Skatteministeriet v T Danmark and Y Denmark Aps.
Date: 2019-02-26
70


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).
71


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).
73


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).
74


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).
75


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).
76


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).
77


Whilst Article 1(2) of Directive 90/435 provides that the directive is not to preclude application of the 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 70 to 72 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.
79


To permit the setting up of financial arrangements whose sole aim is to benefit from the tax advantages resulting from the application of Directive 90/435 would not be consistent with such objectives and, on the contrary, would undermine the effective functioning of the internal market by distorting the conditions of competition. As the Advocate General has, in essence, observed in point 51 of her Opinion in Case C‑116/16, 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).
81


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).
87


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).
88


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).
89


Nevertheless, even if it were to transpire, in the main actions, that national law does not contain rules which may be interpreted in compliance with Article 1(2) of Directive 90/435, 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 5 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).
90


A refusal given to a taxpayer in such circumstances is not covered by the situation referred to in paragraph 86 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).
91


Accordingly, since, as has been noted in paragraph 70 above, abusive or fraudulent acts cannot found a right provided for by EU law, the refusal of an advantage under a directive, such as Directive 90/435, 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).
92


In such circumstances, the Member States must, therefore, refuse to grant the advantage resulting from Directive 90/435, 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).
97


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).
98


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).
112


Indeed, Directive 90/435, as is apparent in particular from its third recital, seeks to eliminate, by the introduction of a common tax system, any disadvantage to cooperation between companies of different Member States as compared with cooperation between companies of the same Member State and thereby to facilitate the grouping together of companies at EU level (judgment of 8 March 2017, Wereldhave Belgium and Others, C‑448/15, EU:C:2017:180, paragraph 25 and the case-law cited). As has been stated in paragraph 78 above, the directive is thus designed to ensure the neutrality, from the tax point of view, of the distribution of profits by a subsidiary established in one Member State to its parent company established in another Member State since it is clear from Article 1 that the directive applies only to distributions received by companies of one Member State from their subsidiaries with a seat in other Member States (see, to that effect, order of 4 June 2009, KBC Bank and Beleggen, Risicokapitaal, Beheer, C‑439/07 and C‑499/07, EU:C:2009:339, paragraph 62 and the case-law cited).
113


The mechanisms of Directive 90/435, in particular Article 5, are therefore intended for situations in which, if they were not applied, the exercise by the Member States of their powers of taxation might lead to the profits distributed by the subsidiary to its parent company being subject to double taxation (judgment of 8 March 2017, Wereldhave Belgium and Others, C‑448/15, EU:C:2017:180, paragraph 39). Such mechanisms are not, on the other hand, intended to apply when the beneficial owner of the dividends is a company resident for tax purposes outside the European Union since, in such a case, exemption of those dividends from withholding tax in the Member State from which they are paid could well result in them not actually being taxed in the European Union.
116


However, as the Danish and German Governments contend, it is in principle for the companies which seek entitlement to the exemption from withholding tax on dividends that is provided for in Article 5 of Directive 90/435 to establish that they fulfil the objective conditions imposed by the directive. Indeed, 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 (judgment of 28 February 2013, Petersen and Petersen, C‑544/11, EU:C:2013:124, paragraph 51 and the case-law cited).