European Commission v Republic of Austria.
Date: 2011-06-16
23. It must be recalled that, according to settled case-law, while direct taxation falls within the competence of the Member States, they must none the less exercise that competence consistently with European Union law (see, inter alia, Case C‑72/09 Établissements Rimbaud  [2010] ECR I‑0000, paragraph 23 and the case-law cited).
24. Article 56(1) EC prohibits all restrictions on the movement of capital between Member States and between Member States and non-member countries. While the EC Treaty does not define ‘movement of capital’, it is common ground that Directive 88/361, together with the nomenclature annexed to it, has indicative value for defining that term (see Joined Cases C‑282/04 and C‑283/04 Commission  v Netherlands  [2006] ECR I‑9141, paragraph 19). Gifts and endowments appear in point XI, ‘Personal capital movements’, of Annex I to Directive 88/361.
26. Consequently, the system of tax deductions in question entails, for taxpayers making gifts to research and teaching institutions established in Member States other than the Republic of Austria, a greater tax burden than for taxpayers making gifts to the institutions listed in Paragraph 4a(1)(a) to (d) of the amended EStG. Since the possibility of obtaining a tax deduction can have a significant influence on the donor’s attitude, the non-deductibility of gifts to research and teaching institutions established in Member States other than the Republic of Austria may discourage taxpayers from making gifts to them (see, to that effect, Case C‑318/07 Persche  [2009] ECR I‑359, parag raph 38).
28. However, in accordance with Article 58(1)(a) EC, Article 56 EC is without prejudice to the right of Member States ‘to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation  … with regard to the place where their capital is invested’. That derogation is itself limited by Article 58(3) EC, which provides that the national measures referred to in Article 58(1) EC ‘shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56’. The differences in treatment authorised by Article 58(1)(a) EC must therefore be distinguished from the discrimination prohibited by Article 58(3) EC.
29. According to the Court’s case-law, for national tax legislation such as that at issue, which distinguishes between gifts to national institutions and those to institutions established in other Member States, to be regarded as compatible with the Treaty provisions on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable, or must be justified by an overriding reason in the public interest. In order to be justified, moreover, the difference in treatment must not go beyond what is necessary to attain the objective of the legislation in question (see, to that effect, Case C‑386/04 Centro di Musicologia Walter Stauffer  [2006] ECR I‑8203, paragraph 32, and Persche , paragraph 41).
32. It must be stated in this respect that, while the Member States are free to define the objectives in the public interest that they wish to promote by granting tax advantages to private or public bodies which pursue those objectives in a disinterested manner and comply with the requirements relating to their implementation, they must exercise that discretion in accordance with the law of the European Union (see, to that effect, Persche , paragraph 48). Although it is true that the national authorities have additional means available to them for supervising and influencing the conduct of institutions established in Austrian territory compared to those established in other Member States, the Republic of Austria has failed to show that such intervention in the management of the institutions in question is necessary for guaranteeing the attainment of the objectives in the public interest which that Member State seeks to promote.
33. Moreover, while a Member State can lawfully reserve the grant of tax advantages to bodies pursuing certain objectives in the public interest, it cannot, however, reserve the benefit of those advantages solely to bodies established in its territory (see, to that effect, Persche , paragraph 44).
35. It follows that the sole criterion capable of distinguishing between taxpayers making gifts to institutions whose seat is in Austria and those making gifts to corresponding institutions established in other Member States is in fact the place of establishment of the recipient of the gift. Such a criterion, by definition, cannot be a valid criterion for assessing the objective comparability of the situations or, consequently, for establishing an objective difference between them (see, by analogy, with respect to freedom to provide services, Case C‑76/05 Schwarz and Gootjes-Schwarz  [2007] ECR I‑6849, paragraphs 72 and 73).
37. As regards, secondly, the argument that there is an overriding reason in the public interest, while the Court indeed held in Case C‑39/04 Laboratoires Fournier  [2005] ECR I‑2057, paragraph 23, that the promotion of research and development may constitute such a reason, it nevertheless considered that national legislation reserving the benefit of a tax credit solely to research carried out in the Member State concerned was directly contrary to the objective of European Union policy in the field of research and technical development. In accordance with Article 163(2) EC, that policy aims in particular to remove the fiscal obstacles to cooperation in the field of research, and cannot therefore be implemented by the promotion of research and development at national level. The same is true of the tax rules concerning gifts at issue in the present case, in so far as the Republic of Austria relies on that objective to limit the deductibility of gifts to Austrian research establishments and universities.
40. As far as this argument is concerned, it is settled case-law that the need to prevent the reduction of tax revenues is neither among the objectives stated in Article 58 EC nor an overriding reason in the public interest capable of justifying a restriction on a freedom instituted by the Treaty (see, to that effect, Persche , paragraph 46 and the case-law cited).
42. Since the provisions of Article 40 of the EEA Agreement have the same legal scope as the substantially identical provisions of Article 56 EC (see Case C‑521/07 Commission  v Netherlands  [2009] ECR I‑4873, paragraph 33, and Établissements Rimbaud , paragraph 22), all the above considerations may, in circumstances such as those of the present case, be transposed mutatis mutandis  to Article 40.