European Commission v Portuguese Republic.
Date: 2016-12-21
16


It must be recalled that, according to the Court’s settled case-law, although it is true that the subject matter of proceedings brought under Article 258 TFEU is circumscribed by the pre-litigation procedure provided for in that provision and that, consequently, the Commission’s reasoned opinion and the application must be based on the same objections, that requirement cannot go so far as to mean that in every case exactly the same wording must be used in both, where the subject matter of the proceedings has not been extended or altered. Accordingly, in its application the Commission may clarify its initial complaints provided, however, that it does not alter the subject matter of the dispute (see judgment of 21 January 2016, Commission v Cyprus, C‑515/14, EU:C:2016:30, paragraphs 12 and 13 and the case-law cited).
30


According to the Portuguese Republic, a possible restriction on freedom of movement resulting from Article 10 of the CIRS is justified, first of all, by the aim of ensuring a balanced allocation of the power to impose taxes between the Member States, in accordance with the principle of fiscal territoriality, which was recognised by the Court in the case giving rise to the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 45). It points out that, applying national legislation in conjunction with the double taxation agreements concluded by it with all Member States, the power to tax capital gains resulting from an exchange of shares belongs, in principle, exclusively to the Member State of residence of the taxable person selling the shares, namely, in the present case, the Portuguese Republic. Consequently, the Portuguese Republic considers that an obligation not to impose such capital gains on the transfer of the residence of the taxable person to another State would result in it permanently losing its right to tax such capital gains, thus compromising its right to exercise its tax jurisdiction in relation to the activities carried out in its territory (see, to that effect, judgments of 29 March 2007, Rewe Zentralfinanz, C‑347/04, EU:C:2007:194, paragraph 42, and of 8 November 2007, Amurta, C‑379/05, EU:C:2007:655, paragraph 58).
33


The Federal Republic of Germany considers that the possible restriction on freedom of movement resulting from Article 10 of the CIRS is justified in so far as that article seeks to tax profits generated in Portugal before the Portuguese Republic loses the power to impose taxes on them. According to the Federal Republic of Germany, the principles identified by the Court in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 45), are valid, whether or not the exit tax regime is applicable to natural or legal persons.
35


According to the Court’s case-law, Article 21 TFEU, which sets out generally the right of every citizen of the Union to move and reside freely within the territory of the Member States, finds specific expression in Article 45 TFEU in relation to freedom of movement for workers and Article 49 TFEU in relation to the freedom of establishment (see, to that effect, judgment of 12 July 2012, Commission v Spain , C‑269/09, EU:C:2012:439, paragraph 49 and the case-law cited).
37


All the provisions of the Treaty on freedom of movement for persons are intended to facilitate the pursuit by EU nationals of occupational activities of all kinds throughout the EU, and preclude measures which might place EU nationals at a disadvantage when they wish to pursue an economic activity in the territory of another Member State (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 51 and the case-law cited).
38


Even though those provisions, according to their wording, are directed at ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, it must be stated that, in that context, nationals of the Member States have in particular the right, which they derive directly from the Treaty, to leave their State of origin to enter the territory of another Member State and reside there in order to pursue an economic activity there (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 52 and the case-law cited).
39


Rules which preclude or deter a national of a Member State from leaving his country of origin in order to exercise either his right to freedom of movement or his right to freedom of establishment therefore constitute an obstacle to that freedom even if they apply without regard to the nationality of the national concerned (see, to that effect, judgments of 27 September 1988, Daily Mail and General Trust, 81/87, EU:C:1988:456, paragraph 16, and of 12 July 2012, Commission v Spain, C 269/09, EU:C:2012:439, paragraph 53 and the case-law cited).
40


Furthermore, it is also settled case-law that all measures which prohibit, impede or render less attractive the exercise of the freedom of movement and the freedom of establishment must be regarded as restrictions on that freedom (see judgment of 12 July 2012, Commission v Spain , C‑269/09, EU:C:2012:439 paragraph 54 and the case-law cited).
44


That difference in treatment as regards the time of taxation of the capital gains at issue constitutes a cash-flow disadvantage for the taxable person who wishes to transfer his residence outside Portugal as compared to a taxable person who maintains his residence in that territory. While the former becomes liable, simply by reason of such a transfer, to a tax on a capital gain which has not yet been realised and which he therefore does not have at his disposal, the latter taxable person will have to pay that tax only when, and to the extent that, the capital gains have actually been realised (see, by analogy, judgment of 11 March 2004, de Lasteyrie du Saillant, C‑9/02, EU:C:2004:138, paragraph 46).
45


In this connection, according to the Court’s case-law, the exclusion of a cash-flow advantage in a cross-border situation where it is available in an equivalent domestic situation is a restriction on the free movement of workers and the freedom of establishment (see, to that extent, judgment of 12 July 2012, Commission v Spain , C‑269/09, EU:C:2012:439, paragraphs 59 and 61).
46


There is nothing in the documents before the Court showing that that difference of treatment can be explained by an objective difference of situation and, moreover, the Portuguese Republic has not at any time argued before the Court that that was the case. From the point of view of legislation of a Member State aiming to tax capital gains generated in its territory, the situation of a person who transfers his residence from that Member State to another Member State is similar to that of a person who maintains his residence in the first Member State, as regards the taxation of the capital gains relating to the assets which were generated in the first Member State before the transfer of the residence (see, by analogy, judgment of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 38).
48


It must be examined whether the restriction on the freedoms enshrined in Articles 45 and 49 TFEU, resulting from Article 10(9)(a) of the CIRS, is justified by overriding reasons in the public interest. It is further necessary, in such a case, that that restriction be appropriate to ensuring the attainment of the objective thus pursued and not go beyond what is necessary to attain it (see, inter alia, judgments of 18 January 2007, Commission v Sweden, C‑104/06, EU:C:2007:40, paragraph 25, and of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 42).
49


In that regard, it must be borne in mind that it is for the Member State to demonstrate, first, that its legislation meets an objective of public interest and, second, that that legislation complies with the principle of proportionality (see, to that effect, judgment of 13 September 2007, Commission v Italy, C‑260/04, EU:C:2007:508, paragraph 33 and the case-law cited).
51


As regards, in the first place, the objective of ensuring the balanced allocation of powers to impose taxes between Member States, it should be recalled, first, that that is a legitimate objective recognised by the Court, and that, second, it is settled case-law that, in the absence of any unifying or harmonising measures of the European Union, the Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, with a view to eliminating double taxation (judgment of 16 April 2015, Commission v Germany, C‑591/13, EU:C:2015:230, paragraph 64 and the case-law cited).
53


Although it is true that the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), was adopted in the context of the taxation of capital gains on companies, the Court subsequently transposed the principles laid down in that judgment also to the taxation on capital gains of natural persons (see judgments of 12 July 2012, Commission v Spain , C‑269/09, EU:C:2012:439, paragraphs 75 to 78, and of 16 April 2015, Commission v Germany , C‑591/13, EU:C:2015:230, paragraphs 65 to 67).
54


In that regard, the fact that the latter two judgments concerned realised capital gains rather than, as in the present case, unrealised capital gains is irrelevant. What is of importance is that, as regards one or other of those capital gains, similar transactions, carried out in the purely domestic context of a Member State, unlike a cross-border transaction, would not have resulted in the immediate taxation of those capital gains (see, to that effect, judgment of 16 April 2015, Commission v Germany , C‑591/13, EU:C:2015:230, paragraph 71).
55


Moreover, in so far as the Commission questions the legitimacy of the objective of ensuring a balanced allocation of the power to impose taxes between Member States with regard to the exit taxation of natural persons’ unrealised capital gains on the ground that any capital losses realised after the transfer of residence to another Member State cannot be deducted by them in that other Member State, suffice it to recall that the Court has already held that a possible omission by the host Member State to take account of decreases in value does not impose any obligation on the Member State of origin to revalue, at the time of the definitive disposal of the new shares, a tax debt which was definitively determined at the time when the taxable person, because of the transfer of its residence, ceased to be subject to tax in the Member State of origin (see, by analogy, judgment of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 61).
57


Next, it must be pointed out that Article 10(9)(a) of the CIRS is capable of ensuring the preservation of the distribution of the power to impose taxes between the Member States concerned. The final settlement tax levied at the time of the transfer of a residence is intended to subject the unrealised capital gains — which arose within the ambit of that State’s power of taxation before the transfer of that residence — to the Member State of origin’s tax on profits. Capital gains realised after that transfer of the residence are taxed exclusively in the host Member State in which they have arisen, thus avoiding double taxation (see, by analogy, judgment of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 48).
58


As regards the question whether that provision, which provides, upon the transfer of the residence of the taxable person from Portugal to another State, for the immediate taxation of unrealised capital gains resulting from an exchange of shares, does not go beyond what is necessary in order to achieve the objective of allocation of the power to impose taxes, it must be recalled that, in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 52), the Court has already held that legislation of a Member State which prescribes the immediate recovery of tax on unrealised capital gains relating to assets of a company transferring its place of effective management to another Member State at the very time of that transfer is disproportionate, by reason of the fact that measures existed which were less restrictive of the freedom of establishment than the immediate recovery of that tax (see, to that effect, judgments of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraphs 73 and 85, and of 16 April 2015, Commission v Germany , C‑591/13, EU:C:2015:230, paragraph 67 and the case-law cited).
59


In that regard, the Court has found that national legislation offering a company which transfers its place of effective management to another Member State the choice between, first, immediate payment of the tax and, second, deferred payment of that tax, possibly together with interest in accordance with the applicable national legislation, would constitute a measure less harmful to freedom of establishment than the immediate recovery of that tax (see judgments of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraphs 73 and 85, and of 16 April 2015, Commission v Germany , C‑591/13, EU:C:2015:230, paragraph 67 and the case-law cited). Moreover, the Court held that it is permissible for the Member State to take account of the risk of non-recovery of the tax, which increases with the passage of time, in its national legislation applicable to deferred payment of tax liabilities, by measures such as the provision of a bank guarantee (see, to that effect, judgment of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 74).
60


Having regard to the case-law cited in the two preceding paragraphs, it must be held that Article 10(9)(a) of the CIRS goes beyond what is necessary in order to achieve the objective relating to the balanced allocation of the power to impose taxes between Member States in so far as the relevant provisions of national law do not leave the choice to the taxable person who transfers his residence from Portuguese territory to another Member State to opt between, on the one hand, the immediate payment of the amount of the tax on capital gains resulting from an exchange of shares and, on the other hand, the deferred payment of that amount, which necessarily involves an administrative burden for the taxable person, in connection with tracing the transferred assets, and accompanied by a bank guarantee (see, par analogy, judgment of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraphs 73 and 74).
62


As regards, in the second place, the justification based on the need to maintain the cohesion of a national tax system it must be recalled that the Court has acknowledged that this constitutes an overriding reason in the public interest. In order for an argument based on such a justification to succeed, the Court requires that the existence of a direct link be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy (see, to that effect, judgment of 16 April 2015, Commission v Germany , C‑591/13, EU:C:2015:230, paragraph 74 and the case-law cited).
64


In that regard, it must be held that the Portuguese Republic has not shown that there is a direct link between the tax advantage provided for in Article 10(8) of the CIRS and the offsetting of that advantage by a particular tax levy. Although, in a cross-border situation, as provided for in Article 10(9)(a) of the CIRS, the tax advantage granted in accordance with Article 10(8) of the CIRS is offset by a tax levy, since the amount of the tax due is necessarily recovered at the time of transfer of the taxable person’s residence outside Portugal, this is not the case when the situation is purely internal, as provided for in Article 10(8) of the CIRS. It is clear from the examination of that provision that the recovery of the tax on capital gains resulting from an exchange of shares takes place only in the eventuality of a definitive disposal of the shares received during that exchange. As pointed out by the Advocate General in point 60 of his Opinion, so long as he does not dispose of the shares that he has received, a taxable person who maintains his residence in Portugal can still claim the benefit of the tax advantage granted under Article 10(8) of the CIRS, thus making the recovery of the tax from him no more than a future possibility. It follows that the alleged link between the tax advantage granted to the taxable person and tax treatment of that advantage is not certain (see, by analogy, judgment of 26 October 2006, Commission v Portugal, C‑345/05, EU:C:2006:685, paragraph 27).
69


As regards citizens of the Union wishing to move within the EU on grounds not related to the pursuit of an economic activity, the same conclusion applies, for the same reasons, to the complaint alleging infringement of Article 21 TFEU (see, to that effect, judgment of 12 July 2012, Commission v Spain , C‑269/09, EU:C:2012:439, paragraph 91).
70


First of all, it should be observed that Articles 28 and 31 of the EEA Agreement are analogous to Articles 45 and 49 TFEU (see judgment of 12 July 2012, Commission v Spain , C‑269/09, EU:C:2012:439, paragraph 95).
71


Admittedly, EU case-law which relates to restrictions on the exercise of freedom of movement within the European Union cannot be transposed in its entirety to the freedoms guaranteed by the EEA Agreement, since those latter freedoms are exercised within a different legal context (judgment of 16 April 2015, Commission v Germany, C‑591/13, EU:C:2015:230, paragraph 81 and the case-law cited).
79


As a preliminary point, it must be borne in mind that, according to the case-law of the Court of Justice, Article 49 TFEU applies to any resident of a Member State, whatever his nationality, who has a shareholding in the capital of a company established in another Member State, which gives him definite influence over the company’s decisions and allows him to determine its activities (see judgment of 18 December 2014, X, C‑87/13, EU:C:2014:2459, paragraph 21 and the case-law cited).