Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue.
Date: 2006-12-12
24. While ACT was payable within 14 days of the end of the quarter in which the dividend was paid, surplus ACT was repayable when the resident company became liable for mainstream corporation tax, namely nine months after the end of the accounting period.
35. The first point to be made is that, according to well-established case‑law, although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with Community law (see, inter alia, Case C-35/98 Verkooijen  [2000] ECR I‑4071, paragraph 32; Metallgesellschaft and Others , paragraph 37; and Case C-471/04 Keller Holding  [2006] ECR I-2107, paragraph 28).
36. It should be pointed out in that regard that national legislation which makes the receipt of dividends by a resident company liable to tax, where not only the tax base but also the ability to deduct from that tax a tax paid in the State in which the company making the distribution is resident depends on whether the source of the dividends is national or otherwise and the extent of the holding which the company receiving the dividend has in the company paying it, may fall within both Article 43 EC on freedom of establishment and Article 56 EC on the free movement of capital.
37. The order for reference shows that the cases chosen as test cases in the proceedings before the national court concern United Kingdom-resident companies which received dividends from non-resident companies that are wholly owned by them. As the nature of the interest in question will confer on the holder definite influence over the company’s decisions and allow it to determine the company’s activities, the provisions of the EC Treaty on freedom of establishment will apply (Case C-251/98 Baars [2000] ECR I-2787, paragraphs 21 and 22; Case C‑436/00 X and Y [2002] ECR I‑10829, paragraphs 37 and 66 to 68; and Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas [2006] ECR I‑0000, paragraph 31).
38. As the Advocate General stated at point 33 of his Opinion, the nature of the holdings of the other companies which are parties to the dispute has not been put before the Court. It may therefore be that the dispute also relates to the effect of the national legislation at issue in the main proceedings on the situation of resident companies which received dividends on the basis of a holding which does not give them definite influence over the decisions of the company making the distribution and does not allow them to determine its activities. That legislation must therefore also be considered in the light of the Treaty provisions on the free movement of capital.
Freedom of establishment
39. As regards, in the first place, the situation of the claimants in the main proceedings, it should be pointed out that freedom of establishment, which Article 43 EC grants to 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 48 EC, 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 (see, in particular, Case C-307/97 Saint-Gobain ZN [1999] ECR I-6161, paragraph 35; Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 30; and Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 41).
40. In the case of companies, it should be borne in mind that their registered office for the purposes of Article 48 EC serves, in the same way as nationality in the case of individuals, as the connecting factor with the legal system of a State. Acceptance of the proposition that the Member State in which a company seeks to establish itself may freely apply different treatment merely by reason of its registered office being situated in another Member State would deprive Article 43 EC of all meaning (see, to that effect, Case 270/83 Commission  v France  [1986] ECR 273, paragraph 18; Case C-330/91 Commerzbank  [1993] ECR I‑4017, paragraph 13; Metallgesellschaft and Others , paragraph 42; and Marks & Spencer , paragraph 37). Freedom of establishment thus aims to guarantee the benefit of national treatment in the host Member State, by prohibiting any discrimination based on the place in which companies have their seat (see, to that effect, Commission  v France , paragraph 14, and Saint‑Gobain ZN , paragraph 35).
43. It must be pointed out, first of all, that a Member State which wishes to prevent or mitigate the imposition of a series of charges to tax on distributed profits may choose between a number of systems. In the case of shareholders receiving those dividends, those systems do not necessarily have the same result. Thus, under an exemption system, a shareholder who receives a dividend is not, in principle, liable to tax on the dividends received, irrespective of the rate of tax to which the underlying profits are subject to tax in the hands of the company making the distribution and the amount of that tax which that company has in fact paid. By contrast, under an imputation system, such as the system at issue in the main proceedings, a shareholder may offset tax due on the dividends paid only to the extent of the amount of tax which the company making the distribution has actually had to pay on the underlying profits, and that amount may be offset only up to the limit of the amount of tax for which the shareholder is liable.
44. As regard dividends paid to a parent company resident in a Member State by a company resident in another Member State in which that parent company holds a minimum of 25% of the capital, Article 4(1) of Directive 90/435 expressly leaves it open to Member States to choose between an exemption system and an imputation system. The directive provides that where such a parent company receives distributed profits from its subsidiary, the State of the parent company is, except when the latter is liquidated, either to refrain from taxing such profits or to tax them while authorising that company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those profits and, if appropriate, the amount of the withholding tax levied by the Member State in which the subsidiary is resident, up to the limit of the amount of the corresponding domestic tax.
45. However, in structuring their tax system and, in particular, when they establish a mechanism for preventing or mitigating the imposition of a series of charges to tax or economic double taxation, Member States must comply with the requirements of Community law and especially those imposed by the Treaty provisions on free movement.
46. It is thus clear from case-law that, whatever the mechanism adopted for preventing or mitigating the imposition of a series of charges to tax or economic double taxation, the freedoms of movement guaranteed by the Treaty preclude a Member State from treating foreign-sourced dividends less favourably than nationally-sourced dividends, unless such a difference in treatment concerns situations which are not objectively comparable or is justified by overriding reasons in the general interest (see, to that effect, Case C‑315/02 Lenz [2004] ECR I‑7063, paragraphs 20 to 49, and Case C‑319/02 Manninen  [2004] ECR I‑7477, paragraphs 20 to 55). Likewise, as regards the decisions which Directive 90/435 leaves in the hands of the Member States, the Court has pointed out that these may be exercised only in compliance with the fundamental provisions of the Treaty, in particular those relating to freedom of establishment ( Keller Holding , paragraph 45).
47. As regards the question whether a Member State may operate an exemption system for nationally-sourced dividends when it applies an imputation system to foreign‑sourced dividends, it must be stated that it is for each Member State to organise, in compliance with Community law, its system for taxing distributed profits and, in particular, to define the tax base and the tax rate which apply to the company making the distribution and/or the shareholder receiving them, in so far as they are liable to tax in that Member State.
48. Thus, Community law does not, in principle, prohibit a Member State from avoiding the imposition of a series of charges to tax on dividends received by a resident company by applying rules which exempt those dividends from tax when they are paid by a resident company, while preventing, through an imputation system, those dividends from being liable to a series of charges to tax when they are paid by a non-resident company.
50. Next, that Member State must prevent foreign-sourced dividends from being liable to a series of charges to tax, by offsetting the amount of tax paid by the non-resident company making the distribution against the amount of tax for which the recipient company is liable, up to the limit of the latter amount.
51. Thus, when the profits underlying foreign-sourced dividends are subject in the Member State of the company making the distribution to a lower level of tax than the tax levied in the Member State of the recipient company, the latter Member State must grant an overall tax credit corresponding to the tax paid by the company making the distribution in the Member State in which it is resident.
52. Where, conversely, those profits are subject in the Member State of the company making the distribution to a higher level of tax than the tax levied by the Member State of the company receiving them, the latter Member State is obliged to grant a tax credit only up to the limit of the amount of corporation tax for which the company receiving the dividends is liable. It is not required to repay the difference, that is to say, the amount paid in the Member State of the company making the distribution which is greater than the amount of tax payable in the Member State of the company receiving it.
53. Against that background, the mere fact that, compared with an exemption system, an imputation system imposes additional administrative burdens on taxpayers, with evidence being required as to the amount of tax actually paid in the State in which the company making the distribution is resident, cannot be regarded as a difference in treatment which is contrary to freedom of establishment, since particular administrative burdens imposed on resident companies receiving foreign-sourced dividends are an intrinsic part of the operation of a tax credit system.
54. The claimants in the main proceedings none the less point out that when, under the relevant United Kingdom legislation, a nationally‑sourced dividend is paid, it is exempt from corporation tax in the hands of the company receiving it, irrespective of the tax paid by the company making the distribution, that is to say, it is also exempt when, by reason of the reliefs available to it, the latter has no liability to  tax or pays corporation tax at a rate lower than that which normally applies in the United Kingdom.
56. In that respect, it is for the national court to determine whether the tax rates are indeed the same and whether different levels of taxation occur only in certain cases by reason of a change to the tax base as a result of certain exceptional reliefs.
57. It follows that, in the case of the national legislation at issue in the main proceedings, the fact that nationally-sourced dividends are subject to an exemption system and foreign-sourced dividends are subject to an imputation system does not contravene the principle of freedom of establishment laid down under Article 43 EC, provided that the tax rate applied to foreign-sourced dividends is not higher than the rate applied to nationally-sourced dividends and that the tax credit is at least equal to the amount paid in the Member State of the company making the distribution, up to the limit of the tax charged in the Member State of the company receiving the dividends.
Free movement of capital
58. With respect, in the second place, to dividends paid to resident companies by a company in which they hold 10% or more of the voting rights, without that holding conferring on them a definite influence over the decisions of that company or allowing them to determine its activities, it is clear that those companies are also subject in the United Kingdom, first, when they receive nationally-sourced dividends, to an exemption system and, secondly, when they receive foreign-sourced dividends, to an imputation system.
60. It is sufficient to state in that regard that, as was held in paragraphs 47 to 56 of this judgment, legislation such as that at issue in the main proceedings does not discriminate against companies receiving foreign‑sourced dividends. Accordingly, the conclusion arrived at in paragraph 57 of this judgment also applies to the provisions of the Treaty relating to the free movement of capital.
62. In that regard, it must be held, first of all, that in the context of a tax rule which seeks to prevent or to mitigate the taxation of distributed profits, the situation of a shareholder company receiving foreign-sourced dividends is comparable to that of a shareholder company receiving nationally-sourced dividends in so far as, in each case, the profits made are, in principle, liable to be subject to a series of charges to tax.
64. Such a difference in treatment has the effect of discouraging United Kingdom-resident companies from investing their capital in companies established in another Member State. In addition, it also has a restrictive effect as regards companies established in other Member States in that it constitutes an obstacle to their raising of capital in the United Kingdom. In so far as income arising from foreign-sourced capital is treated less favourably from a tax point of view than dividends paid by companies established in the United Kingdom, shares in companies established in other Member States are less attractive to United Kingdom-resident investors than those of companies having their seat in that Member State (see Verkooijen , paragraphs 34 and 35; Lenz , paragraphs 20 and 21; and Manninen , paragraphs 22 and 23).
67. It is true that, when introducing mechanisms designed to prevent or mitigate distributed profits being liable to a series of charges to tax, it is in principle for Member States to determine the category of taxpayers entitled to benefit from those mechanisms and, for that purpose, to set thresholds based on the shareholdings which taxpayers have in the companies making the distributions in question. It is only in the case of Member State companies having a minimum shareholding of 25% in a company of another Member State that Article 4 of Directive 90/435, read in conjunction with Article 3, in the version in force at the time of the events in the main proceedings, requires Member States, if they do not exempt profits received by a resident parent company from a subsidiary resident in another Member State, to authorise the parent company to deduct from the amount of tax due not only the amount of the withholding tax levied by the Member State in which the subsidiary is resident, but also the fraction of the tax paid by the subsidiary which relates to those profits.
70. Furthermore, irrespective of the fact that a Member State may, in any event, choose between a number of systems in order to prevent or mitigate the imposition of a series of charges to tax on distributed profits, the difficulties that may arise in determining the tax actually paid in another Member State cannot justify a restriction on the free movement of capital such as that which arises under the legislation at issue in the main proceedings (see, to that effect, Case C‑334/02 Commission  v France  [2004] ECR I‑2229, paragraph 29, and Manninen , paragraph 54).
72. The answer to Question 1 must therefore be that Articles 43 EC and 56 EC must be interpreted as meaning that, where a Member State has a system for preventing or mitigating the imposition of a series of charges to tax or economic double taxation as regards dividends paid to residents by resident companies, it must treat dividends paid to residents by non-resident companies in the same way.
80. Since that legislation applies to payments of dividends to shareholder companies irrespective of the size of their holding, it is capable of coming under both Article 43 EC on the freedom of establishment and Article 56 EC on the free movement of capital.
84. It must be held that the fact of not having to pay ACT represents a cash‑flow advantage, in so far as the company concerned may retain the sums which it would otherwise have had to pay by way of ACT until corporation tax is payable ( Metallgesellschaft and Others , paragraph 44).
88. As the Advocate General states in points 65 to 68 of his Opinion, the ACT payable by a United Kingdom-resident company is nothing more than a payment of corporation tax in advance, even though it is levied in advance when dividends are paid and calculated by reference to the amount of those dividends. The ACT which is paid on a distribution by way of dividend may, in principle, be set off against the corporation tax which a company must pay on its profits for the corresponding accounting period. Likewise, as the Court held when it ruled on the group income scheme established under the same tax legislation which was in force in the United Kingdom, the proportion of corporation tax which a resident company need not pay in advance under such a scheme when paying dividends to its parent company is, in principle, paid when the liability of the first company to corporation tax falls due (see Metallgesellschaft and Others , paragraph 53).
90. That being the case, the fact that a non-resident company has not been required to pay ACT when paying dividends to a resident company cannot be relied on in order to refuse that company the opportunity to reduce the amount of ACT which it is obliged to pay on a subsequent distribution by way of dividend. The reason why such a non-resident company is not liable to ACT is that it is subject to corporation tax, not in the United Kingdom, but in the State in which it is resident. A company cannot be required to pay in advance a tax to which it will never be liable (see, to that effect, Metallgesellschaft and Others , paragraphs 55 and 56).
91. Since both resident companies distributing dividends to other resident companies and non-resident companies making such a distribution are subject, in the State in which they are resident, to corporation tax, a national measure which is designed to avoid a series of charges to tax on distributed profits only as regards companies receiving dividends from other resident companies, while exposing companies receiving dividends from non-resident companies to a cash-flow disadvantage, cannot be justified by a relevant difference in the situation of those companies.
102. It should be noted in that regard that, by virtue of Article 4(1) of Directive 90/435, a Member State which does not exempt profits received  by a resident parent company from a subsidiary which is resident in another Member State must authorise that parent company to deduct from the amount of tax due the fraction of the tax paid by the subsidiary which relates to those profits and, if appropriate, the amount of the withholding tax levied by the Member State in which the subsidiary is resident, up to the limit of the amount of the corresponding domestic tax.
103. As appears particularly from the third recital in its preamble, the aim of that directive is, by the introduction of a common system of taxation, to eliminate any disadvantage to cooperation between companies of different Member States as compared with cooperation between companies of the same Member State and thereby to facilitate the grouping together of companies at Community level (Joined Cases C‑283/94, C-291/94 and C-292/94 Denkavit and Others [1996] ECR I‑5063, paragraph 22, and Case C-294/99 Athinaïki Zithopiïa [2001] ECR I‑6797, paragraph 25).
107. In that regard, it must be pointed out that, for the purposes of that directive, the expression ‘withholding tax’ is not restricted to certain specific types of national taxes and that the categorisation of a tax, duty or charge must be determined by the Court, under Community law, according to the objective characteristics by which it is levied, irrespective of its classification under national law (see, inter alia, Athinaïki Zythopoiïa , paragraphs 26 and 27, and Case C-58/01 Océ Van der Grinten  [2003] ECR I‑9809, paragraph 46).
108. As regards the prohibition laid down by Article 5 of Directive 90/435 on Member States levying a withholding tax on profits distributed by a resident subsidiary to its parent company, when that parent company is resident in another Member State, the Court has already held that any tax on income received in the State in which dividends are distributed is a withholding tax on distributed profits where the chargeable event for the tax is the payment of dividends or of any other income from shares, the taxable amount is the income from those shares and the taxable person is the holder of the shares (Case C-375/98 Epson Europe  [2000] ECR I-4243, paragraph 23; Athinaïki Zithopiïa , paragraphs 28 and 29; and Océ Van der Grinten , paragraph 47).
118. As regards the second aspect of the national legislation at issue referred to in Question 3, since it concerns only groups of companies, it falls within the scope of Article 43 EC rather than that of Article 56 EC.
131. It must, however, be held that the provisions relating to freedom of establishment preclude a Member State from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation (see, inter alia, Case C‑264/96 ICI  [1998] ECR I‑4695, paragraph 21; Marks & Spencer , paragraph 31; and Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 42).
132. The possibility under the national legislation at issue for a group of companies to surrender a particular amount of tax which a group company cannot offset against the corporation tax for which it is liable in the United Kingdom to another group company so that the latter may offset that amount against its liability to corporation tax in that Member State, constitutes a tax advantage for the companies concerned. The fact that non-resident companies in the group are not entitled to the same advantage is liable to hinder the exercise by those resident group companies of their freedom of establishment, by discouraging them from creating subsidiaries in other Member States (see, to that effect, as regards group relief for losses suffered by non-resident subsidiaries, Marks & Spencer , paragraphs 32 and 33).
142. As regards the Treaty provisions relating to the freedoms of movement, since the legislation at issue applies to payments of dividends to resident companies irrespective of the size of their holding, it is capable of coming within the scope of both Article 43 EC on freedom of establishment and Article 56 EC on the free movement of capital.
153. While it is true that the situation of the former company is improved by the fact that the tax paid in advance which cannot be offset against the amount due in respect of corporation tax may be repaid, such a company remains in a less favourable situation than that of a company receiving nationally-sourced dividends, in that it suffers a cash-flow disadvantage.
162. As the claimants in the main proceedings point out, the fact that a national scheme which restricts the freedoms of movement is optional does not mean that it is not incompatible with Community law.
166. It must be pointed out in that regard that the difference in treatment to which foreign-sourced dividends are subject when they are received by a resident company which has elected to be taxed under the FID regime (see paragraphs 145 to 149 of this judgment) has the effect of discouraging such a company from investing its capital in a company established in another State and also has a restrictive effect on companies established in other States in that it constitutes an obstacle to their raising capital in the United Kingdom.
167. In order for such a difference in treatment to be compatible with the provisions of the Treaty on the free movement of capital, it must concern situations which are not objectively comparable or be justified by an overriding reason in the general interest.
170. It is true that, because of the degree of legal integration that exists between Member States of the Union, in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities, such as 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), the taxation by a Member State of economic activities having cross-border aspects which take place within the Community is not always comparable to that of economic activities involving relations between Member States and non-member countries.
171. Furthermore, as the Advocate General noted at point 121 of his Opinion, it may be that a Member State will be able to demonstrate that a restriction on capital movements to or from non-member countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States.
174. By Question 5, the national court essentially asks whether, having regard to the fact that the national measures referred to in Questions 1 and 2 were adopted before 31 December 1993, the measures referred to in Question 4, which were adopted after that date but which amend those national measures, to the extent to which they also constitute restrictions on capital movements prohibited in principle by Article 56 EC, are authorised as restrictions which existed on 31 December 1993, for the purposes of Article 57(1) EC.
175. Article 57(1) EC states that Article 56 EC is to be without prejudice to the application to non-member countries of restrictions which existed on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from non-member countries involving direct investment, including investment in real estate, establishment, the provision of financial services or the admission of securities to capital markets.
176. It is accordingly necessary to determine whether the national measures referred to in Question 4 fall within the scope of Article 57(1) EC, as being restrictions on the movement of capital involving direct investment, establishment, the provision of financial services or the admission of securities to capital markets.
177. As regards, more particularly, the concept of ‘direct investment’, it must be stated that this is not defined by the Treaty.
178. Nevertheless, that concept has been defined in Community law in the nomenclature of the capital movements set out in Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty [article repealed by the Treaty of Amsterdam] (OJ 1988 L 178, p. 5), which sets out 13 categories of capital movements.
179. It is settled case-law that, inasmuch as Article 56 EC substantially reproduced the content of Article 1 of Directive 88/361, and even if the latter was adopted on the basis of Articles 69 and 70(1) of the EEC Treaty (Articles 67 to 73 of the EEC Treaty were replaced by Articles 73b to 73g of the EC Treaty, now Articles 56 EC to 60 EC), that nomenclature retains the same indicative value, for the purposes of defining the term ‘movement of capital’, as it did before their entry into force, 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, and Case C-513/03 Van Hilten-van der Heijden  [2006] ECR I-1957, paragraph 39).
180. The same indicative value must be given to that nomenclature in interpreting the concept of direct investment. The first section of that nomenclature, entitled ‘Direct investments’ includes the establishment and extension of branches or new undertakings belonging solely to the person providing the capital and the acquisition in full of existing undertakings, participation in new or existing undertakings with a view to establishing or maintaining lasting economic links, long-term loans with a view to establishing or maintaining lasting economic links, and reinvestment of profits with a view to maintaining lasting economic links.
181. As that list and the relative explanatory notes show, the concept of direct investments concerns investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity.
182. As regards shareholdings in new or existing undertakings, as the explanatory notes confirm, the objective of establishing or maintaining lasting economic links presupposes that the shares held by the shareholder enable him, either pursuant to the provisions of the national laws relating to companies limited by shares or otherwise, to participate effectively in the management of that company or in its control.
183. Contrary to what the claimants in the main proceedings contend, the restrictions on capital movements involving direct investment or establishment within the meaning of Article 57(1) EC extend not only to national measures which, in their application to capital movements to or from non-member countries, restrict investment or establishment, but also to those measures which restrict payments of dividends deriving from them.
184. It is clear from case-law that any less favourable treatment of foreign‑sourced dividends in comparison with nationally-sourced dividends must be regarded as a restriction on the free movement of capital in so far as it is liable to make the acquisition of holdings in companies established in other Member States less attractive ( Verkooijen , paragraph 35, Lenz , paragraph 21, and Manninen , paragraph 23).
185. It follows that a restriction on capital movements, such as a less favourable tax treatment of foreign-sourced dividends, comes within the scope of Article 57(1) EC, inasmuch as it relates to holdings acquired with a view to establishing or maintaining lasting and direct economic links between the shareholder and the company concerned and which allow the shareholder to participate effectively in the management of the company or in its control.
186. Were that not to be the case, a restriction on capital movements prohibited by Article 56 EC could not be applied, even in relations with non-member countries.
187. Conversely, it is clear from Article 57(1) EC that a Member State may, in its relations with non-member countries, apply restrictions on capital movements which come within the substantive scope of that provision, even though they contravene the principle of the free movement of capital laid down under Article 56 EC, provided that those restrictions already existed on 31 December 1993.
188. The United Kingdom Government argues that, should the Court hold that Article 56 EC precludes national legislation governing the taxation of foreign-sourced dividends, such as the legislation at issue in the main proceedings, that would apply not only to the measures covered by Questions 1 to 3, which were adopted prior to 31 December 1993, but also to the FID regime, which came into effect on 1 July 1994, inasmuch as that regime did not introduce any new restrictions vis-à-vis the existing measures but, on the contrary, did no more than abolish a number of the restrictive effects of the existing legislation.
189. It is necessary first of all to clarify the concept of ‘restrictions which exist’ on 31 December 1993 within the meaning of Article 57(1) EC.
190. As the claimants in the main proceedings, the United Kingdom and the Commission propose, reference should be made to Case C-302/97 Konle [1999] ECR I‑3099, in which the Court had to provide an interpretation of the concept of ‘existing legislation’ contained in a derogating provision in the Act concerning the conditions of accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden and the adjustments to the Treaties on which the European Union is founded (OJ 1994 C 241, p. 21, and OJ 1995 L 1, p. 1), allowing the Republic of Austria to maintain its existing legislation governing secondary residences for a limited period.
191. While it is, in principle, for the national court to determine the content of the legislation which existed on a date laid down by a Community measure, the Court held in that case that it is for the Court of Justice to provide guidance on interpreting the Community concept which constitutes the basis of a derogation from Community rules for national legislation ‘existing’ on a particular date (see, to that effect, Konle , paragraph 27).
192. As the Court stated in Konle , any national measure adopted after a date laid down in that way is not, by that fact alone, automatically excluded from the derogation laid down in the Community measure in question. If the provision is, in substance, identical to the previous legislation or is limited to reducing or eliminating an obstacle to the exercise of Community rights and freedoms in the earlier legislation, it will be covered by the derogation. By contrast, legislation based on an approach which is different from that of the previous law and establishes new procedures cannot be regarded as legislation existing at the date set down by the Community measure in question (see Konle , paragraphs 52 and 53).
193. Next, as regards the relationship between the FID regime and the existing national legislation governing the taxation of foreign-sourced dividends, as described by the national court, it is apparent that the objective of that regime is to limit the restrictive effects arising from the existing legislation for resident companies receiving foreign-sourced dividends, in particular by offering those companies the opportunity to obtain a repayment of the surplus ACT which is due when they pay dividends to their own shareholders.
194. It is, however, for the national court to determine whether the fact that, as the claimants in the main proceedings point out, shareholders receiving a FID are not entitled to a tax credit, must be regarded as a new restriction. While it is true that, in the national system of which the FID regime forms part, the grant of such a tax credit to a shareholder receiving a distribution is the counterpart of the payment by the company making the distribution of the ACT on that distribution, it cannot be inferred from the description of the national tax legislation provided in the order for reference that the fact that a company which has elected to be taxed under the FID regime is entitled to be reimbursed surplus ACT justifies, under the logic governing the legislation which existed on 31 December 1993, its shareholders not being entitled to any tax credit.
195. In any event, contrary to what the United Kingdom Government contends, the FID regime cannot be categorised as an existing restriction merely on the basis that, because it is optional, the companies concerned can always elect to be taxed under the system previously in place, with the restrictive effects to which it gave rise. As mentioned in paragraph 162 of this judgment, a system which restricts the freedoms of movement still remains incompatible with Community law, even though its application may be optional.
196. The answer to Question 5 must therefore be that Article 57(1) EC is to be interpreted as meaning that where, before 31 December 1993, a Member State has adopted legislation which contains restrictions on capital movements to or from non-member countries which are prohibited by Article 56 EC and, after that date, adopts measures which, while also constituting a restriction on such movements, are essentially identical to the previous legislation or do no more than restrict or abolish an obstacle to the exercise of the Community rights and freedoms arising under that previous legislation, Article 56 EC does not preclude the application of those measures to non-member countries when they apply to capital movements involving direct investment, including investment in real estate, establishment, the provision of financial services or the admission of securities to capital markets. Holdings in a company which are not acquired with a view to the establishment or maintenance of lasting and direct economic links between the shareholder and that company and do not allow the shareholder to participate effectively in the management of that company or in its control cannot, in this connection, be regarded as direct investments.
Questions 6 to 9
201. It must be stated that it is not for the Court to assign a legal classification to the actions brought before the national court by the claimants in the main proceedings. In the circumstances, it is for the latter to specify the nature and basis of their actions (whether they are actions for repayment or actions for compensation for damage), subject to the supervision of the national court (see Metallgesellschaft and Others , paragraph 81).
202. However, the fact remains that, according to established case-law, the right to a refund of charges levied in a Member State in breach of rules of Community law is the consequence and complement of the rights conferred on individuals by Community provisions as interpreted by the Court (see, inter alia, Case 199/82 San Giorgio [1983] ECR 3595, paragraph 12, and Metallgesellschaft and Others , paragraph 84). The Member State is therefore required in principle to repay charges levied in breach of Community law (Joined Cases C-192/95 to C‑218/95 Comateb and Others [1997] ECR I-165, paragraph 20, and Metallgesellschaft and Others , paragraph 84).
203. In the absence of Community rules on the refund of national charges levied though not due, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, first, that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and, secondly, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness) (see, inter alia, Case 33/76 Rewe [1976] ECR 1989, paragraph 5, and Case 45/76 Comet [1976] ECR 2043, paragraphs 13 and 16; and, more recently, Case C-231/96 Edis [1998] ECR I-4951, paragraphs 19 and 34; Case C-343/96 Dilexport  [1999] ECR I‑579, paragraph 25; and Metallgesellschaft and Others , paragraph 85).
204. In addition, the Court held in paragraph 96 of its judgment in Metallgesellschaft and Others , that, where a resident company or its parent have suffered a financial loss from which the authorities of a Member State have benefited as the result of a payment of advance corporation tax, levied on the resident company in respect of dividends paid to its non-resident parent but which would not have been levied on a resident company which had paid dividends to a parent company which was also resident in that Member State, the Treaty provisions on freedom of movement require that resident subsidiaries and their non‑resident parent companies should have an effective legal remedy in order to obtain reimbursement or reparation of the loss which they have sustained.
205. It follows from that case-law that, where a Member State has levied charges in breach of the rules of Community law, individuals are entitled to reimbursement not only of the tax unduly levied but also of the amounts paid to that State or retained by it which relate directly to that tax. As the Court held in paragraphs 87 and 88 of Metallgesellschaft and Others , that also includes losses constituted by the unavailability of sums of money as a result of a tax being levied prematurely.
209. While it has not gone so far as to rule out the possibility of a State being liable in less restrictive conditions on the basis of national law, the Court has held that there are three conditions under which a Member State will be liable to make reparation for loss and damage caused to individuals as a result of breaches of Community law for which it can be held responsible, namely that the rule of law infringed must be intended to confer rights on individuals, that the breach must be sufficiently serious, and that there must be a direct causal link between the breach of the obligation resting on the State and the loss or damage sustained by those affected ( Brasserie du Pêcheur and Factortame , paragraphs 51 and 66, and Case C-224/01 Köbler [2003] ECR I-10239, paragraphs 51 and 57).
210. It is, in principle, for the national courts to apply the criteria for establishing the liability of Member States for damage caused to individuals by breaches of Community law ( Brasserie du Pêcheur and Factortame , paragraph 58, and Köbler , paragraph 100), in accordance with the guidelines laid down by the Court for the application of those criteria ( Brasserie du Pêcheur and Factortame , paragraphs 55 to 57; Case C-392/93 British Telecommunications [1996] ECR I‑1631, paragraph 41; Denkavit and Others , paragraph 49; and Konle , paragraph 58).
211. In the main proceedings, the first condition is plainly satisfied as regards Articles 43 EC and 56 EC. Those provisions confer rights on individuals (see, respectively, Brasserie du Pêcheur and Factortame , paragraphs 23 and 54, and Joined Cases C‑163/94, C‑165/94 and C‑250/94 Sanz de Lera and Others [1995] ECR I‑4821, paragraph 43).
212. As regards the second condition, it should be pointed out, first, that a breach of Community law will be sufficiently serious where, in the exercise of its legislative power, a Member State has manifestly and gravely disregarded the limits on its discretion (see Brasserie du Pêcheur and Factortame , paragraph 55; British Telecommunications , paragraph 42; and Case C-424/97 Haim  [2000] ECR I‑5123, paragraph 38). Secondly, where, at the time when it committed the infringement, the Member State in question had only considerably reduced, or even no, discretion, the mere infringement of Community law may be sufficient to establish the existence of a sufficiently serious breach (Case C‑5/94 Hedley Lomas [1996] ECR I-2553, paragraph 28, and Haim , paragraph 38).
213. In order to determine whether a breach of Community law is sufficiently serious, it is necessary to take account of all the factors which characterise the situation brought before the national court. Those factors include, in particular, the clarity and precision of the rule infringed, whether the infringement and the damage caused were intentional or involuntary, whether any error of law was excusable or inexcusable, and the fact that the position taken by a Community institution may have contributed towards the adoption or maintenance of national measures or practices contrary to Community law ( Brasserie du Pêcheur and Factortame , paragraph 56, and Haim , paragraphs 42 and 43).
214. On any view, a breach of Community law will clearly be sufficiently serious if it has persisted despite a judgment finding the infringement in question to be established, or a preliminary ruling or settled case-law of the Court on the matter from which it is clear that the conduct in question constituted an infringement ( Brasserie du Pêcheur and Factortame , paragraph 57).
218. As regards the third condition, namely the requirement for a causal link between the breach of the obligation resting on the State and the loss or damage sustained by those affected, it is for the national court to assess whether the loss and damage claimed flows sufficiently directly from the breach of Community law to render the State liable to make it good (see, to that effect, as regards the non-contractual liability of the Community, Joined Cases 64/76, 113/76, 167/78, 239/78, 27/79, 28/79 and 45/79 Dumortier frères and Others v Council [1979] ECR 3091, paragraph 21).
219. Subject to the right of reparation which flows directly from Community law where the conditions referred to in the previous paragraph are satisfied, it is on the basis of the rules of national law on liability that the State must make reparation for the consequences of the loss and damage caused, provided that the conditions for reparation of loss and damage laid down by national law are not less favourable than those relating to similar domestic claims and are not so framed as to make it, in practice, impossible or excessively difficult to obtain reparation (Joined Cases C-6/90 and C-9/90 Francovich and Others [1991] ECR I‑5357, paragraphs 41 to 43; Brasserie du Pêcheur and Factortame , paragraph 67; and Köbler , paragraph 58).
220. The answer to Questions 6 to 9 should therefore be that, in the absence of Community legislation, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, including the classification of claims brought by injured parties before the national courts and tribunals. Those courts and tribunals are, however, obliged to ensure that individuals should have an effective legal remedy enabling them to obtain reimbursement of the tax unlawfully levied on them and the amounts paid to that Member State or withheld by it directly against that tax. As regards other loss or damage which a person may have sustained by reason of a breach of Community law for which a Member State is liable, the latter is obligated to make reparation for the loss or damage caused to individuals in the conditions set out in paragraph 51 of the judgment in Brasserie du Pêcheur and Factortame , but that does not preclude the State from being liable under less restrictive conditions, where national law so provides.
The application for a limitation on the temporal effects of the judgment