Société de Gestion Industrielle (SGI) v Belgian State.
Date: 2010-01-21
22. However, even if Article 49 of the CIR 1992 were relevant for the purpose of resolving the dispute in the main proceedings, the fact remains that the tribunal de première instance de Mons has referred questions to the Court concerning only the interpretation of the freedoms in question in connection with subparagraph 1 of the second paragraph of Article 26 of the CIR 1992. It is sufficient to point out that that court, which must assume responsibility for the forthcoming judicial decision, is best placed, in the light of the particular circumstances of the case before it, to define the relevant national legal framework and to delimit its reference for a preliminary ruling by reference to that framework (see, to that effect, Joined Cases C‑378/07 to C‑380/07 Angelidaki and Others [2009] ECR I‑0000, paragraph 48 and the case‑law cited).
The freedoms in question
25. According to established case‑law, in order to determine whether national legislation falls within the scope of one or other of the freedoms of movement, the purpose of the legislation concerned must be taken into consideration (see, to that effect, Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas  [2006] ECR I‑7995, paragraphs 31 to 33; Case C‑452/04 Fidium Finanz  [2006] ECR I‑9521, paragraphs 34 and 44 to 49; and Case C‑182/08 Glaxo Wellcome  [2009] ECR I‑0000, paragraph 36).
27. In its reply of 24 April 2009 to a written question put by the Court on 23 March 2009, the Belgian Government stated that the legislation at issue in the main proceedings is aimed at situations in which different conditions influence the relationships of the companies in question from those applying to relationships between independent undertakings. According to the Belgian Government, there is a ‘relationship of interdependence’ within the meaning of that legislation, inter alia where one of the companies in question has a holding in the capital of the other which enables it to exercise definite influence over that company’s decisions and to determine its activities within the meaning of the Baars line of case‑law (Case C‑251/98 [2000] ECR I‑2787, paragraph 22).
28. The Court has repeatedly held that national legislation which applies in such circumstances comes within the substantive scope of the provisions of the EC Treaty on freedom of establishment (see, inter alia, Baars , paragraphs 21 and 22; Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 31; and Glaxo Wellcome , paragraph 47).
31. As regards the applicability of Article 12 EC, which lays down a general prohibition of all discrimination on grounds of nationality, it should be noted that that provision applies independently only to situations governed by European Union law for which the Treaty lays down no specific rules of non-discrimination (see, inter alia, Joined Cases C‑397/98 and C‑410/98 Metallgesellschaft and Others  [2001] ECR I‑1727, paragraphs 38 and 39; Case C‑443/06 Hollmann  [2007] ECR I‑8491, paragraphs 28 and 29; and Case C‑105/07 Lammers & Van Cleeff  [2008] ECR I‑173, paragraph 14).
33. As regards the Treaty provisions which are applicable in circumstances such as those in the main proceedings, it should be noted that it is not disputed before the referring court that there is a ‘relationship of interdependence’, within the meaning of the legislation at issue, between SGI and Recydem and between SGI and Cobelpin.
34. With regard to the nature of those relationships, it is apparent from the order for reference that SGI has a 65% holding in the capital of Recydem. According to the reply referred to at paragraph 10 above, Cobelpin has a 34% holding in the capital of SGI. The Court does not have available to it information to enable it to establish whether there are other equity links between those companies.
35. Such holdings are, in principle, capable of giving SGI ‘definite influence’, within the meaning of the Baars case‑law referred to at paragraphs 27 and 28 above, over the decisions and activities of Recydem and of giving Cobelpin such influence over the decisions and activities of SGI. Moreover, according to the order for reference, there are links between those companies at management level.
36. Consequently, since the dispute in the main proceedings relates solely to the effect of the legislation in question on the tax treatment of a company which has with the other companies concerned a relationship of interdependence that is characterised by ‘definite influence’ within the meaning of the Baars  case‑law, Articles 43 EC and 48 EC on freedom of establishment are applicable.
37. It is therefore necessary to answer the questions referred solely in the light of Articles 43 EC and 48 EC. It is appropriate to consider those questions together.
Whether there is a restriction on the freedom of establishment
38. The freedom of establishment which Article 43 EC grants to Community nationals includes the right for them to take up and pursue activities as self-employed persons and to set up and manage undertakings, under the same conditions as those laid down for its own nationals by the law of the Member State of establishment. It entails, for companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the European Community, the right to pursue their activities in the Member State concerned through a subsidiary, branch or agency (see, inter alia, Case C‑471/04 Keller Holding  [2006] ECR I-2107, paragraph 29, and Glaxo Wellcome , paragraph 45).
39. Even though, according to their wording, the provisions of the Treaty concerning freedom of establishment 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, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation (see, inter alia, Case C‑264/96 ICI  [1998] ECR I‑4695, paragraph 21; Case C‑446/03 Marks & Spencer  [2005] ECR I‑10837, paragraph 31; Case C‑298/05 Columbus Container Services  [2007] ECR I‑10451, paragraph 33; and Case C‑418/07 Papillon  [2008] ECR I‑8947, paragraph 16).
40. In the case of companies, their ‘registered office’ for the purposes of Article 48 EC serves, in the same way as nationality in the case of individuals, as the connecting factor with the legal system of a Member State. Acceptance of the proposition that the Member State of establishment may freely apply different treatment merely by reason of the fact that the registered office of a company is situated in another Member State would deprive Article 43 EC of all meaning (see, to that effect, Case 270/83 Commission v France  [1986] ECR 273, paragraph 18; Case C‑330/91 Commerzbank  [1993] ECR I‑4017, paragraph 13; and Case C‑303/07 Aberdeen Property Fininvest Alpha [2009] ECR I‑0000, paragraph 38).
44. Such a difference in the tax treatment of resident companies based on the place where the companies receiving the advantages in question have their registered office is liable to constitute a restriction on freedom of establishment within the meaning of Article 43 EC. A resident company could be deterred from acquiring, creating or maintaining a subsidiary in another Member State or from acquiring or maintaining a substantial holding in a company established in that State because of the tax burden imposed, in a cross‑border situation, on the grant of advantages at which the legislation at issue in the main proceedings is directed.
50. First, it should be noted that, for legislation to be regarded as a restriction on freedom of establishment, it is sufficient that it be capable of restricting the exercise of that freedom in a Member State by companies established in another Member State, without there being any need to establish that the legislation in question has actually had the effect of leading some of those companies to refrain from acquiring, creating or maintaining a subsidiary in the first Member State (see Case C‑524/04 Test Claimants in the Thin Cap Group Litigation  [2007] ECR I‑2107, paragraph 62, and Case C‑231/05 Oy AA [2007] ECR I‑6373, paragraph 42).
56. According to established case‑law, a measure which is liable to hinder the freedom of establishment enshrined in Article 43 EC is permissible only if it pursues a legitimate objective compatible with the Treaty and is justified by overriding reasons in the public interest. It is also necessary, in such a case, that its application be appropriate to ensuring the attainment of the objective thus pursued and not go beyond what is necessary to attain it (see, inter alia, Case C‑250/95 Futura Participations and Singer  [1997] ECR I‑2471, paragraph 26; Case C‑9/02 de Lasteyrie du Saillant  [2004] ECR I‑2409, paragraph 49; Marks & Spencer , paragraph 35; and Lammers & Van Cleeff , paragraph 25).
60. First, as regards the balanced allocation between Member States of the power to tax, it should be recalled that such a justification may be accepted, in particular, where the system in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its tax jurisdiction in relation to activities carried out in its territory (see, inter alia, Marks & Spencer , paragraph 46; Case C‑347/04 Rewe Zentralfinanz  [2007] ECR I‑2647, paragraph 42; Oy AA , paragraph 54; and Aberdeen Property Fininvest Alpha , paragraph 66).
61. The Court has recognised that the preservation of the allocation of the power to impose taxes between Member States may make it necessary to apply to the economic activities of companies established in one of those States only the tax rules of that State in respect of both profits and losses (see inter alia, Oy AA , paragraph 54, and Case C‑414/06 Lidl Belgium  [2008] ECR I‑3601, paragraph 31).
62. To give companies the right to elect to have their losses or profits taken into account in the Member State in which they are established or in another Member State could seriously undermine a balanced allocation of the power to impose taxes between the Member States, since the tax base would be increased in one of the States in question, and reduced in the other, by the amount of the losses or profits transferred (see, to that effect, Marks & Spencer , paragraph 46; Oy AA , paragraph 55; and Lidl Belgium , paragraph 32).
63. In the present case, it must be held that to permit resident companies to transfer their profits in the form of unusual or gratuitous advantages to companies with which they have a relationship of interdependence that are established in other Member States may well undermine the balanced allocation of the power to impose taxes between the Member States. It would be liable to undermine the very system of the allocation of the power to impose taxes between Member States because, according to the choice made by companies having relationships of interdependence, the Member State of the company granting unusual or gratuitous advantages would be forced to renounce its right, in its capacity as the State of residence of that company, to tax its income in favour, possibly, of the Member State in which the recipient company has its establishment (see, to that effect, Oy AA, paragraph 56).
65. Second, as regards the prevention of tax avoidance, it should be recalled that a national measure restricting freedom of establishment may be justified where it specifically targets wholly artificial arrangements designed to circumvent the legislation of the Member State concerned (see, to that effect, ICI , paragraph 26; Marks & Spencer , paragraph 57; Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 51; and Test Claimants in the Thin Cap Group Litigation , paragraph 72).
66. In that context, national legislation which is not specifically designed to exclude from the tax advantage it confers such purely artificial arrangements – devoid of economic reality, created with the aim of escaping the tax normally due on the profits generated by activities carried out on national territory – may nevertheless be regarded as justified by the objective of preventing tax avoidance, taken together with that of preserving the balanced allocation of the power to impose taxes between the Member States (see, to that effect, Oy AA , paragraph 63).
67. As regards the relevance of that ground of justification in the light of circumstances such as those of the main proceedings, to permit resident companies to grant unusual or gratuitous advantages to companies with which they have a relationship of interdependence that are established in other Member States, without making provision for any corrective tax measures, carries the risk that, by means of artificial arrangements, income transfers may be organised within companies having a relationship of interdependence towards those established in Member States applying the lowest rates of taxation or in Member States in which such income is not taxed (see, to that effect, Oy AA , paragraph 58).
68. By providing that the resident company is to be taxed in respect of an unusual or gratuitous advantage which it has granted to a company established in another Member State, the legislation at issue in the main proceedings is able to prevent such practices, liable to be encouraged by the finding of significant disparities between the bases of assessment or rates of tax applied in the various Member States and designed only to avoid the tax normally due in the Member State in which the company granting the advantage has its seat (see, to that effect, Oy AA , paragraph 59).
69. In the light of those two considerations, concerning the need to maintain the balanced allocation of the power to tax between the Member States and to prevent tax avoidance, taken together, it must be held that legislation such as that at issue in the main proceedings pursues legitimate objectives which are compatible with the Treaty and constitute overriding reasons in the public interest and that it is appropriate for ensuring the attainment of those objectives.
71. National legislation which provides for a consideration of objective and verifiable elements in order to determine whether a transaction represents an artificial arrangement, entered into for tax reasons, is to be regarded as not going beyond what is necessary to attain the objectives relating to the need to maintain the balanced allocation of the power to tax between the Member States and to prevent tax avoidance where, first, on each occasion on which there is a suspicion that a transaction goes beyond what the companies concerned would have agreed under fully competitive conditions, the taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that transaction (see, to that effect, Test Claimants in the Thin Cap Group Litigation , paragraph 82, and order in Case C‑201/05 Test Claimants in the CFC and Dividend Group Litigation  [2008] ECR I‑2875, paragraph 84).
72. Second, where the consideration of such elements leads to the conclusion that the transaction in question goes beyond what the companies concerned would have agreed under fully competitive conditions, the corrective tax measure must be confined to the part which exceeds what would have been agreed if the companies did not have a relationship of interdependence.