, whether Articles 56 EC and 58 EC must be interpreted as precluding
         legislation of a Member State which, like the Netherlands legislation at issue in the main proceedings, grants a concession
         to fiscal investment enterprises on account of tax deducted at source in another Member State from dividends received by those
         fiscal investment enterprises, and reduces that concession where and to the extent to which the shareholders of those enterprises
         are not natural persons resident in the first Member State or bodies subject to corporation tax in that first Member State.
      
      67      While it follows from the answer to Question 1(a) that, in circumstances such as those of the case in the main proceedings,
         Community law does not require a Member State to grant a concession to a fiscal investment enterprise on account of tax deducted
         at source in another Member State from dividends received by that enterprise, where the first Member State has nevertheless
         decided to grant such a concession, that power must be exercised in accordance with Community law.
      
      68      As is apparent from the order for reference, OESF shareholders include natural and legal persons who are resident or established
         in other Member States and in third countries.
      
      69      Therefore, it is necessary to examine, first of all, whether the reduction of the concession in proportion to the interest
         in the fiscal investment enterprise held by shareholders resident or established in other Member States constitutes a restriction
         on the free movement of capital and, if so, whether that restriction can be justified. Second, it is necessary to determine
         whether the answer given in relation to situations in which the shareholders of such an enterprise are resident or established
         in other Member States applies equally to situations in which those shareholders are resident or established in third countries.
      
      70      It must be noted that, as regards the calculation of the amount of the concession granted in accordance with the provisions
         at issue in the main proceedings in order to take account of tax deducted at source from the dividends from other Member States,
         Netherlands legislation draws a distinction between the treatment of fiscal investment enterprises whose shareholders are
         all resident or established in the Netherlands, and bodies, such as OESF, some of whose shareholders are resident or established
         in another Member State. In the first case, that concession corresponds, under Article 6(1) of the Royal Decree, to the amount
         that a natural person resident in the Netherlands could have had credited, on account of those deductions, to the income tax
         for which he is liable in that Member State. In the second case, pursuant to Article 6(2) of the Royal Decree, that amount
         is reduced in proportion to the interest of the shareholders from other Member States in the enterprises concerned.
      
      71      The concession thus granted in respect of tax deducted abroad at source from the dividends from other Member States is included
         in the profit to be distributed to the shareholders of the fiscal investment enterprise concerned, which is allocated among
         them on the basis of their respective interests in that enterprise.
      
      72      As the Advocate General observed at point 118 of his Opinion, it follows that the reduction of the concession for foreign
         tax in proportion to the interest in such an enterprise held by shareholders who are resident or established in another Member
         State adversely affects all that enterprise’s shareholders without distinction, since it has the effect of reducing the total
         amount of profit for distribution.
      
      73      Consequently, within a legislative context such as that at issue in the main proceedings, it is of greater benefit for a fiscal
         investment enterprise to attract shareholders who are resident or established in the Member State in which that enterprise
         itself is established, since the smaller the interest in that enterprise of shareholders who are resident or established in
         other Member States, the greater will be the profit available for distribution to shareholders.
      
      74      Such a reduction therefore creates a restriction on the free movement of capital, which is prohibited in principle by Article
         56 EC, in so far as it is liable to impede the raising of capital by a fiscal investment enterprise in Member States other
         than that in which that enterprise is established, and is also liable to deter investors from those other Member States from
         acquiring shares in that enterprise.
      
      75      The Netherlands Government observes, however, that, with regard to calculating the amount of the concession to be granted
         to a fiscal investment enterprise, Article 28(1)(b) of the Law on corporation tax refers to a situation in which a shareholder
         makes a direct investment abroad.
      
      76      According to the Netherlands Government, as regards the possibility of crediting the tax deducted at source from dividends
         received abroad, the situation of a Netherlands resident who is liable to Netherlands income or corporation tax differs from
         that of a non-resident who is not liable to those taxes, since only shareholders liable to income or corporation tax in the
         Netherlands may credit the tax thus deducted.
      
      77      Accordingly, it would be consonant with Article 56 EC, in conjunction with Article 58(1)(a) EC – in so far as the latter provision
         authorises the Member States to distinguish between taxpayers who are not in the same situation with regard to their place
         of residence – to draw a distinction as regards the amount of the concession granted to a fiscal investment enterprise, according
         to whether the shareholders of that enterprise are, or are not, liable to income or corporation tax in the Netherlands in
         respect of the dividends received.
      
      78      In that respect, it must be noted that, as the Netherlands Government itself points out, the Kingdom of the Netherlands taxes
         dividends which are distributed by a fiscal investment enterprise to its shareholders who are resident or established in the
         Netherlands as well as to those who are resident or established in another Member State. Therefore, such an enterprise, whose
         shares are partly held by shareholders resident or established in other Member States, cannot be regarded as being in a different
         position from that of an enterprise whose shareholders are all resident or established in the Netherlands.
      
      79      Therefore, as the Advocate General noted at point 121 of his Opinion, as soon as the Kingdom of the Netherlands decided to
         grant fiscal investment enterprises established within its territory a concession for tax deducted abroad and to exercise
         its fiscal sovereignty over all dividends distributed by such enterprises to their shareholders, whether resident or established
         in that Member State or in others, it had to extend the benefit of that concession to fiscal investment enterprises which
         included shareholders not resident or established in that Member State (see, to that effect, Case C‑170/05 Denkavit Internationaal and Denkavit France [2006] ECR I‑11949, paragraph 37 and the case-law cited).
      
      80      The Netherlands Government further submits that, in so far as the concession granted to such bodies is distributed to their
         shareholders and included in the latters’ income for taxation purposes, the factors included in the formula for calculating
         that concession are related to the rates at which the dividends which such a body distributes to its shareholders are taxed
         in the Netherlands.
      
      81      According to the Netherlands Government, the rates at which the Kingdom of the Netherlands taxes companies’ profit distributions
         to their shareholders who are resident or established in that Member State and who are subject, respectively, to income tax
         or corporation tax in that Member State, are higher than the rates of taxation applicable to shareholders who are resident
         or established abroad. The latter pay tax on dividends only at a reduced rate in the Netherlands, corresponding generally
         to 15%, as a result of tax conventions, which explains the reduction in the amount of the concession to be granted to a fiscal
         investment enterprise in proportion to the interest in the fiscal investment enterprise held by shareholders resident or established
         in other Member States.
      
      82      Even though the legislation at issue in the main proceedings seeks to distinguish between shareholders of collective investment
         enterprises according to whether they are resident and non-resident, so that the concession granted to them by means of a
         profit distribution by those enterprises corresponds to the rates of taxation to which those shareholders are respectively
         subject in the Netherlands, it must be noted that that objective cannot be achieved by a reduction of that concession in proportion
         to the interest in those enterprises held by shareholders resident or established in other Member States. As has been noted
         in paragraph 72 of this judgment, such a reduction adversely affects all the shareholders of fiscal investment enterprises
         without distinction, as it has the effect of reducing the total amount of profit for distribution.
      
      83      By contrast, the reduction of the concession in proportion to the interest in the fiscal investment enterprise held by shareholders
         resident or established in other Member States has the effect of avoiding a reduction in tax revenue in relation to dividends
         distributed by fiscal investment enterprises, which, for the Kingdom of the Netherlands, would mean granting that concession
         without having regard to the presence, among the shareholders of those enterprises, of non-residents subject – as regards
         the dividends distributed by those bodies – to tax at a lower rate than that applicable to resident shareholders.
      
      84      However, it has been consistently held in the case-law that a reduction in tax revenue cannot be regarded as an overriding
         reason in the public interest which may be relied on to justify a measure which is, in principle, contrary to a fundamental
         freedom (see, inter alia, Manninen, paragraph 49 and the case-law cited).
      
      85      It follows that Articles 56 EC and 58 EC preclude legislation of a Member State, such as the legislation at issue in the main
         proceedings, which grants a concession to fiscal investment enterprises established in that Member State designed to take
         account of tax deducted at source in another Member State from dividends received by those enterprises, and reduces that concession
         where and to the extent to which the shareholders of those enterprises are natural or legal persons resident or established
         in other Member States, in so far as such a reduction adversely affects  all the shareholders of those enterprises without distinction.
      
      86      With regard to the question whether the answer given in the preceding paragraph may be extended to situations in which foreign
         shareholders in a collective investment enterprise are resident or established in a third country, the Netherlands Government
         takes the view that a Member State may draw a distinction between that situation and the situation in which the shareholders
         are resident or established in another Member State.
      
      87      In that regard, as the Court held in paragraph 31 of the judgment in Case C‑101/05 A [2007] ECR I‑0000, even if the liberalisation of the movement of capital with third countries may pursue objectives other
         than that of establishing the internal market, such as, in particular, that of ensuring the credibility of the single Community
         currency on world financial markets and maintaining financial centres with a world-wide dimension within the Member States,
         it is clear that, when the principle of free movement of capital was extended, pursuant to Article 56(1) EC, to movements
         of capital between third countries and the Member States, the latter chose to enshrine that principle in that article and
         in the same terms for movements of capital taking place within the Community and for those relating to relations with third
         countries.
      
      88      The Court also held that the argument that, if the concept of restrictions on movements of capital were interpreted in the
         same manner with regard to relations between Member States and third countries as it is with regard to relations between Member
         States, the Community would unilaterally open up the Community market to third countries without retaining the means of negotiation
         necessary to achieve such liberalisation on the part of those countries, cannot be regarded as decisive (see A, paragraph 38).
      
      89      However, the Court found that movements of capital to or from third countries take place in a different legal context from
         that which occurs within the Community (see A, paragraph 36). Indeed, because of the degree of legal integration that exists between Member States of the European Union,
         in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities,
         such as Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the
         Member States in the field of direct taxation (OJ 1977 L 336, p. 15), the taxation by a Member State of economic activities
         having cross-border aspects which take place within the Community is not always comparable to that of economic activities
         involving relations between Member States and third countries (Test Claimants in the FII Group Litigation, paragraph 170, and A, paragraph 37).
      
      90      It may also be that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third
         countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification
         for a restriction on capital movements between Member States (Test Claimants in the FII Group Litigation, paragraph 171, and A, paragraph 37).
      
      91      In the present case, both the Netherlands Government and the Commission submitted inter alia that the Member States must be
         able to rely on the need to guarantee the effectiveness of fiscal supervision as an overriding requirement of general interest
         capable of justifying a restriction on the movement of capital to or from third countries.
      
      92      In that regard, it must be noted, on the one hand, that the Kingdom of the Netherlands imposes a dividend tax on dividends
         distributed by a fiscal investment enterprise established in the Netherlands to shareholders who are resident or established
         in third countries. On the other hand, the concession granted to such an enterprise is reduced in proportion to the interest
         in that fiscal investment enterprise held by shareholders resident in third countries, without the fiscal treatment of those
         shareholders in the third countries being relevant in that regard. The need to guarantee the effectiveness of fiscal supervision
         cannot therefore be relied upon in the present case.
      
      93      The Netherlands Government also takes the view that the need to avoid a reduction in tax revenue must be capable of being
         relied upon as justification for a restriction on the movement of capital to or from third countries. While the problems connected
         in particular with the reduction in the basis of assessment could be resolved by strengthening the harmonisation of the Member
         States’ tax legislation at Community level, there is no comparable possibility of harmonising tax legislation in relation
         to third countries.
      
      94      It must, however, be borne in mind that the reduction of the concession in proportion to the interest in the fiscal investment
         enterprise held by shareholders resident or established in third countries has the effect of reducing the total amount of
         profit available for distribution to the shareholders of that enterprise.
      
      95      Consequently, on the assumption that such a ground may be relied upon as justification for a restriction on the movement of
         capital to or from third countries, such a justification cannot be taken into consideration in the present case, inasmuch
         as that reduction affects all shareholders of the collective investment enterprise concerned without distinction, whether
         resident or established in the Member States or in third countries.
      
      96      It follows that, in a legal context such as that at issue in the main proceedings, the answer given in relation to situations
         in which shareholders of a fiscal investment enterprise are resident or established in another Member State applies equally
         to situations in which shareholders of a collective investment enterprise are resident or established in third countries.
      
      97      In view of the foregoing, the answer to Question 1(b) must be that Articles 56 EC and 58 EC preclude legislation of a Member
         State, such as the legislation at issue in the main proceedings, which grants a concession to fiscal investment enterprises
         established in that Member State on account of tax deducted at source in another Member State from dividends received by those
         enterprises, and reduces that concession where and to the extent to which the shareholders of those enterprises are natural
         or legal persons resident or established in other Member States or in third countries, since such a reduction adversely affects
         all the shareholders of those enterprises without distinction.
      
       Question 2(a)
      98      By its Question 2(a), the referring court asks whether ‘direct investment’ within the meaning of Article 57(1) EC covers the
         holding of a block of shares in a company which does not put the holder in a position to exercise a decisive influence over
         the management or control of that company.
      
      99      Under Article 57(1) EC, the provisions of Article 56 EC are without prejudice to the application to third countries of any
         restrictions which existed on 31 December 1993 under national or Community law adopted in respect of the movement of capital
         to or from third countries involving direct investment – including investment in real estate – establishment, the provision
         of financial services or the admission of securities to capital markets.
      
      100    In the absence of a Treaty definition of ‘movement of capital’ for the purposes of Article 56(1) EC, the Court has previously
         recognised the nomenclature annexed to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of
         the Treaty [article repealed by the Treaty of Amsterdam] (OJ 1988 L 178, p. 5) as having indicative value. Movements of capital
         within the meaning of Article 56(1) EC therefore include direct investments, that is to say, as that nomenclature and the
         related explanatory notes show, investments of any kind undertaken by natural or legal persons and which serve to establish
         or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital
         is made available in order to carry out an economic activity (see, to that effect, Test Claimants in the FII Group Litigation, paragraphs 179 to 181; Case C‑112/05 Commission v Germany [2007] ECR I‑0000, paragraph 18; and A, paragraph 46).
      
      101    As regards shareholdings in new or existing undertakings, as those explanatory notes confirm, the objective of establishing
         or maintaining lasting economic links presupposes that the shares held by the shareholder enable him, either pursuant to the
         provisions of the national laws relating to companies limited by shares or in some other way, to participate effectively in
         the management of that company or in its control (Commission v Germany, paragraph 18 and the case-law cited).
      
      102    The answer to Question 2(a) must therefore be that a restriction is covered by Article 57(1) EC as being a restriction on
         the movement of capital involving direct investment in so far as it relates to investments of any kind undertaken by natural
         or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital
         and the undertakings to which that capital is made available in order to carry out an economic activity.
      
       Question 2(b) and 2(c)
      103    By its Question 2(b), the referring court asks, in essence, whether Article 56 EC has the same effect as regards the movement
         of capital to or from third countries as it does within the Community, and, by Question 2(c), whether a Member State’s reduction
         of the concession provided for fiscal investment enterprises established in that Member State with regard to taxation at source
         of a dividend received from a third country on the basis of the interest in that enterprise of shareholders who are not resident
         or are not established in the Member State concerned constitutes a restriction on the free movement of capital.
      
      104    These questions, which should be considered together, seek to establish whether the answer to Question 1(b) would be different
         if the dividends are received from a third country instead of from another Member State.
      
      105    In that regard, it is apparent from paragraphs 79 and 96 of this judgment that, as soon as the Kingdom of the Netherlands
         decided to grant fiscal investment enterprises established on its territory a concession for tax deducted abroad and to exercise
         its fiscal sovereignty over all dividends distributed by such enterprises to their shareholders, whether resident or established
         in that Member State or in others, or in third countries, it had to extend the benefit of that concession to fiscal investment
         enterprises whose shareholders include shareholders who are not resident or are not established in the Netherlands.
      
      106    As has been noted in paragraphs 70 to 96 of this judgment, a rule under which such a concession is reduced in proportion to
         the interest in the enterprise held by shareholders resident or established in another Member State or in a third country
         introduces a distinction in the treatment of such enterprises all of whose shareholders are resident or established in the
         Netherlands and those enterprises whose shareholders include shareholders resident or established in another Member State
         or in a third country which is not justified by the fact that those bodies are in a different situation or by fiscal-policy
         objectives such as those put forward by the Netherlands Government.
      
      107    It must be held that such a rule is contrary to Articles 56 EC and 58 EC irrespective of whether the tax revenue giving rise
         to the concession has been deducted in another Member State or in a third country, inasmuch as, in both cases, there is a
         difference in the treatment of fiscal investment enterprises all of whose shareholders are resident or established in the
         Netherlands and those whose shareholders include shareholders resident or established in another Member State or in a third
         country, and the justification put forward does not relate to the State of origin of the dividends received by those enterprises.
      
      108    The answer to Question 2(b) and 2(c) must therefore be that Articles 56 EC and 58 EC preclude legislation of a Member State,
         such as the legislation at issue in the main proceedings, which grants a concession to collective investment enterprises established
         in that Member State designed to take account of tax deducted at source in a third country from dividends received by those
         enterprises, and reduces that concession where and to the extent to which the shareholders of those enterprises are natural
         or legal persons resident or established in other Member States or in third countries, since such a reduction adversely affects
         all the shareholders of those enterprises without distinction.
      
       Question 3(a)
      109    By its Question 3(a), the referring court asks whether the fact that the tax deducted in a Member State from dividends received
         in that Member State by a collective investment enterprise established in another Member State is higher than the tax on the
         payment of that dividend to foreign shareholders in that second Member State is relevant to the answers to Questions 1 and
         2.
      
      110    As the order for reference shows, that question is motivated by the fact that, in the financial year concerned, tax was deducted
         at source in Portugal from dividends paid to OESF from Portugal at a rate of 17.5%, whereas the rate at which tax was deducted
         at source in the Netherlands from dividends distributed to OESF shareholders was 15%.
      
      111    However, since the dividends from Portugal were not taken into account in the calculation of the concession granted to the
         fiscal investment enterprise involved in the main proceedings, and in the light of the answer to Question 1(a), there is no
         need to answer Question 3(a).
      
       Question 3(b)
      112    By its Question 3(b), the referring court asks whether the answer to Questions 1 and 2 is affected by whether the foreign
         shareholders of a collective investment enterprise are resident or established in a State with which the Member State of establishment
         of that enterprise has a convention providing for reciprocal crediting of tax deducted at source from dividends. However,
         since the place of residence or establishment of the shareholders of that enterprise is taken into account only for the reduction
         of the concession in proportion to the interest in the fiscal investment enterprise held by shareholders who are not resident
         or established in the Member State in which that enterprise is established, this question must be regarded as relating solely
         to Question 1(b).
      
      113    It must be held in that regard that the fact that the State of residence or establishment of the shareholders of the fiscal
         investment enterprise and the Kingdom of the Netherlands have agreed on the possibility of crediting tax deducted by the latter
         from the dividends distributed to those shareholders by that enterprise does not in any way alter the fact that the Kingdom
         of the Netherlands is exercising its fiscal sovereignty by taxing those dividends. As paragraphs 79 and 96 of this judgment
         show, it is the exercise by a Member State of its fiscal sovereignty over the dividends paid by the fiscal investment enterprises
         established in that Member State both to shareholders resident or established in that Member State and to shareholders resident
         or established in other Member States or third countries which – where a concession such as that at issue in the main proceedings
         is provided for – justifies the need to extend it to the fiscal investment enterprises that include shareholders who are not
         resident or established in that Member State.
      
      114    Accordingly, the answer to Question 3(b) must be that whether the foreign shareholders of a fiscal investment enterprise are
         resident or established in a State with which the Member State of establishment of that enterprise has concluded a convention
         providing for reciprocal crediting of tax deducted at source from dividends is irrelevant to the answer given to Question
         1(b).
      
       Question 3(c)
      115    By its Question 3(c), the referring court asks whether, in answering Questions 1 and 2, it is necessary to take into account
         the fact that the shareholders of the fiscal investment enterprise who have their place of residence outside the Member State
         of establishment of the fiscal investment enterprise are resident or established in another Member State of the Community.
      
      116    In the light of the answer to Question 1(b), there is no need to answer that question.
      
       Costs
      117    Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court,
         the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs
         of those parties, are not recoverable.
      
      On those grounds, the Court (Grand Chamber) hereby rules:
      1.      Articles 56 EC and 58 EC do not preclude legislation of a Member State, such as the legislation at issue in the main proceedings,
            which grants a concession to fiscal investment enterprises established in that Member State on account of tax deducted at
            source in another Member State from dividends received by those enterprises, and restricts that concession to the amount which
            a natural person resident in the first Member State could have had credited, on account of similar deductions, on the basis
            of a double taxation convention concluded with that other Member State.
      2.      Articles 56 EC and 58 EC preclude legislation of a Member State, such as the legislation at issue in the main proceedings,
            which grants a concession to fiscal investment enterprises established in that Member State on account of tax deducted at
            source in another Member State or third country from dividends received by those enterprises, and reduces that concession
            where and to the extent to which the shareholders of those enterprises are natural or legal persons resident or established
            in other Member States or in third countries, since such a reduction adversely affects all the shareholders of those enterprises
            without distinction.
      In that respect, whether the foreign shareholders of a fiscal investment enterprise are resident or established in a State
            with which the Member State of establishment of that enterprise has concluded a convention providing for reciprocal crediting
            of tax deducted at source from dividends is irrelevant. 
      3.      A restriction is covered by Article 57(1) EC as being a restriction on the movement of capital involving direct investment
            in so far as it relates to investments of any kind undertaken by natural or legal persons and which serve to establish or
            maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is
            made available in order to carry out an economic activity.
      [Signatures]
      * Language of the case: Dutch.