J.B.G.T. Miljoen and Others v Staatssecretaris van Financiën.
Date: 2015-09-17
41. In those circumstances, the Supreme Court decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
– in Case C‑10/14:
‘(1) Does the application of Article 63 TFEU require the comparison of a non-resident with a resident, in a case such as the present in which tax on dividends was withheld on a dividend payment by the source State, to be extended to the income tax payable on the dividend income, against which, in the case of residents, the tax on dividends is set off?
(2) If the answer to Question 1 is in the affirmative, in the assessment as to whether the effective tax burden for a non-resident is heavier than the tax burden for a resident, should a comparison be made between the Netherlands tax on dividends, withheld in respect of the non-resident, and the Netherlands income tax payable by a resident, calculated in respect of the notional income which, in the year in which the dividends were received, is attributable to the total holding of investment shares in Netherlands companies, or does EU law require that a different standard of comparison be taken into account?’
– in Case C‑14/14:
‘(1) Does the application of Article 63 TFEU require the comparison of a non-resident with a resident, in a case such as the present in which tax on dividends was withheld on a dividend payment by the source State, to be extended to the income tax payable on the dividend income, against which, in the case of residents, the dividend tax is set off?
(2) If the answer to Question 1 is in the affirmative, in the assessment as to whether the effective tax burden for a non-resident is heavier than the tax burden for a resident, should a comparison be made between the Netherlands tax on dividends, withheld in respect of the non-resident, and the Netherlands income tax payable by a resident, calculated in respect of the flat-rate income which, in the year in which the dividends were received, is attributable to the total holding of investment shares in Netherlands companies, or does EU law require that a different standard of comparison be taken into account? Must the tax free capital allowance which applies to residents be taken into account when making that comparison, and if so, to what extent (judgment in Welte , C‑181/12, EU:C:2013:662)?
(3) If Question 1 is to be answered in the affirmative, is it sufficient, in the assessment as to whether a potentially discriminatory withholding tax levied at source is effectively neutralised on the basis of a convention for the avoidance of double taxation concluded by the source State, that (i) the double taxation convention concerned makes provision for a tax reduction in the State of residence by offsetting the withholding tax levied at source and that, although that option is not unconditional, (ii) in the case in question the tax reduction granted by the State of residence, by levying tax only on the net dividend received, offsets in full the discriminatory portion of the withholding tax levied at source?’
– in Case C‑17/14:
‘(1) Does the application of Article 63 TFEU require the comparison of a non-resident with a resident, in a case in which tax on dividends is withheld on a dividend payment by the source State, to be extended to the corporation tax against which the dividend tax is set off in the case of residents?
(2) (a) If the answer to Question 1 is in the affirmative, should account be taken, in making that comparison, of all the expenses which are economically linked to the shares from which the dividends arise?
(2) (b) If the answer to the previous question is in the negative, should account then be taken of any deduction of the dividend included in the purchase price of the shares and any financing charges resulting from ownership of the shares concerned?
(3) If the answer to Question 1 is in the affirmative, is it sufficient, in the assessment as to whether a potentially discriminatory withholding tax levied at source is effectively neutralised on the basis of a convention for the avoidance of double taxation concluded by the source State, that (i) the double taxation convention concerned contains a provision in that regard, and that, although that option is not unconditional, (ii) in the case in question it has the result that the Netherlands tax burden for a non-resident is not heavier than that for a resident? In the case of insufficient offsetting in the year in which the dividends are distributed, is it relevant for the purposes of the assessment of that neutralising effect that there is a possibility that a deficit may be carried forward and that the set-off may be utilised effectively in subsequent years?’
44. According to settled case-law of the Court, 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 (judgment in Santander Asset Management SGIIC and Others , C‑338/11 to C‑347/11, EU:C:2012:286, paragraph 15 and the case-law cited).
48. For the purposes of assessing whether the legislation of a Member State, such as that at issue in the main proceedings, is compatible with Article 63 TFEU, it is for the referring court, which is the only court capable of assessing the facts before it, to verify whether, in relation to the dividends at issue, the application to the appellants in the main proceedings of the withholding tax of 15% provided for by national legislation results in those appellants ultimately bearing a heavier tax burden in the Netherlands than that borne by residents for the same dividends.
51. First, as regards the length of the reference period for the purposes of comparing the final tax burdens of resident taxpayers and non-resident taxpayers who are natural persons, it must be noted that, as regards residents, the period taken into account for taxation is that of a calendar year, in accordance with Article 5.2 of the IT Law 2001. Therefore, that period must be used for the purposes of the comparison.
57. In that regard, it is settled case-law of the Court, in relation to expenses such as business expenses which are directly linked to an activity that has generated taxable income in a Member State, that residents and non-residents of that State are in a comparable situation, with the result that legislation of that State which denies non-residents, in matters of taxation, the right to deduct such expenses, while, on the other hand, allowing residents to do so, risks operating mainly to the detriment of nationals of other Member States and therefore constitutes indirect discrimination on grounds of nationality (judgment in Schröder , C‑450/09, EU:C:2011:198, paragraph 40 and the case-law cited).
58. In particular, as regards income received in the form of dividends, such a link exists only if those expenses, which may in some circumstances be directly linked to a sum paid in connection with a securities transaction, are directly linked to the actual payment of that income (see, to that effect, judgment in Commission  v Germany , C‑600/10, EU:C:2012:737, paragraph 20).
63. Since that provision derogates from the fundamental principle of the free movement of capital, it must be interpreted strictly. It cannot therefore be interpreted as meaning that all tax legislation which draws a distinction between taxpayers on the basis of their place of residence or the Member State in which they invest their capital is automatically compatible with the FEU Treaty. 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]’ (see, to that effect, judgment in Welte , C‑181/12, EU:C:2013:662, paragraphs 42 and 43 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. It is clear from the Court’s case-law that, before national tax legislation such as that at issue in the main proceedings can be regarded as compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest (see judgment in Santander Asset Management SGIIC and Others , C‑338/11 to C‑347/11, EU:C:2012:286, paragraph 23 and the case-law cited).
Comparability of the situations in question
67. In that respect, it must be noted that, in accordance with the case-law of the Court, 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 the resident taxpayers (see, to that effect, judgments in Denkavit Internationaal and Denkavit France , C‑170/05, EU:C:2006:783, paragraph 35; Commission  v Italy , C‑540/07, EU:C:2009:717, paragraph 52; Commission  v Spain , C‑487/08, EU:C:2010:310, paragraph 51; Commission  v Germany , C‑284/09, EU:C:2011:670, paragraph 56; and order in Tate & Lyle Investments , C‑384/11, EU:C:2012:463, paragraph 31).
69. In the actions in the main proceedings, the Kingdom of the Netherlands clearly chose to exercise its power of taxation over dividends paid by resident companies to taxpayers residing in other Member States. Non-resident taxpayers in receipt of those dividends thus find themselves in a situation comparable to that of resident taxpayers as regards the risk of a series of charges to tax on dividends paid by resident companies (see, by analogy, judgments in Commission  v Spain , C‑487/08, EU:C:2010:310, paragraph 53; Commission  v Germany , C‑284/09, EU:C:2011:670, paragraph 58; and order in Tate & Lyle Investments , C‑384/11, EU:C:2012:463, paragraph 33).
70. The argument of the governments which submitted observations to the Court relying on the judgment in Truck Center  (C‑282/07, EU:C:2008:762), to the effect that the difference in treatment of resident taxpayers and non-resident taxpayers simply reflects the difference between the situations in which those taxpayers find themselves, where resident taxpayers may offset the tax on dividends against another tax, while that tax on dividends is a final tax for non-resident taxpayers, must be rejected. It is true that in the circumstances of that judgment the Court allowed the application, to recipients of income from capital, of different taxation arrangements, depending on whether those recipients are residents or non-residents, since that difference in treatment relates to situations which are not objectively comparable (see, to that effect, judgment in Truck Center , C‑282/07, EU:C:2008:762, paragraph 41). Since that difference in treatment does not necessarily procure an advantage for resident recipients, the Court held that it did not constitute a restriction on freedom of establishment (see, to that effect, judgment in Truck Center , C‑282/07, EU:C:2008:762, paragraphs 49 and 50).
72. Secondly, in Truck Center  (C‑282/07, EU:C:2008:762), the withholding tax in question was levied solely on interest paid to non-resident recipient companies. However, in the actions in the main proceedings, the applicable legislation subjects both resident taxpayers and non-resident taxpayers to the same method of collecting the tax on dividends, that is to say withholding the tax.
76. It should be recalled that, in the absence of any unifying or harmonising measures of the European Union, the 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, and that preservation of that allocation is a legitimate objective recognised by the Court (see, inter alia, judgment in Nordea Bank Danmark , C‑48/13, EU:C:2014:2087, paragraph 27 and the case-law cited).
77. The Court has previously held that a Member State cannot rely on the existence of a tax advantage granted unilaterally by another Member State in order to escape its obligations under the Treaty (judgment in Amurta , C‑379/05, EU:C:2007:655, paragraph 78).
78. On the other hand, the possibility cannot be excluded that a Member State might succeed in ensuring compliance with its obligations under the Treaty by concluding a convention for the avoidance of double taxation with another Member State (judgments in Test Claimants in Class IV of the ACT Group Litigation , C‑374/04, EU:C:2006:773, paragraph 71; Amurta , C‑379/05, EU:C:2007:655, paragraph 79, and Commission  v Spain , C‑487/08, EU:C:2010:310, paragraph 58).
79. It is necessary for that purpose that application of such a convention should allow the effects of the difference in treatment under national legislation to be compensated for. Thus, the Court has held that the difference in treatment between dividends distributed to companies established in other Member States and those distributed to resident companies does not disappear unless the tax withheld at source under national legislation can be set off against the tax due in the other Member State in the full amount of the difference in treatment arising under the national legislation (see judgment in Commission  v Spain , C‑487/08, EU:C:2010:310, paragraph 59 and the case-law cited).
80. In that regard, it must be recalled that the Court has held that in order to attain the objective of neutralisation, the application of the method of deduction should enable the tax on dividends levied by the Member State from which the dividends are paid to be deducted in its entirety from the tax due in the Member State of residence of the taxpayer receiving those dividends in such a way that, if those dividends are ultimately taxed more heavily than the dividends paid to taxpayers residing in the Member State from which those dividends are paid, that heavier tax burden may no longer be attributed to that Member State, but to the State of residence of the recipient taxpayer which exercised its power to impose taxes (see, to that effect, judgment in Commission  v Spain , C‑487/08, EU:C:2010:310, paragraph 60).
88. Finally, with regard to the issue whether, in cases where the tax on dividends withheld in the Member State from which the dividends were paid cannot be offset in full in the Member State of residence of the taxpayer for the year in which those dividends were paid, the possibility of offsetting that tax in subsequent years may have the effect of neutralising the effects of a restriction, it must be observed that, in its request for a preliminary ruling, the referring court states that the issue whether an entitlement to such offsetting was open to Société Générale in France as regards the Netherlands tax paid for the year 2008 could be validly relied on was not examined before the lower courts. In those circumstances, that question must be regarded as hypothetical and is, therefore, inadmissible (judgment in Pohotovosť , C‑470/12, EU:C:2014:101, paragraph 27 and the case-law cited).