European Commission v Federal Republic of Germany.
Date: 2015-04-16
14. According to settled case-law, it is for the Commission to choose when it will bring an action for failure to fulfil obligations. The considerations which determine its choice of time cannot affect the admissibility of the action. The rules laid down in Article 258 TFEU must be applied without any obligation on the Commission to act within a specific period, subject to situations in which the excessive duration of the pre-litigation procedure is liable to make it more difficult for the Member State concerned to refute the Commission’s arguments and is thus liable to infringe the rights of the defence. It is for the Member State concerned to adduce evidence that it has been affected by such an excessive duration (see, to that effect, judgment in Commission  v Lithuania , C‑350/08, EU:C:2010:642, paragraphs 33 and 34 and the case-law cited).
19. It follows from settled case-law that, under Article 258 TFEU, the subject-matter of an action for failure to fulfil obligations is determined by the Commission’s reasoned opinion, with the result that the action must be based on the same grounds and pleas as that opinion. However, that requirement cannot be carried so far as to mean that in every case the statement of complaints in the operative part of the reasoned opinion and the form of order sought in the application must be exactly the same, where the subject-matter of the proceedings, as defined in the reasoned opinion, has not been extended or altered. In its application the Commission may, inter alia, c larify its initial complaints, provided, however, that it does not alter the subject-matter of the proceedings (see judgment in Commission  v Poland , C‑281/11, EU:C:2013:855, paragraphs 87 and 88 and the case-law cited).
37. In any event, according to the Commission, so far as concerns the administrative burdens to be borne by the taxable person, the Court concluded, in National Grid Indus (C‑371/10, EU:C:2011:785), that a right exists for that taxable person to opt for immediate taxation or for deferred taxation. Accordingly, immediate taxation of the capital gains at issue would not be proportionate.
54. Article 49 TFEU requires the elimination of restrictions on the freedom of establishment. That freedom includes, for companies established in accordance with the legislation of a Member State and having their registered office, central administration or principal place of business within the European Union, the right to exercise their activity in other Member States through a subsidiary, branch or agency (judgment in Commission  v Denmark , C‑261/11, EU:C:2013:480, paragraph 25 and the case-law cited).
55. That freedom is also applicable to the transfer of activities of a taxable person from the territory of one Member State to another Member State (see, to that effect, Commission  v Denmark , C‑261/11, EU:C:2013:480, paragraph 28).
56. Although, according to their wording, the provisions of the FEU Treaty on the freedom of establishment are aimed at ensuring the benefit of national treatment in the host Member State, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated in accordance with its legislation. All measures which prohibit, impede or render less attractive the exercise of the freedom of establishment must be considered to be restrictions on that freedom (judgment in Commission  v Denmark , C‑261/11, EU:C:2013:480, paragraphs 26 and 27 and the case-law cited).
57. In the present case, the tax scheme provided for in Paragraph 6b of the EStG has the effect of making the benefit of the deferral of recovery of the tax due on the capital gains arising from the sale of a capital asset forming part of the assets of a permanent establishment of the taxable person located within German territory subject to the condition that those capital gains are reinvested in the acquisition of replacement assets forming part of the assets of such an establishment located within the same territory. A similar reinvestment carried out for the purpose of acquiring replacement assets forming part of the assets of a permanent establishment of the taxable person located within the territory of another Member State leads, by contrast, to the immediate taxation of those capital gains.
58. It must be held that that difference in treatment with regard to the deferral of taxation of the capital gains at issue is liable to give rise to a cash-flow disadvantage for the taxable person wishing to reinvest those capital gains in order to acquire replacement assets intended for a permanent establishment located within the territory of a Member State other than the Federal Republic of Germany, in comparison with a taxable person who carries out a similar reinvestment in a permanent establishment located within German territory.
59. That difference in treatment is at the very least liable to make reinvestment effected outside Germany less attractive than reinvestment effected within Germany. It is, as the Commission submits, therefore liable to deter a taxable person established in Germany from carrying out its activities through a permanent establishment located within the territory of a Member State other than the Federal Republic Germany.
60. Such a difference in treatment cannot be explained by an objective difference in situation. In terms of legislation of a Member State which seeks to tax capital gains generated within its territory, the situation of a taxable person who reinvests those capital gains for the purpose of acquiring a replacement asset intended for a permanent establishment located within the territory of another Member State is, as regards the taxation of the capital gains which were generated in the first of those Member States prior to that reinvestment, similar to that of a taxable person who reinvests them in order to acquire a replacement asset intended for a permanent establishment located within the territory of that Member State.
61. It follows that, by making the benefit of the deferral of taxation of the capital gains realised on the sale of a capital asset forming part of the assets of a permanent establishment of the taxable person located within German territory subject to the condition that those capital gains are reinvested for the purpose of the acquisition of replacement assets forming part of the assets of a permanent establishment of the taxable person located within that same territory, the tax scheme provided for in Paragraph 6b of the EStG constitutes a restriction on the freedom of establishment.
63. According to settled case-law, the freedom of establishment may be restricted by national legislation only if the restriction at issue is justified by overriding reasons in the public interest. It is further necessary, in such a case, that that restriction should be appropriate to ensuring the attainment of the objective in question and not go beyond what is necessary to attain that objective (see judgment in DI. VI. Finanziaria di Diego della Valle & C. , EU:C:2012:552, paragraph 41 and the case-law cited).
64. As regards, first of all, the justification based on the need to preserve the balanced allocation of the power to impose taxes between Member States, it should be recalled, first, that that justification is a legitimate objective recognised by the Court, and that, second, it is settled case-law 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, with a view to eliminating double taxation (judgment in DMC , C‑164/12, EU:C:2014:20, paragraphs 46 and 47 and the case-law cited).
65. In its judgment in National Grid Indus  (C‑371/10, EU:C:2011:785), the Court took the view, with regard to national legislation under which the transfer of the place of effective management of a company established under national law to another Member State resulted in the immediate taxation of the unrealised capital gains relating to the assets transferred, whereas such gains were taxed in the national context only where they were in fact realised, that such a transfer could not mean that the Member State of origin had to abandon its right to tax a capital gain which had been generated within the ambit of its powers of taxation prior to the transfer. The Court thus held that, in accordance with the principle of fiscal territoriality, a Member State was entitled to charge tax, at the time of that transfer, on the capital gains arising which had been generated within its territory. Such a measure was intended to prevent situations capable of jeopardising the right of the Member State of origin to exercise its powers of taxation in relation to activities carried on within its territory, and could therefore be justified on grounds connected with the preservation of the allocation of powers of taxation between the Member States (see, to that effect, judgment in National Grid Indus , C‑371/10, EU:C:2011:785, paragraph 46 and the case-law cited).
66. The Court has also held that it is proportionate, for a Member State, for the purposes of safeguarding the exercise of its powers of taxation, to determine the tax due on the unrealised capital gains generated within its territory at the time when its power of taxation in respect of the company in question ceases to exist, in that case at the time of the transfer of the company’s place of effective management to another Member State (see, to that effect, judgment in National Grid Indus , C‑371/10, EU:C:2011:785, paragraph 52).
67. By contrast, legislation of a Member State which requires the immediate recovery of the tax due in respect of the unrealised capital gains generated in the context of its fiscal jurisdiction, at the time of the transfer of the place of effective management of a company to a place outside its territory has been held to be disproportionate by reason of the fact that measures existed which were less restrictive of the freedom of establishment than the immediate recovery of that tax. In that regard, the Court has held that it was appropriate to give the taxable person the choice between, on the one hand, immediate payment of that tax, and, on the other hand, deferred payment of that tax, together with, if appropriate, interest in accordance with the applicable national legislation (see, to that effect, judgments in National Grid Indus , C‑371/10, EU:C:2011:785, paragraphs 73 and 85, and DMC , C‑164/12, EU:C:2014:20, paragraph 61 and the case-law cited).
71. In the present case, the fact that either an unrealised capital gain or a realised capital gain is at issue is irrelevant in this regard. What is of importance is that, as regards one or other of those capital gains, similar transactions, carried out in the purely domestic context of a Member State, unlike a cross-border transaction, did not result in the immediate taxation of those capital gains.
72. Although taxation of the capital gains at issue at the time of reinvestment of those gains, for the purpose of acquiring replacement assets outside the national territory, may be justified on grounds related to the need to preserve the division of the powers of taxation between the Member States, national legislation such as that here at issue, which has the effect of providing, in all cases, for the immediate recovery of tax on those capital gains at the time of their reinvestment outside the national territory, goes, as stated in paragraph 67 of the present judgment, in any event, by reason of the existence of measures which are less restrictive of the freedom of establishment than an immediate recovery of tax, beyond what is necessary to attain the objective related to the need to preserve the division of powers of taxation between the Member States.
73. Suffice it to state that it follows from the case-law of the Court that the taxable person should be given the choice of opting between, on the one hand, the fact of bearing the administrative burden relating to deferral of the charging of the tax at issue, and, on the other, the immediate recovery of that tax. In the event that the taxpayer considers that that burden is not excessive and chooses to bear it, the burden to be borne by the tax authorities cannot be regarded as excessive either (see, to that effect, National Grid Indus , C‑371/10, EU:C:2011:785, paragraph 77).
74. The restriction at issue cannot, next, be justified by the need to guarantee the coherence of the national tax system, which the Court has recognised as constituting an overriding public-interest ground. For an argument based on such a justification to succeed, it is necessary that a direct link be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy (judgments in Commission  v Portugal , C‑345/05, EU:C:2006:685, paragraph 29, and Commission  v Sweden , C‑104/06, EU:C:2007:40, paragraph 26).
75. In the present case, there is no such direct link. As noted by the Commission, the tax advantage at issue, namely the deferral of taxation of the capital gains resulting from the sale of the replaced asset, has as its counterpart, notwithstanding the technique adopted for conferring that tax advantage, the subsequent taxation of the capital gains arising from the sale of that replaced asset and not the taxation of the separate capital gains generated by the sale of the replacement asset.
76. As regards, finally, the objective pursued by the national legislation at issue, namely the desire to promote investment in the same undertaking and the restructuring of that undertaking, in order to ensure its continuity and to maintain employment in Germany, and, on the assumption that such considerations may, under certain circumstances and conditions, constitute acceptable justification for national legislation providing for a tax benefit for natural or legal persons (see, to that effect, judgment in Geurts and Vogten , C‑464/05, EU:C:2007:631, paragraph 26), it does not appear that that objective can be achieved only if the replacement asset also comes within the powers of taxation of the German authorities.
77. That objective can be achieved without any need to lay down an obligation of reinvestment within the territory of the Member State concerned. That objective would be similarly achieved if the taxable person were to choose to reinvest the capital gains resulting from the sale of the replaced asset for the purposes of acquiring a replacement asset forming part of the assets of a permanent establishment located within the territory of another Member State rather than within Germany. Notwithstanding the categorisation, for tax purposes, of a permanent establishment located outside the national territory, under conventional tax law, and the tax treatment of the replacement asset under that law, the replacement asset would, in any event, be linked to the economic activity of the taxable person and would, therefore, contribute to enhancing the promotion of investment in the undertaking and the restructuring of that undertaking and could, accordingly, guarantee the continuity of that economic activity (see, to that effect, judgment in Commission  v Portugal , C‑345/05, EU:C:2006:685, paragraphs 31 to 33 and 35).
79. It follows that it must be held that the Commission’s head of claim alleging infringement of Article 49 TFEU is well founded.
– Infringement of Article 31 of the EEA Agreement
80. The rules prohibiting restrictions on the freedom of establishment laid down in Article 31 of the EEA Agreement are identical to those laid down by Article 49 TFEU. The Court has accordingly specified that, in the field at issue, the rules laid down by the EEA Agreement and those laid down by the FEU Treaty must be given a uniform interpretation (judgment in Commission  v Denmark , C‑261/11, EU:C:2013:480, paragraph 42 and the case-law cited).
81. However, EU case-law which relates to restrictions on the exercise of freedom of movement within the European Union cannot be transposed in its entirety to the freedoms guaranteed by the EEA Agreement, since those latter freedoms are exercised within a different legal context (judgment in Commission  v Denmark , C‑261/11, EU:C:2013:480, paragraph 44 and the case-law cited).