Compagnie de Saint-Gobain, Zweigniederlassung Deutschland v Finanzamt Aachen-Innenstadt.
Date: 1999-09-21
33 According to settled case-law, Article 52 of the Treaty constitutes a fundamental provision which has been directly applicable in the Member States since the end of the transitional period (see, in particular, the judgments in Case 71/76 Thieffry [1977] ECR 765, Commission v France, cited above, paragraph 13, and Case C-311/97 Royal Bank of Scotland [1999] ECR I-2651, paragraph 22).
34 The freedom of establishment conferred by Article 52 of the Treaty on nationals of Member States of the Community, which entails for them access to, and pursuit of, activities as employed persons and the forming and management of undertakings on the same conditions as those laid down for its own nationals by the laws of the Member State where establishment is effected, includes, pursuant to Article 58 of the Treaty, the right of companies or firms formed in accordance with the laws of a Member State and having their registered office, central administration or principal place of business within the Community to pursue their activities in the Member State concerned through a branch or an agency (see Case C-264/96 ICI [1998] ECR I-4695, paragraph 20, and the case-law cited there). Those two provisions guarantee nationals of Member States of the Community who have exercised their freedom of establishment and companies or firms which are assimilated to them the same treatment in the host Member State as that accorded to nationals of that Member State.
35 As far as companies or firms are concerned, their corporate seat, in the sense expressed above, serves to determine, like nationality for natural persons, their connection to a Member State's legal order (see ICI, cited above, paragraph 20, and the case-law cited there).
36 The practice in question in the main proceedings consists in refusing to grant to a non-resident company limited by shares, which operates a branch in Germany through which it holds shares in companies established in States other than the Federal Republic of Germany and through which it receives dividends on such shares, certain concessions in relation to the taxation of those shareholdings or those dividends which are restricted to companies subject in Germany to unlimited tax liability, either under domestic tax legislation or under bilateral treaties for the avoidance of double taxation concluded with non-member countries.
50 It must be stated in response to that argument that a reduction of revenue due to the impossibility of partially compensating for the reduction in tax yield brought about by the grant to foreign companies having a permanent branch in Germany of the various tax concessions in question is not one of the grounds listed in Article 56 of the EC Treaty (now, after amendment, Article 46 EC) and cannot be regarded as a matter of overriding general interest which may be relied upon in order to justify unequal treatment that is in principle incompatible with Article 52 of the Treaty (see, to this effect, the judgment in ICI, cited above, paragraph 28).
51 According to the German Government, this refusal is also justified by the advantage which permanent branches enjoy in comparison with resident subsidiaries as regards the transfer of profits to the non-resident dominant or parent company.
53 In this regard, it must be observed that the difference in tax treatment between resident companies and branches cannot, however, be justified by other advantages which branches enjoy in comparison with resident companies and which, according to the German Government, will compensate for the disadvantages of not being allowed the tax concessions in question.  Even if such advantages exist, they cannot justify breach of the obligation laid down in Article 52 of the Treaty to accord the same domestic treatment concerning the tax concessions in question (see, to this effect, Commission v France, cited above, paragraph 21).
54 Finally, as justification for not allowing the tax concessions in question, the German Government maintains that the conclusion of bilateral treaties with a non-member country does not come within the sphere of Community competence.  Taxation of income and profits falls within the competence of the Member States, which are therefore at liberty to conclude bilateral double-taxation treaties with non-member countries.  In the absence of Community harmonisation in this area, the question whether, in the case of dividends, the tax exemption for international groups should be granted to permanent establishments under a tax treaty concluded with a non-member country is not governed by Community law.  To extend to other situations the tax advantages provided for by treaties concluded with non-member countries would not be compatible with the division of competences under Community law.
56 In this regard, it must be observed first of all that, in the absence of unifying or harmonising measures adopted in the Community, in particular under the second indent of Article 220 of the EC Treaty (now the second indent of Article 293 EC), the Member States remain competent to determine the criteria for taxation of income and wealth with a view to eliminating double taxation by means, inter alia, of international agreements.  In this context, the Member States are at liberty, in the framework of bilateral agreements concluded in order to prevent double taxation, to determine the connecting factors for the purposes of allocating powers of taxation as between themselves (see, to this effect, Case C-336/96 Gilly [1998] ECR I-2793, paragraphs 24 and 30).
57 As far as the exercise of the power of taxation so allocated is concerned, the Member States nevertheless may not disregard Community rules.  According to the settled case-law of the Court, although direct taxation is a matter for the Member States, they must nevertheless exercise their taxation powers consistently with Community law (see ICI, cited above, paragraph 19, and the case-law cited there).
58 In the case of a double-taxation treaty concluded between a Member State and a non-member country, the national treatment principle requires the Member State which is party to the treaty to grant to permanent establishments of non-resident companies the advantages provided for by that treaty on the same conditions as those which apply to resident companies.
59 As the Advocate General points out in point 81 of his Opinion, the obligations which Community law imposes on the Federal Republic of Germany do not affect in any way those resulting from its agreements with the United States of America and the Swiss Confederation.  The balance and the reciprocity of the treaties concluded by the Federal Republic of Germany with those two countries would not be called into question by a unilateral extension, on the part of the Federal Republic of Germany, of the category of recipients in Germany of the tax advantage provided for by those treaties, in this case corporation tax relief for international groups, since such an extension would not in any way affect the rights of the non-member countries which are parties to the treaties and would not impose any new obligation on them.
60 Moreover, the German legislature has never considered that the provisions of the double-taxation treaties concluded with non-member countries precluded any unilateral renunciation by the Federal Republic of levies on dividends from shareholdings in foreign companies since, in adopting the Standortsicherungsgesetz of 13 September 1993, it unilaterally extended the corporation tax concessions to permanent establishments of non-resident companies and thus ended the difference in tax treatment in relation to companies having their seat or business management in Germany.