Centro di Musicologia Walter Stauffer v Finanzamt München für Körperschaften.
Date: 2006-09-14
15. As a preliminary point, it should be noted that, although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence consistently with Community law (see, inter alia, Case C-80/94 Wielockx  [1995] ECR I-2493, paragraph 16, Case C-39/04 Laboratoires Fournier  [2005] ECR I-2057, paragraph 14, and Case C‑513/03 Van Hilten-van der Heijden  [2006] ECR I-0000, paragraph 36).
17. Freedom of establishment, which Article 52 of the EC Treaty confers on Community nationals and which includes the right 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, in accordance with Article 58 of the EC Treaty, 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, a branch or an agency (Case C‑307/97 Saint Gobain [1999] ECR I-6161, paragraph 35, Case C-446/03 Marks & Spencer  [2005] ECR I-10837, paragraph 30, and Case C‑471/04 Keller Holding  [2006] ECR I-0000, paragraph 29).
18. According to the case-law of the Court, the concept of establishment within the meaning of the Treaty is a very broad one, allowing a Community national to participate, on a stable and continuous basis, in the economic life of a Member State other than his State of origin and to profit therefrom, so contributing to economic and social interpenetration within the Community in the sphere of activities as self-employed persons (see, to that effect, Case 2/74 Reyners [1974] ECR 631, paragraph 21, and Case C-55/94 Gebhard  [1995] ECR I-4165, paragraph 25).
19. However, in order for the provisions relating to freedom of establishment to apply, it is generally necessary to have secured a permanent presence in the host Member State and, where immovable property is purchased and held, that property should be actively managed. It is clear from the account provided by the national court that the foundation does not have any premises in Germany for the purposes of pursuing its activities and that the services ancillary to the letting of the property are provided by a German property management agent.
22. The Treaty does not define the notions of ‘capital movements’ or ‘payments’. However, it is established case-law that, in as much as Article 73b of the EC Treaty substantially reproduces the contents of Article 1 of Directive 88/361, and 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 having been replaced by Articles 73b to 73g of the EC Treaty, now Articles 56 EC to 60 EC), the nomenclature in respect of ‘movements of capital’ annexed to Directive 88/361 still has the same indicative value, for the purposes of defining the notion of capital movements, as it did before the entry into force of those provisions, subject to the qualification, contained in the introduction to the nomenclature, that the list set out therein is not exhaustive (see, inter alia, Case C-222/97 Trummer and Mayer  [1999] ECR I‑1661, paragraph 21, Joined Cases C-515/99, C-519/99 to C‑524/99 and C‑526/99 to C-540/99 Reisch and Others  [2002] ECR I-2157, paragraph 30, and Van Hilten-van der Heijden , paragraph 39).
31. However, Article 73d(1)(a) of the EC 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 EC Treaty is itself limited by Article 73d(3) of the EC 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).
32. Unequal treatment permitted under Article 73d(1)(a) of the EC Treaty must therefore be distinguished from arbitrary discrimination or disguised restrictions prohibited under Article 73d(3) of the EC Treaty. According to the case-law, for national tax legislation such as that at issue in the main proceedings, which distinguishes between foundations with unlimited tax liability and those with limited liability, to be regarded as compatible with the Treaty provisions on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by overriding reasons in the general interest, such as the need to safeguard the coherence of the tax system or effective fiscal supervision (see, to that effect, Case C-35/98 Verkooijen  [2000] ECR I‑4071, paragraph 43, and Manninen , paragraph 29). In order to be justified, moreover, the difference in treatment between charitable foundations with unlimited tax liability in Germany and foundations of the same kind established in other Member States must not go beyond what is necessary in order to attain the objective of the legislation in question.
37. Firstly, whilst Member States are entitled to require a sufficiently close link between foundations upon which they confer charitable status for the purposes of granting certain tax benefits and the activities pursued by those foundations, it is clear from the order for reference that it is irrelevant, for the purposes of the decision in the case in the main proceedings, whether such a link exists.
39. Secondly, as the Advocate General observed at point 94 of her Opinion, it is the case that it is not a requirement under Community law for Member States automatically to confer on foreign foundations recognised as having charitable status in their Member State of origin the same status in their own territory. Member States have a discretion in this regard that they must exercise in accordance with Community law (see, to that effect, Case C-415/04 Kinderopvang Enschede [2006] ECR I-0000, paragraph 23). In those circumstances, they are free to determine what the interests of the general public they wish to promote are by granting benefits to associations and foundations which pursue objects linked to such interests in a disinterested manner.
40. Nevertheless, the fact remains that where a foundation recognised as having charitable status in one Member State also satisfies the requirements imposed for that purpose by the law of another Member State and where its object is to promote the very same interests of the general public, which it is a matter for the national authorities of that other State, including its courts, to determine, the authorities of that Member State cannot deny that foundation the right to equal treatment solely on the ground that it is not established in its territory.
42. Accordingly, in circumstances such as those in the main proceedings, the effect of Paragraph 5(2)(3) of the KStG is to treat foundations in objectively comparable situations differently by reason of their place of residence. It follows that such a fiscal measure cannot, in principle, constitute unequal treatment permitted under Article 73d(1)(a) of the EC Treaty, unless it can be justified by overriding reasons in the general interest (see, to that effect, Verkooijen,  paragraph 46, Manninen,  paragraph 29, and Case C-265/04 Bouanich  [2006] ECR I-923, paragraph 38).
45. That argument cannot be upheld. Whilst certain objects connected with the promotion at national level of culture and high-level training may constitute overriding reasons in the general interest (see, to that effect, Case C-198/89 Commission  v Greece  [1991] ECR I-727, and Case C-153/02 Neri  [2003] ECR I‑13555, paragraph 46), the fact remains that it does not appear, in the light of the information available to the Court, that the tax exemption scheme at issue pursues such objectives or constitutes aid governed by Articles 92 and 93 of the EC Treaty. It is clear from the order for reference that Paragraph 52 of the AO is not based on the premiss that the activities pursued by charitable foundations must benefit the national general public.
47. The Court has, on many occasions, held that effectiveness of fiscal supervision constitutes an overriding requirement of general interest capable of justifying a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty (see, inter alia, Case 120/78 Rewe-Zentral (‘ Cassis de Dijon ’) [1979] ECR 649, paragraph 8, and Case C-250/95 Futura Participations and Singer  [1997] ECR I‑2471, paragraph 31).
48. Thus, before granting a foundation a tax exemption, a Member State is authorised to apply measures enabling it to ascertain in a clear and precise manner whether the foundation meets the conditions imposed by national law in order to be entitled to the exemption and to monitor its effective management, for example, by requiring the submission of annual accounts and an activity report. Admittedly, where foundations are established in other Member States, it may prove more difficult to carry out the necessary checks. Nevertheless, these are disadvantages of a purely administrative nature which are not sufficient to justify a refusal on the part of the authorities of the State concerned to grant such foundations the same tax exemptions as are granted to foundations of the same kind, which, in principle, have unlimited tax liability in that State (see, to that effect, Case C-334/02 Commission  v France  [2004] ECR I-2229, paragraph 29).
49. There is nothing to prevent the tax authorities concerned from requiring a charitable foundation claiming exemption from tax to provide relevant supporting evidence to enable those authorities to carry out the necessary checks. Further, national legislation which absolutely prevents the taxpayer from submitting such evidence cannot be justified in the name of effectiveness of fiscal supervision (see, to that effect, Laboratoires Fournier,  paragraph 25).
50. Moreover, the tax authorities concerned may, pursuant to 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), as amended by Council Directive 2004/106/EC of 16 November 2004 (OJ 2004 L 359, p. 30), call upon the authorities of another Member State in order to obtain all the information that may be necessary to effect a correct assessment of a taxpayer’s liability to tax, including information as to whether that person may be granted a tax exemption (see, to that effect, Case C-55/98 Vestergaard  [1999] ECR I-7641, paragraph 26, and Case C-422/01 Skandia and Ramstedt  [2003] ECR I-6817, paragraph 42).
52. In that regard, the Court has acknowledged that the need to safeguard the cohesion of a tax system may justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty (Case C-204/90 Bachmann  [1992] ECR I-249, paragraph 28, and Case C-300/90 Commission  v Belgium  [1992] ECR I-305, paragraph 21).
53. However, in order for an argument based on such a justification to succeed, a direct link must be established between the grant of the tax advantage concerned and the offsetting of that advantage by a particular tax levy (see, to that effect, Case C-484/93 Svensson and Gustavsson  [1995] ECR I-3955, paragraph 18; Case C-107/94 Asscher  [1996] ECR I-3089, paragraph 58; Case C-264/96 ICI  [1998] ECR I‑4695, paragraph 29; Vestergaard , paragraph 24; Case C-436/00 X and Y  [2002] ECR I-10829, paragraph 52).
54. As is shown by paragraphs 21 to 23 of the judgment in Bachmann  and paragraphs 14 to 16 of the judgment in Commission  v Belgium , those judgments are based on the finding that, in Belgian law, there was a direct link, in relation to the same taxpayer liable to income tax, between the ability to deduct insurance contributions from taxable income and the subsequent taxation of sums paid by the insurers ( Manninen,  paragraph 42).
55. The German Government’s argument seeking to justify a restriction on the free movement of capital by the need to ensure the cohesion of its tax system cannot be accepted, however.
56. Firstly, a tax advantage consisting of exemption from tax of rental income does not correspond to a charge levied on foundations which, in principle, have unlimited tax liability. In other words, there is no direct link, from the point of view of the tax system, between that exemption and the offsetting of that advantage by a particular tax levy.
57. Secondly, whilst the desire to grant the tax exemption only to charitable foundations which pursue the policy objectives of that Member State may, prima facie, appear legitimate, the fact remains that, in the light of the information submitted to the Court by the national court, Paragraph 52 of the AO is not based on the premiss that measures promoting the interests of the general public are required to benefit the German general public. On that basis, the national court concludes that the foundation in question in the main proceedings may be entitled to the exemption if, whilst retaining the same objects, it established its seat in Germany.
59. Whilst, for the Federal Republic of Germany, recognition of the right to exemption from corporation tax for non-resident charitable foundations would entail a reduction in its corporation tax receipts, it has been consistently held in the case-law that 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, to that effect, Verkooijen , paragraph 59; Case C-136/00 Danner  [2002] ECR I-8147, paragraph 56; X and Y , paragraph 50; and Manninen , paragraph 49).
61. Even if, by granting a tax exemption only to charitable foundations that are established in its territory, the authorities of a Member State seek to combat crime, the fact remains that the fact that a foundation is established in another Member State cannot give rise to a general assumption of criminal activity. Moreover, to preclude such foundations from entitlement to a tax exemption when a number of measures are available to monitor their accounts and activities may be considered to be a measure which goes beyond what is necessary to combat crime (see, to that effect, Case C-243/01 Gambelli and Others  [2003] ECR I-13031, paragraph 74).