X-GmbH v Finanzamt Stuttgart - Körperschaften.
Date: 2019-02-26
26


Article 63(1) TFEU lays down a general prohibition on restrictions on the movement of capital between Member States and third countries. Movements of capital covered by that provision include, in particular, direct investments in the form of participation in an undertaking through the holding of shares which confers the possibility of effectively participating in its management and control (‘direct’ investments) and the acquisition of shares on the capital market solely with the intention of making a financial investment without any intention of influencing the management and control of the undertaking (‘portfolio’ investments) (see, to that effect, judgment of 28 September 2006, Commission v Netherlands, C‑282/04 and C‑283/04, EU:C:2006:608, paragraphs 18 and 19, and Opinion 2/15 (EU-Singapore Free Trade Agreement) of 16 May 2017, EU:C:2017:376, paragraphs 80 and 227).
27


However, under Article 64(1) TFEU, a Member State, in its relations with third countries, may apply restrictions on movements of capital 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 63(1) TFEU, provided that those restrictions already existed on 31 December 1993 (see, to that effect, judgments of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 187; of 24 May 2007, Holböck, C‑157/05, EU:C:2007:297, paragraph 39; and of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraph 86).
28


In so far as the standstill clause in Article 64(1) TFEU provides that ‘Article 63 TFEU [is] to be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment …’, it is apparent from the very wording of that provision that the restrictions on movements of capital to or from third countries involving direct investments fall within the substantive scope of that clause. By contrast, portfolio investments are not included in the movements of capital that are the subject of that clause.
31


In that regard, the Court has previously held that the fact that national legislation may apply not only to movements of capital covered by Article 64(1) TFEU but also to other situations is not such as to preclude the standstill clause from being applicable in the circumstances which it covers. The substantive scope of that clause does not depend on the specific purpose of a national restriction, but on the effect of that restriction on the movements of capital that are the subject of Article 64(1) TFEU (see, to that effect, judgment of 15 February 2017, X, C‑317/15, EU:C:2017:119, paragraphs 21 and 22).
37


As regards the notion of ‘restrictions which exist on 31 December 1993’ in Article 64(1) TFEU, it should be borne in mind that any national provision adopted after that date is not, by that fact alone, automatically excluded from the derogation provided for in that provision. The Court has accepted that restrictions laid down in provisions adopted after that date which, in essence, are identical to previous legislation or which are limited to reducing or eliminating an obstacle to the exercise of rights and freedoms of movement in that legislation can be treated as equivalent to such restrictions ‘which exist’ (see, to that effect, judgments of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraphs 189 and 192; of 24 May 2007, Holböck, C‑157/05, EU:C:2007:297, paragraph 41; and of 18 December 2007, A, C‑101/05, EU:C:2007:804, paragraph 49).
38


Although the standstill clause in Article 64(1) TFEU thus permits the Member States to continue to apply restrictions falling within the substantive scope of that clause without any limitation in time, providing that those restrictions remain essentially unchanged, it should be noted that, according to the Court’s settled case-law, the words ‘restrictions which exist on 31 December 1993’ presuppose nonetheless that the legal provisions relating to the restriction in question have formed part of the legal order of the Member State concerned continuously since that date (judgments of 18 December 2007, A, C‑101/05, EU:C:2007:804, paragraph 48; of 5 May 2011, Prunus and Polonium, C‑384/09, EU:C:2011:276, paragraph 34; and of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraph 81).
39


The Court has thus held that the derogation established by the standstill clause in Article 64(1) TFEU cannot apply to provisions adopted by a Member State which, although essentially identical to legislation which existed on 31 December 1993, have reintroduced an obstacle to the free movement of capital which, following the repeal of the earlier legislation or the adoption of amending provisions which are based on a logic different from that of that legislation, no longer existed (see, to that effect, judgments of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 192; of 18 December 2007, A, C‑101/05, EU:C:2007:804, paragraph 49; and of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraphs 87 and 88).
40


It must be held that when the Member State concerned repeals or amends legislation in such a manner, it waives the option available to it under Article 64(1) TFEU to continue to apply certain restrictions to movements of capital which existed on 31 December 1993 in its relations with third countries (see, to that effect, judgment of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraphs 86 to 88).
41


Accordingly, the application of Article 64(1) TFEU presupposes, not only that the essential substantive content of the restriction at issue has been maintained, but that that restriction has also existed continuously. If there were no requirement that the restrictions permitted under the standstill clause in that article should form part of the legal order of the Member State concerned continuously since 31 December 1993, a Member State could, at any time, reintroduce restrictions on the movement of capital to or from third countries which existed as part of the national legal order on 31 December 1993 but had not been maintained (see, to that effect, judgment of 18 December 2007, A, C‑101/05, EU:C:2007:804, paragraph 48; of 5 May 2011, Prunus and Polonium, C‑384/09, EU:C:2011:276, paragraph 34; and of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraph 81).
42


Moreover, in so far as it is a derogation from the fundamental principle of the free movement of capital, the standstill clause in Article 64(1) TFEU must be interpreted strictly. Similarly, the conditions that national legislation must fulfil in order to be regarded as ‘existing’ on 31 December 1993, notwithstanding an amendment to national law after that date, must also be interpreted strictly (see, to that effect, judgment of 20 September 2018, EV, C‑685/16, EU:C:2018:743, paragraphs 80 and 81).
55


It follows from the Court’s settled case-law that the measures prohibited as restrictions on the movement of capital include those which are such as to discourage non-residents from making investments in a Member State or to discourage that Member State’s residents from doing so in other States (see, inter alia, judgments of 18 December 2007, A, C‑101/05, EU:C:2007:804, paragraph 40; of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen, C‑436/08 and C‑437/08, EU:C:2011:61, paragraph 50; and of 8 November 2012, Commission v Finland, C‑342/10, EU:C:2012:688, paragraph 28).
57


Such a difference in tax treatment can have detrimental consequences for a resident taxpayer who holds shares in a company established in a third country earning such ‘passive’ income, as that company’s profits are incorporated into the taxable person’s tax base, pro rata to the amount of the shareholding in that company. Compared with a taxable person holding a comparable shareholding in a company established in the Member State where he resides, in the present case Germany, that difference in treatment creates a tax disadvantage for the taxable person investing capital in a third country, in so far as the legislation at issue in the main proceedings attributes the profits of a separate legal person to that taxable person and subjects the latter person to tax on them (see, by analogy, judgment of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 45).
60


It is apparent from settled case-law that Article 65(1)(a) TFEU, in so far as it is a derogation from the fundamental principle of the free movement of capital, must be interpreted strictly. That provision cannot therefore be interpreted as meaning that all tax legislation which draws a distinction between taxpayers based on their place of residence or the State in which they invest their capital is automatically compatible with the Treaty (judgments of 11 September 2008, Eckelkamp and Others, C‑11/07, EU:C:2008:489, paragraph 57; of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen, C‑436/08 and C‑437/08, EU:C:2011:61, paragraph 56; and of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 55).
61


The differences in treatment permitted by Article 65(1)(a) TFEU must not constitute, according to Article 65(3), a means of arbitrary discrimination or a disguised restriction. The Court has held, consequently, that such differences in treatment are permitted only when they concern situations which are not objectively comparable or, otherwise, when they are justified by an overriding reason in the public interest (see, to that effect, judgments of 6 June 2000, Verkooijen, C‑35/98, EU:C:2000:294, paragraph 43; of 7 September 2004, Manninen, C‑319/02, EU:C:2004:484, paragraph 29; and of 17 September 2009, Glaxo Wellcome, C‑182/08, EU:C:2009:559, paragraph 68).
64


It is settled case-law that the comparability of a cross-border situation with an internal situation within a Member State must be examined having regard to the aim pursued by the national provisions at issue (see, to that effect, judgments of 18 July 2007, Oy AA, C‑231/05, EU:C:2007:439, paragraph 38; of 1 April 2014, Felixstowe Dock and Railway Company and Others, C‑80/12, EU:C:2014:200, paragraph 25; and of 12 June 2018, Bevola and Jens W. Trock, C‑650/16, EU:C:2018:424, paragraph 32).
67


However, as observed by the Advocate General in point 71 of his Opinion, the purpose of the legislation at issue in the main proceedings is, so far as possible, to treat the situation of resident companies which have invested capital in a company established in a third country with a ‘low’ tax rate in the same way as that of resident companies which have invested their capital in another company resident in Germany, with a view, inter alia, to offsetting any tax advantages which the former might obtain from investing their capital in a third country. As soon as a Member State unilaterally taxes a resident company on the income obtained by a company established in a third country, in which that resident company holds shares, the situation of that resident company becomes comparable to that of a resident company which holds shares in another resident company (see, by analogy, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 45, and of 14 December 2006, Denkavit Internationaal and Denkavit France, C‑170/05, EU:C:2006:783, paragraphs 35 and 36).
68


In those circumstances, and without prejudice to the assessment of whether the legislation at issue in the main proceedings might be justified by an overriding reason in the public interest, it would deprive Article 63(1) TFEU of all meaning if it were accepted that situations are not comparable solely because the investor in question holds shares in a company established in a third country, when that provision specifically prohibits restrictions on cross-border movements of capital (see, by analogy, judgment of 12 June 2018, Bevola and Jens W. Trock, C‑650/16, EU:C:2018:424, paragraph 35).
70


According to the Court’s settled case-law, a restriction on the free movement of capital is permissible only if it is justified by overriding reasons in the public interest and, if that is the case, only if it is suitable for securing the attainment of the objective in question and does not go beyond what is necessary in order to attain it (see, to that effect, judgments of 11 October 2007, ELISA, C‑451/05, EU:C:2007:594, paragraphs 79 and 82; of 23 January 2014, DMC, C‑164/12, EU:C:2014:20, point 44; and of 21 June 2018, Fidelity Funds and Others, C‑480/16, EU:C:2018:480, paragraph 64).
72


In that regard, it must be recalled at the outset that the need to safeguard the balanced allocation between the Member States of the power to impose taxes is a ground capable of justifying a restriction on the free movement of capital, in particular, where the national measures in question are designed to prevent conduct capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried out in its territory (see, to that effect, judgments of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen, C‑436/08 and C‑437/08, EU:C:2011:61, paragraph 121; of 10 May 2012, Santander Asset Management SGIIC and Others, C‑338/11 to C‑347/11, EU:C:2012:286, paragraph 47; and of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 98).
73


In the same vein, the Court has held that a national measure restricting the free movement of capital may be justified by the need to prevent tax evasion and avoidance where it specifically targets wholly artificial arrangements which do not reflect economic reality and the purpose of which is to avoid the tax normally payable on the profits generated by activities carried out in the territory 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, paragraphs 51 and 55; of 13 March 2007, Test Claimants in the Thin Cap Group Litigation, C‑524/04, EU:C:2007:161, paragraphs 72 and 74; and of 3 October 2013, Itelcar, C‑282/12, EU:C:2013:629, paragraph 34).
74


Moreover, the Court has consistently held that the need to guarantee the effectiveness of fiscal supervision constitutes an overriding reason in the public interest capable of justifying a restriction on the free movement of capital (see, to that effect, judgments of 9 October 2014, van Caster, C‑326/12, EU:C:2014:2269, paragraph 46, and of 22 November 2018, Huijbrechts, C‑679/17, EU:C:2018:940, paragraph 36). In that regard, it should be borne in mind that fiscal supervision is designed, according to the Court’s case-law, to combat tax evasion and avoidance (see, to that effect, judgment of 5 July 2012, SIAT, C‑318/10, EU:C:2012:415, paragraph 44).
75


In those circumstances, the overriding reasons in the public interest put forward by the interested parties are, in a situation such as that in the main proceedings, closely linked (see, by analogy, judgments of 13 December 2005, Marks & Spencer, C‑446/03, EU:C:2005:763, paragraph 51; of 21 January 2010, SGI, C‑311/08, EU:C:2010:26, paragraph 69; and of 5 July 2012, SIAT, C‑318/10, EU:C:2012:415, paragraph 48). As the objective of the national legislation at issue in the main proceedings, as recalled in paragraph 65 of the present judgment, corresponds, in essence, to those overriding reasons in the public interest and, in particular, to the prevention of tax evasion and avoidance, it is therefore necessary to examine whether that legislation is suitable for securing the attainment of the objective which it pursues and does not go beyond what is necessary in order to attain it.
80


According to the Court’s settled case-law, the mere fact that a resident company holds shares in another company established in a third country cannot, as such, give rise to a general presumption of tax evasion and avoidance and, on that basis, justify a measure which compromises the free movement of capital (see, to that effect, judgments of 16 July 1998, ICI, C‑264/96, EU:C:1998:370, paragraph 26; of 21 November 2002, X and Y, C‑436/00, EU:C:2002:704, paragraph 62; and of 11 October 2007, ELISA, C‑451/05, EU:C:2007:594, paragraph 91). By contrast, as is apparent from the case-law recalled in paragraph 73 above, a national measure restricting the free movement of capital may be justified when it is designed specifically to prevent conduct that consists of creating wholly artificial arrangements.
83


That said, with respect to the question, expressly raised by the referring court, of what qualitative and quantitative requirements the shareholding held by a resident taxpayer in a company established in a third country must satisfy in order for it not to be regarded as ‘wholly artificial’, it should be borne in mind that the free movement of capital between Member States and third countries is intended not to frame the conditions under which companies can establish themselves within the internal market (see, to that effect, judgment of 13 November 2012, Test Claimants in the FII Group Litigation, C‑35/11, EU:C:2012:707, paragraph 100), but to liberalise cross-border movements of capital (see, to that effect, judgments of 14 December 1995, Sanz de Lera and Others, C‑163/94, C‑165/94 and C‑250/94, EU:C:1995:451, paragraph 19, and of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen, C‑436/08 and C‑437/08, EU:C:2011:61, paragraph 46).
87


It is settled case-law that, as regards relationships between Member States, national legislation, in order for it to be proportionate to the aim of preventing tax evasion or avoidance, must, on each occasion on which the existence of artificial transactions cannot be ruled out, give the taxable person an opportunity, without subjecting him to undue administrative constraints, to provide evidence of any commercial justification that there may have been for the transaction at issue (see, to that effect, judgments of 13 March 2007, Test Claimants in the Thin Cap Group Litigation, C‑524/04, EU:C:2007:161, paragraph 82; of 5 July 2012, SIAT, C‑318/10, EU:C:2012:415, paragraph 50; and of 3 October 2013, Itelcar, C‑282/12, EU:C:2013:629, paragraph 37).
90


It that regard, it must be recalled that the case-law concerning restrictions on the exercise of the freedoms of movement within the European Union cannot be transposed in its entirety to movements of capital between Member States and third countries, since such movements take place in a different legal context (see, inter alia, judgment of 28 October 2010, Établissements Rimbaud, C‑72/09, EU:C:2010:645, paragraph 40 and the case-law cited).
91


Regarding, in particular, a Member State’s obligation to give a taxable person the opportunity to produce evidence demonstrating any commercial justification for its shareholding in a company established in a third country, it is apparent from the Court’s case-law that the existence of such an obligation must be assessed according to the availability of administrative and legislative measures permitting, if necessary, the accuracy of such evidence to be verified (see, to that effect, judgments of 11 October 2007, ELISA, C‑451/05, EU:C:2007:594, paragraph 98; of 28 October 2010, Établissements Rimbaud, C‑72/09, EU:C:2010:645, paragraphs 45 and 46; and of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 85).
92


It is also apparent from the Court’s settled case-law that, where the legislation of a Member State makes entitlement to a tax advantage dependent on the satisfaction of conditions, compliance with which can be verified only by obtaining information from the competent authorities of a third country, it is, in principle, legitimate for that Member State to refuse to grant that advantage if, for example, because that third country has no treaty obligation to provide information, it proves impossible to obtain that information from that third country (see, to that effect, judgments of 18 December 2007, A, C‑101/05, EU:C:2007:804, paragraph 63; of 10 February 2011, Haribo Lakritzen Hans Riegel and Österreichische Salinen, C‑436/08 and C‑437/08, EU:C:2011:61, paragraph 67; and of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 84).
94


Since a Member State is not required to accept the information relating to the activities of a company established a third country in which a taxable person of that Member State holds shares, when it is not able to verify, if necessary, the accuracy of that information (see, to that effect, judgment of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 85), it is for the referring court to examine, in the present case, whether there are, in particular, treaty obligations between the Federal Republic of Germany and the Swiss Confederation, establishing a legal framework of cooperation and procedures for the exchange of information between the national authorities concerned, which are genuinely such as to empower the German tax authorities to verify, if necessary, the accuracy of the information provided on the company established in Switzerland in order to demonstrate that that taxable person’s shareholding in that company is not the result of an artificial scheme.