X and Y v Riksskatteverket.
Date: 2002-11-21
27 Before replying to the question referred, it should be noted that the Court has held that the Regeringsrätten, when seised with an appeal against a ruling of the Skatterättsnämnden, is carrying out a judicial function. Second, although the dispute in the main proceedings concerns the possibility of carrying out in the future a transaction which has not yet been undertaken, it is a genuine dispute and the question of Community law raised by the referring court is in no way hypothetical (see Case C-200/98 X and Y [1999] ECR I-8261, paragraphs 16 to 22).
32 It must be borne in mind from the outset that, although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with Community law and avoid any discrimination on grounds of nationality (Case C-264/96 ICI [1998] ECR I-4695, paragraph 19; Case C-55/00 Gottardo [2000] ECR I-413, paragraph 32).
Freedom of establishment
36 First, as regards type A share transfers, the national provision at issue in the main proceedings entails a difference in treatment in refusing to the transferor the benefit of deferring capital gains tax made on shares transferred at undervalue, with a consequential cash flow disadvantage for him, where the transferee company in which the transferor has a holding is established in another Member State.  Therefore, refusal of the tax advantage in question on the ground that the transferee company in which the taxpayer has a holding is established in another Member State, is likely to have a deterrent effect on the exercise by that taxpayer of the right conferred on him by Article 43 EC to pursue his activities in that other Member State through the intermediary of a company.
37 Such inequality of treatment thus constitutes a restriction on the freedom of establishment of nationals of the Member State concerned (and, moreover, on that of nationals of other Member States resident in that Member State), who have a holding in the capital of a company established in another Member State, provided that that holding gives them definite influence over the company's decisions and allows them to determine its activities (see inter alia Case C-251/98 Baars [2000] ECR I-2787, paragraphs 22 and 28 to 31, and Case C-208/00 berseering [2002] ECR I-0000, paragraph 77).  It is for the referring court to ascertain whether that condition is fulfilled in the case in the main proceedings.
38 Second, as regards type B share transfers, the national provision at issue in the main proceedings constitutes a restriction within the meaning of Article 43 EC on the freedom of establishment of a company, established in another Member State (in the present case, a Belgian limited company), and treated, within the meaning of Article 48 EC, in the same way as a natural person who is a national of that Member State who wishes to pursue his activities through the intermediary of a branch in the Member State concerned (see inter alia Case C-250/95 Futura Participations and Singer [1997] ECR I-2471, paragraph 24, and Case C-307/97 Saint-Gobain ZN [1999] ECR I-6161, paragraph 35).  Acceptance, in the present case, of the proposition that the Member State concerned may refuse the benefit of deferring capital gains tax, thus depriving the transferor of a cash flow advantage, by reason of the fact that the parent company of the transferee company is situated in another Member State would deprive Article 43 EC of all meaning (Joined cases C-397/98 and C-410/98 Metallgesellschaft and Others [2001] ECR I-1727, paragraph 42).
41 As regards a possible abuse of freedom of establishment, the Riksskatteverket points out that the only reason for the share transfer transaction proposed by the applicants in the main proceedings is the tax advantage to be gained thereby and that there were strong tax evasion reasons for the transaction, as is clear not least from the fact that X and Y referred a question to the competent tax tribunal in the first place as to whether the proposed transaction was to be regarded as tax evasion.  In the circumstances, the Riksskatteverket, citing Case C-212/97 Centros [1999] ECR I-1459, paragraph 24, in support, takes the view that, according to the case-law of the Court, the Kingdom of Sweden is entitled to take measures designed to prevent certain of its nationals from attempting, under cover of the rights created by the Treaty, improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law.
42 In that regard, the national courts may, case by case, take account - on the basis of objective evidence - of abuse or fraudulent conduct on the part of the persons concerned in order, where appropriate, to deny them the benefit of the provisions of Community law on which they seek to rely, but they must nevertheless assess such conduct in the light of the objectives pursued by those provisions (see, inter alia, Centros, cited above, paragraph 25).
43 The national provision at issue, insofar as it excludes categorically and generally any type A or type B share transfer from the benefit of deferral of tax, does not allow the national courts to make such a case-by-case analysis taking account of the particular features of each case.
44 Furthermore, the criterion on the basis of which the national provision excludes type A and type B share transfers from that tax advantage - namely the fact that the transfer is to a company established under the legislation of another Member State or a branch set up in Sweden by such a company - relates to the exercise of the freedom of establishment guaranteed by the Treaty and cannot, therefore, in itself, constitute an abuse of the right of establishment (see, to that effect, inter alia, Centros, cited above, paragraph 27).
49 A restriction on freedom of establishment, such as the national provision at issue, can be justified only if that provision pursues a legitimate aim compatible with the Treaty and is justified by pressing reasons of public interest.  Even if that were so, it would still have to be of such a nature as to ensure achievement of the aim in question and not go beyond what was necessary for that purpose (see, inter alia, Futura Participations and Singer, cited above, paragraph 26, and the case-law cited therein).
50 It must be borne in mind that the reduction in tax revenue which would be likely to result from the granting of that advantage to type A and type B share transfers is not one of the grounds listed in Article 46 EC and cannot be regarded as a matter of overriding general interest which can be relied upon in order to justify unequal treatment that is, in principle, incompatible with Article 43 EC (see, inter alia, ICI, cited above, paragraph 28, Metallgesellschaft and Others, paragraph 59, and Saint-Gobain ZN, paragraph 51).  Such an objective is purely economic and cannot, therefore, according to settled case-law, constitute an overriding reason in the general interest (see, inter alia, Case C-35/98 Verkooijen [2000] ECR I-4071, paragraph 48).
51 On the other hand, it is clear from the case-law of the Court of Justice that the need to safeguard the cohesion of a tax system (see Case C-204/90 Bachmann [1992] ECR I-249 and Case C-300/90 Commission v Belgium [1992] ECR I-305), the prevention of tax evasion (see ICI, cited above, paragraph 26, and Metallgesellschaft and Others, paragraph 57) and the effectiveness of fiscal supervision (see, inter alia, Futura Participations and Singer, cited above, paragraph 31, and Case C-254/97 Baxter and Others [1999] ECR I-4809, paragraph 18) constitute overriding requirements of general interest capable of justifying a restriction on the exercise of fundamental freedoms guaranteed by the Treaty (see, in particular, as regards such justifications in the context of restrictions concerning a difference in income tax treatment, Case C-55/98 Vestergaard [1999] ECR I-7641, paragraph 23).
52 As regards the justification relied on by the Riksskatteverket based on the need to safeguard the cohesion of a tax system, in Bachmann and Commission v Belgium, cited above, in which the Court accepted that such a reason could justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty, there was a direct link between the deductibility of contributions and the taxation of sums payable by insurers under pension and life assurance contracts, and that link had to be maintained to preserve the coherence of the tax system in question (see, for example, Vestergaard, cited above, paragraph 24, and the case-law cited therein).
53 In the present case, insofar as the Kingdom of Sweden has concluded double-taxation conventions with other Member States, there is no fiscal coherence in relation to any one taxpayer in establishing a strict correlation between the deferral of capital gains tax and the final taxation of the gain.  Coherence is at another level, namely, the reciprocity of the rules applicable in the Contracting States in terms of the convention on the basis of connecting factors for the purposes of apportioning competence in tax matters.  This the Member States remain free to determine in the absence of Community measures, as here (see, inter alia, Case C-80/94 Wielockx [1995] ECR I-2493, paragraph 24, and Saint Gobain ZN, cited above, paragraph 57).
59 In such a situation, in contrast to that giving rise to the judgments cited above in Bachmann and Commission v Belgium (see Bachmann, paragraph 28, and Commission v Belgium, paragraph 20), the coherence of the tax system can be safeguarded by measures which are less restrictive or less prejudicial to freedom of establishment, relating specifically to the risk of a definitive departure of the taxpayer, in respect of all types of share transfers entailing the same objective risk.
61 The provision at issue here is not specifically designed to exclude from a tax advantage purely artificial schemes designed to circumvent Swedish tax law, but concerns, generally, any situation in which, for whatever reason, the transfer at undervalue is to a company established under the legislation of another Member State or a branch set up in the Kingdom of Sweden by such a company.
62 However, tax evasion or tax fraud cannot be inferred generally from the fact that the transferee company or its parent company is established in another Member State and cannot justify a fiscal measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty (see, to that effect, Case C-478/98 Commission v Belgium [2000] ECR I-7587, paragraph 45).
66 In the light of the answer given to the question as regards the Treaty provisions on freedom of establishment, insofar as it concerns the Treaty provisions on free movement of capital, that question need be considered only to the extent that, in the light of the latter provisions, the national provision at issue is such as to involve a separate restriction, where the Treaty provisions concerning freedom of establishment do not apply.
70 It is common ground, moreover, that the national provision at issue is liable to dissuade those liable to Swedish tax on gains from transferring shares at undervalue to transferee companies established in other Member States in which they directly or indirectly have a holding and, therefore, constitutes, for those taxpayers, a restriction on free movement of capital within the meaning of Article 56 EC (see, to that effect, inter alia, Case C-478/98 Commission v Belgium, cited above, paragraph 18, and case-law cited therein).
72 In that regard, the justifications relied on by the Riksskatteverket under Article 58 EC are essentially the same as those it put forward to justify the restrictions on freedom of establishment caused by the national provision at issue which relate to the coherence of the tax system, the prevention of tax avoidance and the effectiveness of fiscal supervision (see, as regards the relation between overriding public interest requirements recognised by the Court and Article 73d(1)(a) of the EC Treaty (now Article 58(1)(a) EC) Verkooijen, cited above, paragraphs 43 to 46). For the same reasons as those cited in connection with freedom of establishment at paragraphs 46 to 63 above, those justifications cannot be upheld in relation to the restriction on free movement of capital that has been held to exist at paragraph 70.