College Pension Plan of British Columbia v Finanzamt München Abteilung III.
Date: 2019-11-13
39


In that regard, it should be noted that, under the second paragraph of Article 252 TFEU, it is the duty of the Advocate General, acting with complete impartiality and independence, to make, in open court, reasoned submissions on cases which, in accordance with the Statute of the Court of Justice, require his involvement. The Court is not bound either by the Advocate General’s Opinion or by the reasoning on which it is based (judgment of 22 June 2017, Federatie Nederlandse Vakvereniging and Others, C‑126/16, EU:C:2017:489, paragraph 31 and the case-law cited).
40


It should also be noted in that respect that the Statute of the Court of Justice of the European Union and the Rules of Procedure make no provision for the parties or the interested persons referred to in Article 23 of the Statute of the Court of Justice of the European Union to submit observations in response to the Advocate General’s Opinion (judgment of 25 October 2017, Polbud — Wykonawstwo, C‑106/16, EU:C:2017:804, paragraph 23 and the case-law cited). The fact that a party or such an interested person disagrees with the Advocate General’s Opinion, irrespective of the questions examined in the Opinion, cannot therefore in itself constitute grounds justifying the reopening of the oral procedure (judgments of 25 October 2017, Polbud — Wykonawstwo, C‑106/16, EU:C:2017:804, paragraph 24, and of 29 November 2017, King, C‑214/16, EU:C:2017:914, paragraph 27 and the case-law cited).
43


It should be recalled in that context that, according to settled case-law of the Court, as regards the interpretation of provisions of national law, the Court is in principle required to base its consideration on the description given in the order for reference and does not have jurisdiction to interpret the internal law of a Member State (see, inter alia, judgments of 17 March 2011, Naftiliaki Etaireia Thasou and Amaltheia I Naftiki Etaireia, C‑128/10 and C‑129/10, EU:C:2011:163, paragraph 40, and of 16 February 2017, Agro Foreign Trade & Agency, C‑507/15, EU:C:2017:129, paragraph 23).
48


It follows from the Court’s settled case-law that the measures prohibited by Article 63(1) TFEU, as restrictions on the movement of capital, include those that are such as to discourage non-residents from making investments in a Member State or to discourage that Member State’s residents from doing so in other States (see, inter alia, judgments of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 39, and of 22 November 2018, Sofina and Others, C‑575/17, EU:C:2018:943, paragraph 23 and the case-law cited).
49


Specifically, the less favourable treatment by a Member State of dividends paid to non-resident pension funds, compared to the treatment of dividends paid to resident pension funds, is liable to deter companies established in a Member State other than that Member State from pursuing investments in that same Member State and, consequently, amounts to a restriction of the free movement of capital, prohibited, in principle, under Article 63 TFEU (see, to that effect, judgments of 8 November 2012,Commission v Finland, C‑342/10, EU:C:2012:688, paragraph 33; of 22 November 2012, Commission v Germany, C‑600/10, not published, EU:C:2012:737, paragraph 15, and of 2 June 2016, Pensioenfonds Metaal en Techniek, C‑252/14, EU:C:2016:402, paragraph 28).
50


The application to dividends paid to non-resident pension funds of a tax burden heavier than that borne by resident pension funds in respect of the same dividends constitutes such less favourable treatment (see, to that effect, judgment of 17 September 2015, Miljoen and Others, C‑10/14, C‑14/14 and C‑17/14, EU:C:2015:608, paragraph 48). The same applies to the total or substantial exemption of dividends paid to a resident pension fund, whereas dividends paid to a non-resident pension fund are subject to a definitive withholding tax (see, to that effect, judgment of 8 November 2012, Commission v Finland, C‑342/10, EU:C:2012:688, paragraphs 32 and 33).
63


In so far as that provision is a derogation from the fundamental principle of the free movement of capital, it must be interpreted strictly. Accordingly, it cannot be interpreted as meaning that all tax legislation which draws a distinction between taxpayers on the basis of their place of residence or the State in which they invest their capital is automatically compatible with the FEU Treaty. Indeed, the derogation in Article 65(1)(a) TFEU is itself limited by Article 65(3) TFEU, 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 63 [TFEU]’ (judgment of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraphs 55 and 56 and the case-law cited).
64


A distinction must, therefore, be made between the differences in treatment authorised by Article 65(1)(a) TFEU and discrimination prohibited by Article 65(3) TFEU. In that regard, according to the Court’s case-law, for national tax legislation to be capable of being regarded as compatible with the provisions of the Treaty concerning the free movement of capital, the difference in treatment must concern situations that are not objectively comparable or must be justified by an overriding reason in the public interest (judgment of 10 May 2012, Santander Asset Management SGIIC and Others, C‑338/11 to C‑347/11, EU:C:2012:286, paragraph 23 and the case-law cited).
65


It is clear from the Court’s case-law that the comparability of a cross‑border situation with an internal one must be examined having regard to the aim pursued by the national provisions at issue as well as their purpose and content (see, inter alia, judgment of 2 June 2016, Pensioenfonds Metaal en Techniek, C‑252/14, EU:C:2016:402, paragraph 48 and the case-law cited).
66


Moreover, it is settled case-law of the Court that as soon as a Member State, either unilaterally or by way of a convention, imposes a charge to tax on the income not only of resident taxpayers but also of non-resident taxpayers from dividends which they receive from a resident company, the situation of those non-resident taxpayers becomes comparable to that of resident taxpayers (judgments of 20 October 2011, Commission v Germany, C‑284/09, EU:C:2011:670, paragraph 56, and of 17 September 2015, Miljoen and Others, C‑10/14, C‑14/14 and C‑17/14, EU:C:2015:608, paragraph 67 and the case-law cited).
69


Moreover, they maintain that it is justified to treat resident and non-resident pension funds differently, since there is no direct connection between the receipt of dividends in Germany and the expenditure constituted by the allocations to the mathematical and other technical provisions, as required by the case-law of the Court on the comparability of the situation of residents and of non-residents in relation to expenses directly linked to an activity which has generated taxable income in a Member State (see, inter alia, judgments of 31 March 2011, Schröder, C‑450/09, EU:C:2011:198, paragraph 40 and the case-law cited, and of 24 February 2015, Grünewald, C‑559/13, EU:C:2015:109, paragraph 29).
74


As regards, in the second place, the argument relating to the difference in the situation of resident and non-resident pension funds in terms of whether it is possible to take into account allocations to provisions for pension commitments as professional expenditure, it should be recalled that the Court has held that, in relation to expenditure, such as professional expenses directly linked to an activity that has generated taxable income in a Member State, residents and non-residents of that State are in a comparable situation (see, inter alia, judgments of 31 March 2011, Schröder, C‑450/09, EU:C:2011:198, paragraph 40, of 8 November 2012, Commission v Finland, C‑342/10, EU:C:2012:688, paragraph 37 and of 24 February 2015, Grünewald, C‑559/13, EU:C:2015:109, paragraph 29).
83


If the referring court finds that a non-resident pension fund is in a situation comparable to that of a resident pension fund in terms of allocating dividends to make provisions for pensions, it would still be necessary to examine whether the difference in treatment at issue in the main proceedings is capable — depending on the circumstances — of being justified by overriding reasons in the public interest (see, to that effect, inter alia, judgment of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraphs 54 and 56).
84


In that regard, first of all, since the German Government argued at the hearing that the legislation at issue in the main proceedings formed part of a balanced allocation between the Member State of the source of the dividends and the State of residence of the pension funds of the power to impose taxes, it must be recalled that the need to safeguard the balanced allocation between Member States and third countries of the power to impose taxes is a ground capable of justifying a restriction on the free movement of capital, in particular, where the national measures in question are designed to prevent conduct capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried out in its territory (judgment of 26 February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraph 72 and case-law cited).
85


However, where a Member State has chosen to exempt completely or almost completely dividends paid to resident pension funds, it cannot rely on the argument that there is a need to ensure a balanced allocation between the Member States and third countries of the power to impose taxes in order to justify the taxation of dividends paid to non-resident pension funds (see, to that effect, judgments of 20 October 2011, Commission v Germany, C‑284/09, EU:C:2011:670, paragraph 78, of 10 May 2012, Santander Asset Management SGIIC and Others, C‑338/11 to C‑347/11, EU:C:2012:286, paragraph 48, and of 21 June 2018, Fidelity Funds and Others, C‑480/16, EU:C:2018:480, paragraph 71).
87


Next, with regard to the need to safeguard the coherence of a tax system, mentioned by the referring court, which may also justify rules that are liable to restrict fundamental freedoms, provided that a direct link is established between the tax advantage concerned and the compensating 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, inter alia, judgment of 21 June 2018, Fidelity Funds and Others, C‑480/16, EU:C:2018:480, paragraphs 79 and 80 and the case-law cited), it is sufficient to state that the German Government has not relied upon the existence of such a direct link, which is necessary in order that such justification can succeed.
88


Lastly, as regards the need to guarantee the effectiveness of fiscal supervision which constitutes an overriding reason in the public interest also capable of justifying a restriction on the free movement of capital (judgment of 26 February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraph 74), which has also been raised by the referring court, it should be pointed out that there is nothing in the file before the Court to permit the inference that national legislation such as that at issue in the main proceedings is suitable for attaining that objective.
92


As regards the temporal criterion laid down by Article 64(1) TFEU, it is apparent from the Court’s settled case-law that while it is, in principle, for the national court to determine the content of the legislation which existed on a date laid down by an EU measure, it is for the Court of Justice to provide guidance on interpreting the concept of EU law which constitutes the basis of a derogation under EU law for national legislation ‘existing’ on a particular date (judgment of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 47 and the case-law cited).
93


The words ‘restrictions which exist on 31 December 1993’ in Article 64(1) TFEU presuppose that the legal provisions relating to the restriction in question have formed part of the legal order of the Member State concerned continuously since that date. If that were not the case, a Member State could, at any time, reintroduce restrictions on the movement of capital to or from non-member States which existed as part of the national legal order on 31 December 1993 but had not been maintained (judgments of 5 May 2011, Prunus and Polonium, C‑384/09, EU:C:2011:276, paragraph 34 and the case-law cited, and of 20 September 2018, EV, C‑685/16, EU:C:2018:743, paragraph 74).
94


However, the Court has already held that any national measure adopted after that date is not, by that fact alone, automatically excluded from the derogation laid down in the EU measure in question. It is settled case‑law of the Court that restrictions laid down in provisions adopted after that date which, in essence, are identical to previous legislation or which are limited to reducing or eliminating an obstacle to the exercise of rights and freedoms of movement in previous legislation can be treated as equivalent to such restrictions ‘which exist’. By contrast, legislation based on an approach which differs from that of the previous law and establishes new procedures cannot be treated as legislation existing on that date (see, to that effect, judgments of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 48, of 20 September 2018, EV, C‑685/16, EU:C:2018:743, paragraph 75, and of 26 February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraphs 37 and 39 and the case-law cited).
97


The Court has already held that, if, on 31 December 1993, dividends paid by a resident company to non-resident entities were subject either to the same treatment as that applied to those paid to resident entities, or to different treatment more favourable than that applied to those paid to resident entities, but that, after that date, an exemption was introduced for dividends paid to resident companies, the temporal criterion should be considered not to have been satisfied, since what constitutes a restriction on the free movement of capital, namely the tax exemption, was introduced subsequently, and is based on an approach which differs from that of the previous law, and establishes a new procedure (see, to that effect, judgment of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraphs 50 to 52).
98


It is therefore for the referring court to determine whether, because special legislation relating to pension funds was introduced after 31 December 1993, the situation of non-resident pension funds has become less advantageous than that of resident pension funds with regard to dividends paid to them by resident companies, so that what constitutes the restriction in question in the present case cannot be considered to have existed on that date. For the purposes of that assessment, the referring court will have to take into account that the conditions that national legislation must fulfil in order to be regarded as ‘existing’ on 31 December 1993, notwithstanding an amendment to national law after that date, must be interpreted strictly (judgments of 20 September 2018, EV, C‑685/16, EU:C:2018:743, paragraph 81, and of 26 February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraph 42).
100


As regards the substantive criterion, it should be recalled that Article 64(1) TFEU sets out an exhaustive list of capital movements to which Article 63(1) TFEU is liable not to apply and, as a derogation from the fundamental principle of the free movement of capital, it must be interpreted strictly (judgment of 21 May 2015, Wagner-Raith, C‑560/13, EU:C:2015:347, paragraph 21).
101


The Court has already clarified in that respect that restrictions on the movement of capital to or from third countries involving portfolio investments are not included in the movements of capital involving ‘direct investments’, referred to in Article 64(1) TFEU (judgment of 26 February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraph 28).
104


In that regard, the Court has held that the decisive criterion for the application of Article 64(1) TFEU is concerned with the causal link between the capital movements and the provision of financial services and not with the personal scope of the contested national measure or its relationship with the provider, rather than the recipient, of such services. The scope of that provision is defined by reference to the categories of capital movements which are capable of being subject to restrictions (judgment of 21 May 2015, Wagner-Raith, C‑560/13, EU:C:2015:347, paragraph 39).
105


In order to be capable of being covered by that derogation, the national measure must therefore relate to capital movements that have a sufficiently close link with the provision of financial services, namely a causal link between the movement of capital and the provision of financial services (judgment of 21 May 2015, Wagner-Raith, C‑560/13, EU:C:2015:347, paragraphs 43 and 44).
106


National legislation which, in applying to capital movements to or from third countries, restricts the provision of financial services thus falls within Article 64(1) TFEU (judgment of 21 May 2015, Wagner-Raith, C‑560/13, EU:C:2015:347, paragraph 45 and the case-law cited).