Staatssecretaris van Financiën v Orange European Smallcap Fund NV.
Date: 2008-05-20
8. Article 28 of the Law on corporation tax and Article 6 of the Royal Decree on collective investment enterprises (Besluit beleggingsinstellingen) of 29 April 1970 (Stb. 1970, No 190), in the version in force at the material time (‘the Royal Decree’), set up a special scheme for fiscal investment enterprises. That scheme seeks to make the tax burden on investment proceeds through fiscal investment enterprises the same as that on direct investments by private investors, by establishing a system of concessions designed to take account of foreign tax deducted from dividends issued to those enterprises.
27. The Netherlands Government, by contrast, contends that the Kingdom of the Netherlands cannot be accused of treating dividends from German or Portuguese companies differently from those received from Netherlands companies, inasmuch as no tax is deducted from dividends received by OESF, irrespective of their origin, and therefore those dividends are treated identically under Netherlands tax law.
30. As a preliminary point, it must be observed that it is for each Member State to organise, in compliance with Community law, its system for taxing distributed profits and to define, in that context, the tax base and the tax rate which apply to the shareholder receiving them (see, to that effect, Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation  [2006] ECR I‑11673, paragraph 50, and Case C‑446/04 Test Claimants in the FII Group Litigation  [2006] ECR I‑11753, paragraph 47).
32. In addition, in the absence of any unifying or harmonising Community measures, Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation (Case C‑336/96 Gilly  [1998] ECR I‑2793, paragraphs 24 and 30; Case C‑307/97 Saint-Gobain ZN  [1999] ECR I‑6161, paragraph 57; and Case C‑379/05 Amurta  [2007] ECR I‑0000, paragraph 17). Apart from Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, p. 6), the Convention of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (OJ 1990 L 225, p. 10) and Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments (OJ 2003 L 157, p. 38), the application of which in the dispute in the main proceedings has not been invoked, no unifying or harmonising measure designed to eliminate cases of double taxation has as yet been adopted at Community-law level.
33. With regard to the legislation at issue in the main proceedings, the Kingdom of the Netherlands decided to make fiscal investment enterprises liable to corporation tax, but at a rate of 0%, provided that all the profits of those enterprises, less certain amounts which may be legally set aside, are distributed to their shareholders.
34. As the Advocate General noted at points 85 to 87 of his Opinion, it follows that, whatever the origin of the dividends, enterprises such as OESF are not subject to tax on them under Netherlands law. As regards dividends from a company established in the Netherlands, the tax initially deducted from those dividends – which, according to the Netherlands Government’s explanations, constitutes an advance payment of corporation tax – is refunded, given that no amount of corporation tax is due from a fiscal investment enterprise. As far as dividends from companies established in Germany or Portugal are concerned, no tax is deducted in the Netherlands with respect to such an enterprise.
37. While, in those circumstances, dividends from Germany or Portugal are subject to a greater tax burden than are dividends distributed by Netherlands companies, that disadvantage is not attributable to the Netherlands legislation at issue in the main proceedings, but is the product of the parallel exercise of fiscal sovereignty by the Member States in which the distributing companies are established and the Member State in which the recipient company is established, whereby the former chose to impose a series of charges to tax on distributed dividends and the latter opted to refrain from any taxation of dividends with respect to fiscal investment enterprises (see, to that effect, Case C‑513/04 Kerckhaert and Morres  [2006] ECR I‑10967, paragraph 20).
39. That argument cannot be accepted. Admittedly, it follows from the case-law that, where a Member State has a system for preventing or mitigating a series of charges to tax or economic double taxation for dividends paid to residents by resident companies, it must treat dividends paid to residents by non-resident companies in the same way ( Test Claimants in Class IV of the ACT Group Litigation , paragraph 55 and the case-law cited).
40. Under such systems, the situation of shareholders resident in a Member State and receiving dividends from a company established in that State is comparable to that of shareholders who are resident in that State and receive dividends from a company established in another Member State, inasmuch as both the dividends deriving from a national source and those deriving from a foreign source may be subject to a series of charges to tax (see Test Claimants in Class IV of the ACT Group Litigation , paragraph 56).
41. However, the status of Member State of residence of the company in receipt of dividends cannot include the obligation for that Member State to offset a fiscal disadvantage arising where a series of charges to tax is imposed entirely by the Member State in which the company distributing those dividends is established, since the dividends received are neither taxed nor treated differently by the first Member State as regards investment enterprises established in that State.
42. It follows that, in a situation where the greater tax burden imposed on dividends distributed by companies established in Germany or Portugal to a fiscal investment enterprise established in the Netherlands than that which is imposed on dividends distributed to that same enterprise by companies also established in the Netherlands does not arise as a result of a difference in treatment attributable to the tax regime in the Netherlands, but stems from the decision of the Federal Republic of Germany and the Portuguese Republic to make a deduction at source from those dividends, and from the decision of the Kingdom of the Netherlands not to tax those dividends, the fact that the latter Member State has not granted a concession in respect of the deduction at source for which the first two States have opted does not constitute a restriction on the free movement of capital.
47. As is apparent from paragraph 42 of this judgment, Community law does not require a Member State to grant a concession in response to offset the disadvantage resulting from a series of charges to tax that is exclusively due to the parallel exercise of the various Member States’ fiscal sovereignty. However, where that Member State has decided to grant such a concession, that power must be exercised in accordance with Community law.
48. In that respect, it must be noted that, as has been observed in paragraphs 30 and 32 of this judgment, it is for the Member States to organise their systems for taxing distributed profits and to define, in that context, the tax base and the tax rate which apply to the shareholder receiving them, and that, in the absence of any unifying or harmonising Community measures, Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation.
49. Consequently, given the resulting disparities between the tax laws of the various Member States, a Member State may find it necessary, by treaty or unilaterally, to treat dividends from the various Member States differently so as to take account of those disparities.
50. As regards the bilateral tax conventions concluded by the Member States, the Court has previously noted that the scope of such a convention is limited to the natural or legal persons referred to in it (see D. , paragraph 54, and Test Claimants in Class IV of the ACT Group Litigation , paragraph 84).
51. In those judgments, the Court held that, where a benefit granted by a bilateral tax convention cannot be classified as a benefit that is separable from that convention, but contributes to its overall balance (the fact that the reciprocal rights and obligations arising under that convention apply only to persons resident in one of the two contracting Member States being an inherent consequence of bilateral conventions), Community law does not preclude the benefit in question from not being conferred on the resident of a third Member State, in so far as that resident is not in a situation comparable to that of residents covered by the convention in question (see, to that effect, D. , paragraphs 59 to 63, and Test Claimants in Class IV of the ACT Group Litigation , paragraphs 88 to 93).
58. It must also be noted that the derogation under Article 58(1)(a) EC is itself restricted by Article 58(3) EC, which provides that the national provisions referred to in paragraph 1 of that article ‘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 [EC]’ (see Case C‑319/02 Manninen  [2004] ECR I‑7477, paragraph 28).
59. Therefore, the unequal treatment permitted under Article 58(1)(a) EC must be distinguished from the discrimination prohibited by Article 58(3) EC. According to case-law, a national tax provision which distinguishes between taxpayers depending on the place where their capital is invested could be regarded as being compatible with the Treaty provisions on the free movement of capital provided that the difference in treatment applies to situations which are not objectively comparable or is justified by overriding reasons in the general interest (see, to that effect, Case C‑35/98 Verkooijen  [2000] ECR I‑4071, paragraph 43; Manninen , paragraph 29; and Case C‑512/03 Blanckaert  [2005] ECR I-7685, paragraph 42).
60. As the Netherlands Government explains, by granting the concession, the Netherlands legislation at issue in the main proceedings seeks to make dividends received by a shareholder investing directly subject as far as possible to the same treatment for tax purposes as those received by a shareholder investing through the intermediary of a fiscal investment enterprise, so as to prevent investments abroad by such an enterprise from being regarded as less appealing than direct investments.
79. Therefore, as the Advocate General noted at point 121 of his Opinion, as soon as the Kingdom of the Netherlands decided to grant fiscal investment enterprises established within its territory a concession for tax deducted abroad and to exercise its fiscal sovereignty over all dividends distributed by such enterprises to their shareholders, whether resident or established in that Member State or in others, it had to extend the benefit of that concession to fiscal investment enterprises which included shareholders not resident or established in that Member State (see, to that effect, Case C‑170/05 Denkavit Internationaal and Denkavit France  [2006] ECR I‑11949, paragraph 37 and the case-law cited).
84. However, it has been consistently held in the case-law that a reduction in tax revenue cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is, in principle, contrary to a fundamental freedom (see, inter alia, Manninen , paragraph 49 and the case-law cited).
89. However, the Court found that movements of capital to or from third countries take place in a different legal context from that which occurs within the Community (see A , paragraph 36). Indeed, because of the degree of legal integration that exists between Member States of the European Union, in particular by reason of the presence of Community legislation which seeks to ensure cooperation between national tax authorities, such as Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15), the taxation by a Member State of economic activities having cross-border aspects which take place within the Community is not always comparable to that of economic activities involving relations between Member States and third countries ( Test Claimants in the FII Group Litigation , paragraph 170, and A , paragraph 37).
90. It may also be that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States ( Test Claimants in the FII Group Litigation , paragraph 171, and A , paragraph 37).
100. In the absence of a Treaty definition of ‘movement of capital’ for the purposes of Article 56(1) EC, the Court has previously recognised the nomenclature annexed to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty [article repealed by the Treaty of Amsterdam] (OJ 1988 L 178, p. 5) as having indicative value. Movements of capital within the meaning of Article 56(1) EC therefore include direct investments, that is to say, as that nomenclature and the related explanatory notes show, investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity (see, to that effect, Test Claimants in the FII Group Litigation , paragraphs 179 to 181; Case C‑112/05 Commission  v Germany  [2007] ECR I‑0000, paragraph 18; and A , paragraph 46).
101. As regards shareholdings in new or existing undertakings, as those explanatory notes confirm, the objective of establishing or maintaining lasting economic links presupposes that the shares held by the shareholder enable him, either pursuant to the provisions of the national laws relating to companies limited by shares or in some other way, to participate effectively in the management of that company or in its control ( Commission  v Germany , paragraph 18 and the case-law cited).
102. The answer to Question 2(a) must therefore be that a restriction is covered by Article 57(1) EC as being a restriction on the movement of capital involving direct investment in so far as it relates to investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity.
Question 2(b) and 2(c)