Ministre des Finances v Jean-Claude Weidert and Élisabeth Paulus.
Date: 2004-07-15
12. It must be borne in mind at the outset that, according to settled case-law, although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with Community law (see Case C‑80/94 Wielockx [1995] ECR I-2493, paragraph 16; Verkooijen , paragraph 32, and Case C-334/02 Commission  v France  [2004] ECR I-0000, paragraph 21).
13. A legislative provision such as the one at issue in the main proceedings has the effect of discouraging nationals of the Member State concerned from investing their capital in companies which have their seat in another Member State (see, by way of analogy, Verkooijen , paragraph 34). The title itself of the Law of 22 December 1993 shows that its purpose is ‘the promotion of investment in the interest of economic development’, and it is clear from the legislative background to Article 129c of the Income Tax Law, which was referred to both by Mr and Mrs Weidert-Paulus and by the Commission of the European Communities without challenge by the Luxembourg Government, that the provision in question has the direct object of promoting investment in companies having their seat in Luxembourg.
14. Such a provision also has a restrictive effect in relation to companies established in other Member States; it constitutes an obstacle to the raising of capital in Luxembourg since the acquisition of shares in those companies is less attractive than the acquisition of shares in companies which have their seats in that Member State (see, by way of analogy, Verkooijen , paragraph 35, and Commission v France , paragraph 24).
20. In that regard, while it is true that the need to safeguard the cohesion of the tax system can justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty ( Bachmann , paragraph 28, and Case C-300/90 Commission  v Belgium  [1992] ECR I-305, paragraph 21), such an exception to the fundamental principle of the free movement of capital must none the less be construed strictly and subject to the limitations of the doctrine of proportionality. In the cases which led to the two judgments referred to above, there was a direct link between the deductibility of the contributions and the taxation of sums payable by insurers under pension and life insurance contracts, and that link had to be maintained to preserve the cohesion of the tax system concerned (see, inter alia, Case C-55/98 Vestergaard  [1999] ECR I-7641, paragraph 24, and Case C‑436/00 X and Y  [2002] ECR I-10829, paragraph 52).
21. Where there is no such direct link, the argument based on the cohesion of the tax system cannot be relied upon (see Case C-251/98 Baars [2000] ECR I-2787, paragraph 40, and Case C-168/01 Bosal  [2003] ECR I-0000, paragraph 30).
25. In any event, even if a link were to exist under Luxembourg law between the tax advantage and the taxation of dividends, it must be held that the effect of the Double Taxation Convention concluded by the Grand Duchy of Luxembourg with the Kingdom of Belgium is to shift fiscal cohesion to the level of the reciprocity of the rules applicable in the Contracting States (see, inter alia, Wielockx , paragraph 24, and X and Y , paragraph 53). The Convention in question creates a fiscal reciprocity, insasmuch as in forgoing 15% of the net amount of dividends paid by companies established in Belgium to individuals subject to Luxembourg income tax, the Grand Duchy of Luxembourg may in return receive 15% of the dividends paid by companies having their seat in that Member State to individuals sub ject to income tax in Belgium.
26. As the specific aim of the Double Taxation Convention is to secure fiscal cohesion, that Convention may not be invoked to justify an inconsistency as regards the taxpayer, which must be remedied by the introduction of the relief which is the subject of the main proceedings (see, by way of analogy, Wielockx , paragraph 25).