European Commission v Kingdom of Belgium.
Date: 2012-10-25
33. As a preliminary point, since the Commission alleges infringement by the Kingdom of Belgium of both Article 49 TFEU and Article 63 TFEU, it should be borne in mind that, in order to ascertain whether national legislation falls within the ambit of one or other of those fundamental freedoms, the purpose of the legislation concerned must be taken into consideration (see, in particular, Case C-157/05 Holböck [2007] ECR I-4051, paragraph 22; Case C-326/07 Commission v Italy  [2009] ECR I-2291, paragraph 33, Case C-543/08 Commission v Portugal  [2010] ECR I-11241, paragraph 40, and Case C-212/09 Commission v Portugal  [2011] ECR I-10889, paragraph 41).
34. In this respect, it has already been held that national legislation which is intended to apply only to shareholdings enabling the holder to exert a definite influence over a company’s decisions and determine its activities is covered by the Treaty provisions on freedom of establishment (see Case C-446/04 Test Claimants in the FII Group Litigation  [2006] ECR I-11753, paragraph 37, and Case C-81/09 Idryma Typou  [2010] ECR I-10161, paragraph 47). On the other hand, national provisions which apply to shareholdings acquired solely with the intention of making a financial investment, with no intention of influencing the management and control of the undertaking, must be examined exclusively in the light of the free movement of capital (Case C-310/09 Accor [2011] ECR I-8115, paragraph 32 and the case-law cited).
35. It must be stated that, in this action for failure to fulfil obligations, it cannot be ruled out that the national provisions in question might affect both freedom of establishment and free movement of capital. Accordingly, it is necessary to examine those provisions in the light of Articles 49 TFEU and 63 TFEU.
– Failure to fulfil obligations under Article 63(1) TFEU
36. According to the settled case-law of the Court, although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with EU law (see, inter alia, Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation  [2006] ECR I-11673, paragraph 36; Case C-379/05 Amurta [2007] ECR I-9569, paragraph 16; Case C-540/07 Commission v Italy [2009] ECR I-10983, paragraph 28; and Case C-487/08 Commission v Spain  [2010] ECR I-4843, paragraph 37, and Case C-284/09 Commission v Germany [2011] ECR I-9879, paragraph 44).
37. In particular, it is for each Member State to organise, in compliance with EU law, its system for taxing distributed profits and, in that context, to define the tax base and the tax rate which apply to the shareholder receiving them (see, inter alia, Test Claimants in Class IV of the ACT Group Litigation , paragraph 50; Test Claimants in the FII Group Litigation , paragraph 47; Case C-194/06 Orange European Smallcap Fund  [2008] ECR I-3747, paragraph 30; and Case C-128/08 Damseaux [2009] ECR I-6823, paragraph 25, and Commission v Germany , paragraph 45).
43. In so far as Article 65(1)(a) TFEU is a derogation from the fundamental principle of the free movement of capital, it must be interpreted strictly. It cannot therefore be interpreted as meaning that all tax legislation which draws a distinction between taxpayers on the basis of their place of residence or the State in which they invest their capital is automatically compatible with the Treaty (see Case C-11/07 Eckelkamp and Others [2008] ECR I-6845, paragraph 57; Case C-510/08 Mattner  [2010] ECR I-3553, paragraph 32; and Joined Cases C-436/08 and C-437/08 Haribo Lakritzen Hans Riegel and Österreichische Salinen [2011] ECR I-305, paragraph 56, and Joined Cases C-338/11 to C-347/11 Santander Asset Management SGIIC and Others [2012] ECR, paragraph 21).
45. The differences in treatment authorised by Article 65(1)(a) TFEU must therefore be distinguished from discrimination prohibited by Article 65(3) TFEU. The case-law shows that, for national tax legislation to be capable of being regarded as compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest (Case C-35/98 Verkooijen [2000] ECR I-4071, paragraph 43; Case C-319/02 Manninen  [2004] ECR I-7477, paragraph 29; and Case C-250/08 Commission v Belgium [2011] ECR I-12341, paragraph 51, and Santander Asset Management SGIIC and Others , paragraph 23).
48. The Court has already held that, from the point of view 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 the economic double taxation of, income distributed by a resident company, resident companies receiving income are not necessarily in a situation which is comparable to that of companies receiving income which are resident in another Member State ( Commission v Germany , paragraph 55 and the case-law cited).
49. However, as soon as a Member State, either unilaterally or by way of a convention, imposes a charge to tax on the income not only of resident companies but also of non-resident companies from income which they receive from a resident company, the situation of those non-resident companies becomes comparable to that of resident companies ( Commission v Germany , paragraph 56 and the case-law cited).
50. It is solely because of the exercise by that State of its power of taxation that, irrespective of any taxation in another Member State, a risk of a series of charges to tax or economic double taxation may arise. In such a case, in order for non-resident companies receiving income not to be subject to a restriction on the free movement of capital prohibited in principle by Article 63 TFEU, the State in which the company making the distribution is resident is obliged to ensure that, under the procedures laid down by its national law in order to prevent or mitigate a series of liabilities to tax or economic double taxation, non-resident companies are subject to the same treatment as resident companies (see Test Claimants in Class IV of the ACT Group Litigation , paragraph 70; Amurta , paragraph 39; Commission v Italy , paragraph 53; Commission v Spain , paragraph 52; and Commission v Germany , paragraph 57).
51. In the present case, the Kingdom of Belgium clearly chose to exercise its power of taxation over income earned by investment companies resident in other Member States. Non-resident companies in receipt of that income thus find themselves in a situation comparable to that of resident companies as regards the risk of a series of charges to tax on income from capital and movable property, so that non-resident recipient companies cannot be treated differently from resident recipient companies (see, to that effect, Commission v Spain , paragraph 53, and Commission v Germany , paragraph 58).
53. On the one hand, with respect to the tax burden brought about by the payment of the special levy provided for in Article 219 of the ITC 1992 to which only resident investment companies are subject, it should be pointed out that, in accordance with settled case-law of the Court, unfavourable tax treatment contrary to a fundamental freedom cannot be regarded as compatible with EU law because of the existence of other advantages, even assuming that such advantages exist ( Commission v Germany , paragraph 71 and the case-law cited).
55. With respect, on the other hand, to the mechanisms for preventing double taxation by way of conventions, it must first be observed that the application of the set-off method should enable the tax on income deducted in Belgium to be set off in full against the tax payable in the State of residence of the recipient investment company, so that, if the income from capital and movable property received by that company were ultimately taxed more heavily than the income paid to companies established in Belgium, that heavier tax burden could no longer be attributed to the Kingdom of Belgium, but to the State of establishment of the recipient company which exercised its power of taxation (see, to that effect, Commission v Spain , paragraph 60, and Commission v Germany , paragraph 67).
56. Second, it must be pointed out that the decision to tax income from Belgium in the other Member State, or the choice of the level at which it is to be taxed, depends not on the Kingdom of Belgium but on the tax rules laid down by the other Member State ( Commission v Spain , paragraph 64, and Commission v Germany , paragraph 69).
57. The Kingdom of Belgium cannot therefore claim that the setting off of the tax paid in Belgium against the tax payable in the other Member State, pursuant to the double taxation conventions, allows in every case the neutralisation of the difference of treatment resulting from the application of the provisions of national tax legislation or of those conventions whose effect is to reduce the rate of the deduction arising from the withholding tax (see Commission v Italy , paragraph 39, Commission v Spain , paragraph 64, and Commission v Germany , paragraph 70).
74. In accordance with settled case-law, national measures restricting the free movement of capital may be justified inter alia by overriding reasons in the public interest, provided, first, that there is no harmonising measure of EU law providing for measures necessary to ensure the protection of those interests and, second, that they are appropriate to secure the attainment of the objective which they pursue and do not go beyond what is necessary in order to attain it (see, inter alia, Case C-112/05 Commission v Germany  [2007] ECR I-8995, paragraphs 72 and 73; Case C-233/09 Dijkman and Dijkman-Lavaleije  [2010] ECR I-6649, paragraph 49, and Case C-284/09 Commission v Germany , paragraph 74).
75. As regards, first, the alleged need to ensure a balanced allocation of the power to tax, it must be recalled that such a justification may be accepted, in particular, where the national tax system is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried on in its territory (see Case C-347/04 Rewe Zentralfinanz [2007] ECR I-2647, paragraph 42; Case C-231/05 Oy AA  [2007] ECR I-6373, paragraph 54; Amurta , paragraph 58; Case C-303/07 Aberdeen Property Fininvest Alpha  [2009] ECR I-5145, paragraph 66, and Case C-284/09 Commission v Germany , paragraph 77).
76. However, it also follows from the Court’s case-law that, where a Member State has chosen not to tax recipient companies established in its territory in respect of income of this kind, it cannot rely on the argument that there is a need to ensure a balanced allocation between the Member States of the power to tax in order to justify the taxation of recipient companies established in another Member State ( Amurta , paragraph 59; Aberdeen Property Fininvest Alpha , paragraph 67, and Case C-284/09 Commission v Germany , paragraph 78).
78. It is true that the Court has held that to require the State in which the company making the distribution is resident to ensure that profits distributed to a non-resident shareholder are not liable to a series of charges to tax or to economic double taxation, either by exempting those profits from tax at the level of the company making the distribution or by granting the shareholder a tax advantage equal to the tax paid on those profits by the company making the distribution, would in fact mean that that State would have to abandon its right to tax a profit generated by an economic activity carried on in its territory (see Test Claimants in Class IV of the ACT Group Litigation , paragraph 59; Case C-182/08 Glaxo Wellcome [2009] ECR I-8591, paragraph 83, and Case C-284/09 Commission v Germany , paragraph 80).
80. Secondly, although the Court has acknowledged 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 exercise of fundamental freedoms guaranteed by the Treaty (see Dijkman and Dijkman-Lavaleije , paragraph 58), it is clear, in the present case, that such an objective cannot properly be relied upon as justification for the restriction in question.
88. In so far as the provisions of Articles 31 and 40 of the EEA Agreement have the same legal scope as the substantially identical provisions of Articles 49 TFEU and 63 TFEU (see Case C-521/07 Commission v Netherlands [2009] ECR I-4873, paragraph 33, and Case C-72/09 Établissements Rimbaud  [2010] ECR I-10659, paragraph 22), all of the foregoing considerations may, in circumstances such as those of the present case, be transposed, mutatis mutandis , to Articles 31 and 40 of that agreement.
The temporal effects of the judgment
90. Even if judgments delivered under Article 258 TFEU were to have the same effects as those delivered under Article 267 TFEU and considerations of legal certainty might make it necessary, exceptionally, to limit their temporal effects provided that the conditions laid down by the Court’s case-law in the context of Article 267 TFEU are met (see, to that effect, Case C-178/05 Commission v Greece  [2007] ECR I-4185, paragraph 67; Case C-239/06 Commission v Italy [2009] ECR I-11913, paragraph 59; Case C-284/05 Commission v Finland [2009] ECR I-11705, paragraph 58, Case C-387/05 Commission v Italy  [2009] ECR I-11831, paragraph 59, and judgment of 29 September 2011 in Case C-82/10 Commission v Ireland , paragraph 63), it must be stated, in any event, that those conditions do not appear to have been satisfied in the present case.