N Luxembourg 1 and Others v Skatteministeriet.
Date: 2019-02-26
85


It has been held, in this regard, that it is apparent from recitals 2 to 4 of Directive 2003/49 that the aim of the directive is that double taxation should be eliminated with respect to interest and royalty payments between associated companies of different Member States and that such payments should be subject to tax once in a single Member State, the abolition of all taxation of those payments in the Member State where they arise being the most appropriate means of ensuring equality of tax treatment as between national and cross-border transactions (judgment of 21 July 2011, Scheuten Solar Technology, C‑397/09, EU:C:2011:499, paragraph 24).
86


The scope of Directive 2003/49, as defined in Article 1(1) of the directive, thus concerns the exemption of interest and royalty payments in their source Member State, provided that the beneficial owner is a company established in another Member State or a permanent establishment situated in another Member State belonging to a company of a Member State (judgment of 21 July 2011, Scheuten Solar Technology, C‑397/09, EU:C:2011:499, paragraph 25).
87


The Court has, furthermore, stated that, since Article 2(a) of Directive 2003/49 defines interest as ‘income from debt-claims of every kind’, only the actual beneficial owner can receive interest which constitutes income from such claims (see, to that effect, judgment of 21 July 2011, Scheuten Solar Technology, C‑397/09, EU:C:2011:499, paragraph 27).
96


It is settled case-law that there is, in EU law, a general legal principle that EU law cannot be relied on for abusive or fraudulent ends (judgments of 9 March 1999, Centros, C‑212/97, EU:C:1999:126, paragraph 24 and the case-law cited; of 21 February 2006, Halifax and Others, C‑255/02, EU:C:2006:121, paragraph 68; of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 35; of 22 November 2017, Cussens and Others, C‑251/16, EU:C:2017:881, paragraph 27; and of 11 July 2018, Commission v Belgium, C‑356/15, EU:C:2018:555, paragraph 99).
97


That general principle of law must be complied with by individuals. Indeed, the application of EU legislation cannot be extended to cover transactions carried out for the purpose of fraudulently or wrongfully obtaining advantages provided for by EU law (see, to that effect, judgments of 5 July 2007, Kofoed, C‑321/05, EU:C:2007:408, paragraph 38; of 22 November 2017, Cussens and Others, C‑251/16, EU:C:2017:881, paragraph 27; and of 11 July 2018, Commission v Belgium, C‑356/15, EU:C:2018:555, paragraph 99).
98


It thus follows from that principle that a Member State must refuse to grant the benefit of the provisions of EU law where they are relied upon not with a view to achieving the objectives of those provisions but with the aim of benefiting from an advantage in EU law although the conditions for benefiting from that advantage are fulfilled only formally.
99


That is so, for example, where the completion of customs formalities does not fall within the context of normal commercial transactions but is purely formal and is designed solely to obtain wrongfully the grant of compensatory amounts (see, to that effect, judgments of 27 October 1981, Schumacher and Others, 250/80, EU:C:1981:246, paragraph 16, and of 3 March 1993, General Milk Products, C‑8/92, EU:C:1993:82, paragraph 21) or export refunds (see, to that effect, judgment of 14 December 2000, Emsland-Stärke, C‑110/99, EU:C:2000:695, paragraph 59).
100


Furthermore, the principle of prohibition of abuse of rights is applicable in fields as varied as the free movement of goods (judgment of 10 January 1985, Association des Centres distributeurs Leclerc and Thouars Distribution, 229/83, EU:C:1985:1, paragraph 27), freedom to provide services (judgment of 3 February 1993, Veronica Omroep Organisatie, C‑148/91, EU:C:1993:45, paragraph 13), public service contracts (judgment of 11 December 2014, Azienda sanitaria locale n. 5 Spezzino and Others, C‑113/13, EU:C:2014:2440, paragraph 62), freedom of establishment (judgment of 9 March 1999, Centros, C‑212/97, EU:C:1999:126, paragraph 24), company law (judgment of 23 March 2000, Diamantis, C‑373/97, EU:C:2000:150, paragraph 33), social security (judgments of 2 May 1996, Paletta, C‑206/94, EU:C:1996:182, paragraph 24; of 6 February 2018, Altun and Others, C‑359/16, EU:C:2018:63, paragraph 48; and of 11 July 2018, Commission v Belgium, C‑356/15, EU:C:2018:555, paragraph 99), transport (judgment of 6 April 2006, Agip Petroli, C‑456/04, EU:C:2006:241, paragraphs 19 to 25), social policy (judgment of 28 July 2016, Kratzer, C‑423/15, EU:C:2016:604, paragraphs 37 to 41), restrictive measures (judgment of 21 December 2011, Afrasiabi and Others, C‑72/11, EU:C:2011:874, paragraph 62) and value added tax (VAT) (judgment of 21 February 2006, Halifax and Others, C‑255/02, EU:C:2006:121, paragraph 74).
101


As regards that last field, the Court has observed on a number of occasions that, whilst preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), the principle that abusive practices are prohibited nonetheless constitutes a general principle of EU law which applies irrespective of whether the rights and advantages that are abused have their basis in the Treaties, in a regulation or in a directive (see, to that effect, judgment of 22 November 2017, Cussens and Others, C‑251/16, EU:C:2017:881, paragraphs 30 and 31).
102


It follows that the general principle that abusive practices are prohibited must be relied on against a person where that person invokes certain rules of EU law providing for an advantage in a manner which is not consistent with the objectives of those rules. The Court has thus held that that principle may be relied on against a taxable person in order to refuse him, inter alia, the right to exemption from VAT, even in the absence of provisions of national law providing for such refusal (see, to that effect, judgments of 18 December 2014, Schoenimport Italmoda Mariano Previti and Others, C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraph 62, and of 22 November 2017, Cussens and Others, C‑251/16, EU:C:2017:881, paragraph 33).
104


Whilst Article 5(1) of Directive 2003/49 provides that the directive is not to preclude the application of domestic or agreement-based provisions required for the prevention of fraud or abuse, that provision cannot be interpreted as excluding the application of the general principle of EU law, noted in paragraphs 96 to 98 above, that abusive practices are prohibited. The transactions alleged by SKAT to constitute an abuse of rights fall within the scope of EU law (see, to that effect, judgment of 22 December 2010, Weald Leasing, C‑103/09, EU:C:2010:804, paragraph 42) and could prove incompatible with the objective pursued by that directive.
105


Furthermore, whilst Article 5(2) of Directive 2003/49 provides that Member States may, in the event of evasion, avoidance or abuse, withdraw the benefits of the directive or refuse to apply it, that provision likewise cannot be interpreted as excluding the application of the principle of EU law that abusive practices are prohibited, since the application of that principle is not — as the provisions of the directive are — subject to a requirement of transposition (see, to that effect, judgment of 22 November 2017, Cussens and Others, C‑251/16, EU:C:2017:881, paragraphs 28 and 31).
107


To permit the setting up of financial arrangements whose sole aim is to benefit from the tax advantages resulting from the application of Directive 2003/49 would not be consistent with such objectives and, on the contrary, would undermine economic cohesion and the effective functioning of the internal market by distorting the conditions of competition. As the Advocate General has, in essence, observed in point 63 of her Opinion in Case C‑115/16, that would also be the case even if the transactions at issue do not exclusively pursue such an aim, as the Court has held that the principle that abusive practices are prohibited applies, in tax matters, where the accrual of a tax advantage constitutes the essential aim of the transactions at issue (see, to that effect, judgments of 21 February 2008, Part Service, C‑425/06, EU:C:2008:108, paragraph 45, and of 22 November 2017, Cussens and Others, C‑251/16, EU:C:2017:881, paragraph 53).
109


Whilst the pursuit by a taxpayer of the tax regime most favourable for him cannot, as such, set up a general presumption of fraud or abuse (see, to that effect, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 50; of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 84; and of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraph 60), the fact remains that such a taxpayer cannot enjoy a right or advantage arising from EU law where the transaction at issue is purely artificial economically and is designed to circumvent the application of the legislation of the Member State concerned (see, to that effect, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 51; of 7 November 2013, K, C‑322/11, EU:C:2013:716, paragraph 61; and of 25 October 2017, Polbud — Wykonawstwo, C‑106/16, EU:C:2017:804, paragraphs 61 to 63).
115


It also noted that such a finding is without prejudice to the requirement for all authorities of a Member State, in applying national law, to interpret it as far as possible in the light of the wording and purpose of directives in order to achieve the result pursued by those directives, and that those authorities are thus able to rely on a directive-compliant interpretation of national law against individuals (see, to that effect, judgment of 5 July 2007, Kofoed, C‑321/05, EU:C:2007:408, paragraph 45 and the case-law cited).
116


It was on the basis of those considerations that the Court invited the referring court to ascertain whether there was, in Danish law, a provision or general principle prohibiting abuse of rights or other provisions on tax evasion or tax avoidance which might be interpreted in accordance with the provision of Directive 90/434 under which, in essence, a Member State may refuse the right of deduction provided for by that directive where a transaction is essentially directed at such evasion or avoidance, and, if so, then to determine whether the conditions for the application of those national provisions were satisfied in the main proceedings (see, to that effect, judgment of 5 July 2007, Kofoed, C‑321/05, EU:C:2007:408, paragraphs 46 and 47).
117


Nevertheless, even if it were to transpire, in the main proceedings, that national law does not contain rules which may be interpreted in compliance with Article 5 of Directive 2003/49, this — notwithstanding what the Court held in the judgment of 5 July 2007, Kofoed (C‑321/05, EU:C:2007:408) — could not be taken to mean that the national authorities and courts would be prevented from refusing to grant the advantage derived from the right of exemption provided for in Article 1(1) of the directive in the event of fraud or abuse of rights (see, by analogy, judgment of 18 December 2014, Schoenimport Italmoda Mariano Previti and Others, C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraph 54).
118


A refusal given to a taxpayer in such circumstances is not covered by the situation referred to in paragraph 114 above since it reflects the general principle of EU law that EU law cannot be relied on for abusive or fraudulent ends (see, by analogy, judgment of 18 December 2014, Schoenimport Italmoda Mariano Previti and Others, C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraphs 55 and 56 and the case-law cited).
119


Accordingly, since, as has been noted in paragraph 96 above, abusive or fraudulent acts cannot found a right provided for by EU law, the refusal of an advantage under a directive, in this instance Directive 2003/49, does not amount to imposing an obligation on the individual concerned under that directive, but is merely the consequence of the finding that the objective conditions required for obtaining the advantage sought, prescribed by the directive as regards that right, are met only formally (see, by analogy, judgment of 18 December 2014, Schoenimport Italmoda Mariano Previti and Others, C‑131/13, C‑163/13 and C‑164/13, EU:C:2014:2455, paragraph 57 and the case-law cited).
120


In such circumstances, the Member States must, therefore, refuse to grant the advantage resulting from Directive 2003/49, in accordance with the general principle that abusive practices are prohibited, under which EU law cannot cover abusive practices of economic operators (see, to that effect, judgment of 11 July 2018, Commission v Belgium, C‑356/15, EU:C:2018:555, paragraph 99 and the case-law cited).
124


As is clear from the Court’s case-law, proof of an abusive practice requires, first, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of those rules has not been achieved and, second, a subjective element consisting in the intention to obtain an advantage from the EU rules by artificially creating the conditions laid down for obtaining it (judgments of 14 December 2000, Emsland-Stärke, C‑110/99, EU:C:2000:695, paragraphs 52 and 53, and of 12 March 2014, O. and B., C‑456/12, EU:C:2014:135, paragraph 58).
125


Examination of a set of facts is therefore needed to establish whether the constituent elements of an abusive practice are present, and in particular whether economic operators have carried out purely formal or artificial transactions devoid of any economic and commercial justification, with the essential aim of benefiting from an improper advantage (see, to that effect, judgments of 20 June 2013, Newey, C‑653/11, EU:C:2013:409, paragraphs 47 to 49; of 13 March 2014, SICES and Others, C‑155/13, EU:C:2014:145, paragraph 33; and of 14 April 2016, Cervati and Malvi, C‑131/14, EU:C:2016:255, paragraph 47).
141


The Court has moreover held, more generally, that there is no reason why the tax authorities concerned should not request from the taxpayer the evidence that they consider they need for a concrete assessment of the taxes and duties concerned and, where appropriate, refuse the exemption applied for if that evidence is not supplied (see, to that effect, judgment of 28 February 2013, Petersen and Petersen, C‑544/11, EU:C:2013:124, paragraph 51 and the case-law cited).
158


First of all, as the Commission has stated, the payment of interest connected with a loan concerning two companies resident in different Member States falls within the provisions relating to the free movement of capital, as referred to in Article 63 TFEU (see, to that effect, judgments of 3 October 2006, Fidium Finanz, C‑452/04, EU:C:2006:631, paragraphs 41 and 42, and of 3 October 2013, Itelcar, C‑282/12, EU:C:2013:629, paragraph 14). These questions must therefore be examined in the light of that article.
159


In that regard, and irrespective of the effects that the withholding of tax at source may have on the tax situation of the company that receives the interest, the obligation on the company paying the interest to withhold tax at source when that payment is made to a non-resident company may, inasmuch as it results in an additional administrative burden and risks concerning liability which would not exist if the loan had been taken out with a resident company, render cross-border loans less attractive than domestic loans (see, to that effect, judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraphs 28 and 32). Such an obligation therefore constitutes a restriction on the free movement of capital, within the meaning of Article 63 TFEU.
160


However, the need to ensure the effective collection of tax constitutes an overriding reason in the public interest capable of justifying such a restriction. The procedure for withholding tax at source and the liability rules supporting it constitute a legitimate and appropriate means of ensuring tax treatment of the income of a company resident outside the State of taxation. Nor does such a measure go beyond what is necessary for the purpose of attaining that objective (see, to that effect, judgments of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraphs 39 and 43 to 52, and of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraphs 21 and 22).
161


As to the fact that the national legislation at issue in the main proceedings provides that a resident company which receives interest from another resident company is not subject to the obligation to make an advance payment of corporation tax during the first two tax years and is therefore not required to pay corporation tax relating to that interest until a date appreciably later than the date for payment of the tax withheld at source where interest is paid by a resident company to a non-resident company, it follows therefrom that, whilst interest paid by a resident company to a non-resident company is subject to immediate and definitive taxation, interest paid by a resident company to another resident company is not subject to the making of any advance payment during the first two tax years, thereby procuring a cash-flow advantage for the latter company (see, to that effect, judgment of 22 November 2018, Sofina and Others, C‑575/17, EU:C:2018:943, paragraph 28).
162


The exclusion of a cash-flow advantage in a cross-border situation when it is granted in an equivalent situation on national territory constitutes a restriction on the free movement of capital (judgment of 22 November 2018, Sofina and Others, C‑575/17, EU:C:2018:943, paragraph 29 and the case-law cited).
164


However, whilst it is admittedly apparent from paragraphs 41 and 46 of the judgment of 22 December 2008, Truck Center (C‑282/07, EU:C:2008:762), that a difference in treatment consisting in the application of methods or arrangements for the levying of tax that differ depending on the place of residence of the company receiving the income at issue relates to situations which are not objectively comparable, the Court nevertheless made clear, in paragraphs 43 and 44 of that judgment, that the income at issue in the case which gave rise to the judgment was, in any event, subject to tax, irrespective of whether it was received by a resident company or by a non-resident company (see, to that effect, judgment of 22 November 2018, Sofina and Others, C‑575/17, EU:C:2018:943, paragraph 51). The Court pointed out in particular, in paragraph 49 of the judgment of 22 December 2008, Truck Center (C‑282/07, EU:C:2008:762), that resident companies were obliged to make advance payments of corporation tax in connection with interest received from another resident company.
165


In the present instance, the national legislation at issue in the main proceedings does not merely lay down arrangements for the levying of tax that differ depending on the place of residence of the company which receives interest paid by a resident company, but exempts a resident company which receives interest from another resident company from the obligation to make an advance payment relating to that interest during the first two tax years, so that that first company is not required to pay tax relating to that interest until a date appreciably later than the date for payment of the tax withheld at source where interest is paid by a resident company to a non-resident company. The assessment of whether there is any disadvantageous treatment of interest paid to non-resident companies must be undertaken for each tax year, taken individually (see, to that effect, judgments of 2 June 2016, Pensioenfonds Metaal en Techniek, C‑252/14, EU:C:2016:402, paragraph 41, and of 22 November 2018, Sofina and Others, C‑575/17, EU:C:2018:943, paragraphs 30 and 52).
175


As the Commission has observed, and as, according to the information provided by the Danish Government, the Ministry of Taxation acknowledged after Case C‑299/16 was brought before the Court, it follows from the judgment of 13 July 2016, Brisal and KBC Finance Ireland (C‑18/15, EU:C:2016:549, paragraphs 23 to 55), that national legislation under which a non-resident company is taxed, by means of tax withheld at source by a resident company, on the interest which it is paid by the latter without it being possible to deduct business expenses, such as interest expenditure, that are directly related to the lending at issue, whereas such a possibility of deduction is accorded to resident companies receiving interest from another resident company, constitutes a restriction on the free movement of capital that is prohibited, in principle, by the FEU Treaty.