Proceedings brought by Aberdeen Property Fininvest Alpha Oy.
Date: 2009-06-18
24. It should be noted at the outset that, according to consistent case-law, although direct taxation falls within their competence, Member States must none the less exercise that competence consistently with Community law (see, in particular, Case C‑446/03 Marks & Spencer  [2005] ECR I‑10837, paragraph 29; Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas  [2006] ECR I‑7995, paragraph 40; Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation  [2006] ECR I‑11673, paragraph 36; and Case C‑379/05 Amurta  [2007] ECR I‑9569, paragraph 16).
25. It must also be pointed out that, in the absence of any unifying or harmonising Community measures, Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation (Case C‑336/96 Gilly  [1998] ECR I‑2793, paragraphs 24 and 30; Case C‑307/97 Saint-Gobain ZN [1999] ECR I‑6161, paragraph 57; Case C‑470/04 N  [2006] ECR I‑7409, paragraph 44; and Amurta , paragraph 17).
28. The Court has already held that, in respect of shareholdings which are not covered by Directive 90/435, it is for the Member States to determine whether, and to what extent, economic double taxation of distributed profits is to be avoided and, for that purpose, to establish, either unilaterally or by conventions concluded with other Member States, procedures intended to prevent or mitigate such economic double taxation. However, that does not of itself allow them to impose measures that are contrary to the freedoms of movement guaranteed by the Treaty (see Test Claimants in Class IV of the ACT Group Litigation , paragraph 54, and Amurta , paragraph 24).
33. It is therefore clear that the main proceedings relate exclusively to the effect of the national legislation at issue in those proceedings on the situation of a resident company which distributes dividends to shareholders whose holdings give them definite influence over the decisions of that company and enable them to determine its activities (see, to that effect, Case C‑446/04 Test Claimants in the FII Group Litigation  [2006] ECR I‑11753, paragraph 38, and Case C‑284/06 Burda  [2008] ECR I‑4571, paragraph 72).
34. According to settled case-law, where a company has a shareholding in another company which gives it definite influence over that company’s decisions and allows it to determine that company’s activities, it is the provisions of the Treaty on the freedom of establishment that are to be applied (see, inter alia, Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 31; Test Claimants in Class IV of the ACT Group Litigation , paragraph 39; Case C‑524/04 Test Claimants in the Thin Cap Group Litigation  [2007] ECR I‑2107, paragraph 27; Case C‑231/05 Oy AA  [2007] ECR I‑6373, paragraph 20; and Burda , paragraph 69).
35. Should the legislation at issue in the main proceedings have restrictive effects on the free movement of capital, those effects would be the unavoidable consequence of such an obstacle to freedom of establishment as there might be, and do not therefore justify an independent examination of that legislation from the point of view of Article 56 EC (see, to that effect, Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 33; Test Claimants in the Thin Cap Group Litigation , paragraph 34; and Oy AA , paragraph 24).
37. The Court’s case-law shows 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 of establishment, 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 (Case C‑471/04 Keller Holding  [2006] ECR I‑2107, paragraph 29, and Case C‑170/05 Denkavit Internationaal and Denkavit France  [2006] ECR I‑11949, paragraph 20).
38. In the case of companies, 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 Member State. Acceptance of the proposition that the Member State of residence may freely apply different treatment merely by reason of the fact that the registered office of a company is situated in another Member State would deprive Article 43 EC of all meaning. 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 Test Claimants in Class IV of the ACT Group Litigation , paragraph 43; Denkavit Internationaal and Denkavit France , paragraph 22; Burda , paragraph 77; and Case C‑282/07 Truck Center  [2008] ECR I‑0000, paragraph 32).
41. Such a difference in tax treatment of dividends between parent companies based on the place where they have their seat is liable to constitute a restriction of freedom of establishment, prohibited in principle by Articles 43 EC and 48 EC, in that it makes it less attractive for companies established in other Member States to exercise freedom of establishment and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the Member State which applies such different treatment (see, to that effect, Denkavit Internationaal and Denkavit France , paragraphs 29 and 30).
42. It is true that the Court has held that, in the context of measures laid down by a Member State in order to prevent or mitigate the imposition of a series of charges to tax on, or economic double taxation of, profits distributed by a resident company, resident shareholders receiving dividends are not necessarily in a comparable situation to that of shareholders receiving dividends who are resident in another Member State ( Denkavit Internationaal and Denkavit France , paragraph 34, and Amurta , paragraph 37).
43. However, once a Member State, unilaterally or by way of a convention, imposes a charge to income tax not only on resident shareholders but also on non-resident shareholders in respect of dividends which they receive from a resident company, the position of those non-resident shareholders becomes comparable to that of resident shareholders ( Test Claimants in Class IV of the ACT Group Litigation , paragraph 68; Denkavit Internationaal and Denkavit France , paragraph 35; and Amurta , paragraph 38).
44. Consequently, where a Member State has chosen to relieve resident parent companies of a series of charges to tax on the profits distributed by a resident subsidiary, it must extend that relief to non-resident parent companies which are in a comparable situation, since an imposition of that kind on those non-resident companies results from the exercise of its tax jurisdiction over them (see, to that effect, Denkavit Internationaal and Denkavit France , paragraph 37).
51. In the second place, the circumstance relied on by the Finnish Government that the income of a SICAV is not taxed in Luxembourg, assuming that to be correct, does not create a difference between a SICAV and a resident share company which justifies different treatment as regards withholding tax on dividends received by those two classes of company.
52. Thus, according to the Finnish Government, dividends paid by a resident company to another resident company are not taxed either by means of withholding tax or by forming part of the income of the recipient company. Consequently, the non‑taxation of that category of income in Luxembourg is not such as to justify it being taxed by the Finnish State, since that State has chosen not to exercise its tax jurisdiction over such income where it is received by companies resident in Finland.
53. Also, the Finnish Government has not shown how the tax treatment of other categories of income of resident companies and non-resident SICAVs could be relevant for assessing the comparability of those two types of company from the point of view of the exemption from withholding tax on dividends received.
54. In the third place, there is no merit in the Italian Government’s argument that, because the Grand Duchy of Luxembourg does not tax the income of a SICAV, the imposition of a series of charges to tax takes place not at the level of the SICAV but at that of its members and should be avoided by the Member State in which those members reside. It is the Republic of Finland which, by subjecting to withholding tax income that has already been taxed at the level of the distributing company, creates the series of charges to tax, a series which that Member State chose to prevent in the case of dividends distributed to resident companies.
57. According to the Court’s case-law, a restriction of freedom of establishment is permissible only if it is justified by overriding reasons in the public interest. It is further necessary, in such a case, that it should be appropriate to ensuring the attainment of the objective in question and not go beyond what is necessary to attain that objective (see Case C‑414/06 Lidl Belgium  [2008] ECR I‑3601, paragraph 27, and Case C‑157/07 Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt  [2008] ECR I‑0000, paragraph 40 and the case-law cited).
63. As regards, first, the argument concerning the prevention of tax avoidance, it must be recalled that, according to established case-law, a national measure restricting freedom of establishment may be justified where it specifically targets wholly artificial arrangements designed to circumvent the legislation of the Member State concerned (see, to that effect, Case C‑264/96 ICI  [1998] ECR I‑4695, paragraph 26; Marks & Spencer , paragraph 57; Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 51; and Test Claimants in the Thin Cap Group Litigation , paragraph 72).
64. For a restriction of freedom of establishment to be justified on grounds of the prevention of abusive practices, the specific objective of such a restriction must be to prevent conduct involving the creation of wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory ( Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 55, and Test Claimants in the Thin Cap Group Litigation , paragraph 74).
66. As regards, next, the argument concerning the balanced apportionment of the power to tax, it should be recalled that such a justification may be accepted, in particular, where the system in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its tax jurisdiction in relation to activities carried out on in its territory (see Case C‑347/04 Rewe Zentralfinanz  [2007] ECR I‑2647, paragraph 42; Oy AA , paragraph 54; and Amurta , paragraph 58).
67. Where, however, a Member State has chosen not to tax recipient companies established in its territory in respect of this kind of income, it cannot rely on the argument that there is a need to safeguard the balanced apportionment of the power to tax between the Member States in order to justify the taxation of recipient companies established in another Member State ( Amurta , paragraph 59).
69. A Member State cannot rely on a double taxation convention in order to avoid its obligations imposed under the Treaty (see Denkavit Internationaal and Denkavit France , paragraph 53, and Amurta , paragraph 55).
71. As regards, finally, the argument concerning the preservation of the coherence of the Finnish tax system, the Court has acknowledged that the need to preserve such coherence may justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty (see Case C‑204/90 Bachmann  [1992] ECR I‑249, paragraph 28; Case C‑300/90 Commission  v Belgium  [1992] ECR I‑305, paragraph 21; Keller Holding , paragraph 40; Amurta , paragraph 46; and Case C‑293/06 Deutsche Shell  [2008] ECR I‑1129, paragraph 37).
72. For an argument based on such a justification to succeed, however, the Court requires a direct link between the tax advantage concerned and the offsetting of that advantage by a particular tax levy (Case C‑484/93 Svensson and Gustavsson  [1995] ECR I‑3955, paragraph 18; ICI , paragraph 29; Case C‑319/02 Manninen  [2004] ECR I‑7477, paragraph 42; and Keller Holding , paragraph 40), with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question ( Manninen , paragraph 43; Deutsche Shell , paragraph 39; and Case C‑418/07 Papillon  [2008] ECR I‑0000, paragraph 44).