Glaxo Wellcome GmbH & Co. KG v Finanzamt München II.
Date: 2009-09-17
34. It must be also be borne in mind that, according to settled case-law, although direct taxation is a competence of the Member States, they must none the less exercise it consistently with Community law (see, inter alia, Case C-446/03 Marks & Spencer  [2005] ECR I-10837, paragraph 29; Case C-196/04 Cadbury Schweppes and Cadbury Schweppes Overseas  [2006] ECR I-7995, paragraph 40; Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation  [2006] ECR I‑11673, paragraph 36; and Case C-379/05 Amurta  [2007] ECR I-9569, paragraph 16).
36. In that regard, it should be pointed out that, in order to determine whether national legislation falls within the scope of one or other of the freedoms of movement, it is clear from now well established case-law that the purpose of the legislation concerned must be taken into consideration (see Case C-157/05 Holböck  [2007] ECR I‑4051, paragraph 22 and the case-law cited).
37. It is also clear from the case-law that the Court will in principle examine the measure in dispute in relation to only one of those two freedoms if it appears, in the circumstances of the case, that one of them is entirely secondary in relation to the other and may be considered together with it (Case C-452/04 Fidium Finanz  [2006] ECR I-9521, paragraph 34).
39. In the absence of a definition in the Treaty of ‘movement of capital’, 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annexed to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (an article repealed by the Treaty of Amsterdam) (OJ 1988 L 178, p. 5) as having indicative value, even though that directive was adopted on the basis of Articles 69 and 70(1) of the EEC Treaty (Articles 67 to 73 of the EEC Treaty were replaced by Articles 73b to 73g of the EC Treaty, now Articles 56 EC to 60 EC), subject to the qualification, contained in the introduction to the nomenclature, that the list set out therein is not exhaustive (see, in particular, Case C‑513/03 van Hilten‑van der Heijden  [2006] ECR I‑1957, paragraph 39; Case C-386/04 Centro di Musicologia Walter Stauffer [2006] ECR I-8203, paragraph 22; Case C‑11/07 Eckelkamp  [2008] ECR I‑0000, paragraph 38; and Case C-318/07 Persche  [2009] ECR I-0000, paragraph 24).
40. Movements of capital for the purposes of Article 73b(1) of the Treaty thus include in particular direct investments in the form of participation in an undertaking through the holding of shares which confers the possibility of participating effectively in its management and control (‘direct’ investments) and the acquisition of shares on the capital market solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking (‘portfolio’ investments) (see, to that effect, Case C‑222/97 Trummer and Mayer  [1999] ECR I-1661, paragraph 21; Case C-483/99 Commission  v France [2002] ECR I-4781, paragraphs 36 and 37; Case C-98/01 Commission  v United Kingdom  [2003] ECR I-4641, paragraphs 39 and 40; and Joined Cases C-282/04 and C-283/04 Commission  v Netherlands  [2006] ECR I‑9141, paragraph 19).
41. The Court has also held that the resale of shares by a non-resident shareholder to the resident issuing company constitutes a capital movement within the meaning of Article 1 of Directive 88/361 and of the nomenclature of capital movements set out in Annex I to that directive (see Case C-265/04 Bouanich  [2006] ECR I-923, paragraph 29).
45. With regard, second, to Article 52 of the Treaty, it is clear from the case-law of the Court that the freedom of establishment which that article grants to Community nationals and which includes the right for them to take up and pursue activities as self-employed persons and to set up and manage undertakings, under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected, entails, for companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the European Community, the right to exercise their activity in the Member State concerned through a subsidiary, branch or agency (Case C-471/04 Keller Holding [2006] ECR I-2107, paragraph 29; Centro di Musicologia Walter Stauffer , paragraph 17; and Case C-451/05 ELISA  [2007] ECR I-8251, paragraph 62).
46. The concept of establishment within the meaning of the Treaty is a very broad one, implying that a Community national may participate, on a stable and continuous basis, in the economic life of a Member State other than his State of origin and profit therefrom, so contributing to economic and social interpenetration within the Community in the sphere of activities as a self-employed person (see, inter alia, Centro di Musicologia Walter Stauffer , paragraph 18, and ELISA , paragraph 63).
47. According to settled case-law, national provisions which apply to holdings by nationals of a Member State in the capital of a company established in another Member State, giving them definite influence on the company’s decisions and allowing them to determine its activities, come within the substantive scope of the provisions of the Treaty on freedom of establishment (see, inter alia, Case C‑251/98 Baars  [2000] ECR I-2787, paragraph 22; Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 31; Case C-524/04 Test Claimants in the Thin Cap Group Litigation  [2007] ECR I-2107, paragraph 27; and judgment of 17 July 2008 in Case C‑207/07 Commission  v Spain , paragraph 60).
51. Consequently, even if that legislation has restrictive effects on the freedom of establishment, they are the unavoidable consequence of any restriction on the free movement of capital and, therefore, do not justify an independent examination of that legislation in the light of Article 52 of the Treaty (see, to that effect, Case C‑36/02 Omega  [2004] ECR I-9609, paragraph 27; Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 33; Test Claimants in the Thin Cap Group Litigation , paragraph 34; and Fidium Finanz , paragraph 48).
67. However, Article 73d(1)(a) of the Treaty, which, as a derogation from the fundamental principle of the free movement of capital, must be interpreted strictly, cannot be interpreted as meaning that any tax legislation making a distinction between taxpayers by reference to their place of residence or the Member State in which their capital is invested is automatically compatible with the Treaty. The derogation in Article 73d(1)(a) of the Treaty is itself limited by Article 73d(3) of the Treaty, which provides that the national provisions referred to in Article 73d(1) ‘shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 73b’ (see Case C-319/02 Manninen  [2004] ECR I‑7477, paragraph 28; and Centro di Musicologia Walter Stauffer , paragraph 31).
68. It is necessary, therefore, to distinguish between the unequal treatment permitted under Article 73d(1)(a) of the Treaty and the discriminatory treatment prohibited by Article 73d(3). It is clear from the case-law that for national tax legislation such as that at issue in the main proceedings to be regarded as compatible with the provisions of the Treaty relating to the free movement of capital the difference in treatment must relate to situations which are not objectively comparable or be justified by an overriding reason in the public interest (see Case C-35/98 Verkooijen  [2000] ECR I-4071, paragraph 43; Manninen,  paragraph 29; and C‑512/03 Blanckaert [2005] ECR I-7685, paragraph 42).
69. The Court has already held that, as regards the application of the tax legislation of the Member State of residence of a company making the distribution which 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, the situation of shareholders resident and receiving dividends in that Member State and of shareholders resident and receiving dividends in another Member State are not necessarily comparable (see, to that effect, Test Claimants in Class IV of the ACT Group Litigation , paragraphs 55 and 57).
70. Where the company making the distribution and the shareholder receiving it are not resident in the same Member State, the Member State in which the company making the distribution is resident, that is to say the Member State in which the profits are derived, is not in the same position, as regards the prevention or mitigation of a series of charges to tax and of economic double taxation, as the Member State in which the shareholder receiving the distribution is resident ( Test Claimants in Class IV of the ACT Group Litigation , paragraph 58).
77. With regard, first, to the argument concerning the need to preserve the coherence of the German tax system, it should be recalled that the Court has already accepted that the need to preserve the coherence of a tax system may justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty (Case C-204/90 Bachmann  [1992] ECR I-249, paragraph 28; Manninen , paragraph 42; and Case C-418/07 Papillon  [2008] ECR I-0000, paragraph 43).
78. For an argument based on such a justification to succeed, the Court requires, however, that a direct link be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question (see Papillon , paragraph 44 and the case-law cited).
82. With regard to the argument concerning the need to maintain the Federal Republic of Germany’s ability to exercise its tax jurisdiction in relation to activities carried out in its territory, it must be pointed out that, while 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), the Court has also accepted that there may be some conduct which is capable of undermining the Member States’ right to exercise their tax jurisdiction in relation to the activities carried out in their territory and thus of jeopardising a balanced allocation of the power to impose taxes between the Member States (see Marks & Spencer , paragraph 46) which can justify a restriction on the freedoms secured by the Treaty (see, to that effect, Cadbury Schweppes and Cadbury Schweppes Overseas , paragraphs 55 and 56; and Case C-347/04 Rewe Zentralfinanz  [2007] ECR I-2647, paragraph 42).
83. The Court has also held that to require the Member State in which the company making the distribution is resident to ensure that profits distributed to a non-resident shareholder are not liable to a series of charges to tax or to economic double taxation, either by exempting those profits from tax at the level of the company making the distribution or by granting the shareholder a tax advantage equal to the tax paid on those profits by the company making the distribution, would mean in point of fact that that State would be obliged to abandon its right to tax a profit generated by an economic activity undertaken on its territory ( Test Claimants in Class IV of the ACT Group Litigation ,  paragraph 59).
87. Such consequences would not just reduce the Federal Republic of Germany’s tax revenues but would mean that, by indirectly granting the non-resident a financial advantage equal to the tax credit for the tax charged on the profits of a resident company, the profits normally taxable in that company’s Member State of residence would be transferred to the Member State with jurisdiction to tax the profits made by the non-resident, thus jeopardising a balanced allocation of the power to impose taxes between the Member States.
89. With regard, finally, to the arguments concerning the need to prevent tax avoidance and to combat artificial arrangements designed to circumvent the German tax system, it must be held that a national measure restricting the free movement of capital can be justified where it specifically targets wholly artificial arrangements which do not reflect economic reality and whose only purpose is to obtain a tax advantage (see, to that effect, Cadbury Schweppes and Cadbury Schweppes Overseas , paragraphs 51 and 55; Test Claimants in the Thin Cap Group Litigation , paragraphs 72 and 74; and Case C-330/07 Jobra  [2008] ECR I‑0000, paragraph 35).
99. Finally, with regard to the objective of preventing wholly artificial arrangements which do not reflect economic reality and whose only purpose is unduly to obtain a tax advantage, it must be pointed out, as the Advocate General stated in point 174 of his Opinion, that in order to comply with the principle of proportionality a measure pursuing such an objective must enable the national court to carry out a case-by-case examination, taking into account the particular features of each case, based on objective elements, in order to assess the abusive or fraudulent conduct of the persons concerned.