National Grid Indus BV v Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam.
Date: 2011-11-29
25. It must be recalled that, in accordance with Article 54 TFEU, companies or firms formed in accordance with the law of a Member State and having their registered office, central management or principal place of business within the European Union are to be treated, for the purposes of the rules of the FEU Treaty on freedom of establishment, in the same way as natural persons who are nationals of Member States.
26. In the absence of a uniform definition in European Union law of the companies which may enjoy the right of establishment on the basis of a single connecting factor determining the national law applicable to a company, the question whether Article 49 TFEU applies to a company which seeks to rely on the fundamental freedom enshrined in that article – like the question whether a natural person is a national of a Member State and hence entitled to enjoy that freedom – is a preliminary matter which, as European Union law now stands, can only be resolved by the applicable national law. Consequently, the question whether the company is faced with a restriction on the freedom of establishment within the meaning of Article 49 TFEU can arise only if it has been established, in the light of the conditions laid down in Article 54 TFEU, that the company actually has a right to that freedom (see Daily Mail and General Trust , paragraphs 19 to 23; Case C‑208/00 Überseering  [2002] ECR I‑9919, paragraphs 67 to 70; and Cartesio , paragraph 109).
27. A Member State thus has the power to define both the connecting factor required of a company if it is to be regarded as incorporated under its national law and as such capable of enjoying the right of establishment, and that required if the company is to be able subsequently to maintain that status ( Cartesio , paragraph 110). A Member State is therefore able, in the case of a company incorporated under its law, to make the company’s right to retain its legal personality under the law of that State subject to restrictions on the transfer abroad of the company’s place of effective management ( Überseering , paragraph 70).
30. However, the power referred to in paragraph 27 above does not mean that the Treaty rules on freedom of establishment do not apply to national legislation on the incorporation and winding up of companies (see Cartesio , paragraph 112).
31. The national legislation at issue in the main proceedings does not concern the determination of the conditions required by a Member State of a company incorporated under its law for that company to be able to retain its status of a company of that Member State after transferring its place of effective management to another Member State. The legislation confines itself to attaching tax consequences, for companies incorporated under national law, to a transfer of the place of management between Member States, without the transfer affecting their status of companies of the Member State in question.
33. The answer to Question 1 is therefore that a company incorporated under the law of a Member State which transfers its place of effective management to another Member State, without that transfer affecting its status of a company of the former Member State, may rely on Article 49 TFEU for the purpose of challenging the lawfulness of a tax imposed on it by the former Member State on the occasion of the transfer of the place of effective management.
Questions 2 and 3
35. Article 49 TFEU requires the abolition of restrictions on the freedom of establishment. Even though, according to their wording, the Treaty provisions on freedom of establishment are aimed at ensuring that foreign nationals 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 Case C‑264/96 ICI  [1998] ECR I‑4695, paragraph 21; Case C‑298/05 Columbus Container Services  [2007] ECR I‑10451, paragraph 33; Case C‑157/07 Krankenheim Ruhesitz am Wannsee‑Seniorenheimstatt  [2008] ECR I‑8061, paragraph 29; and Case C‑96/08 CIBA  [2010] ECR I‑2911, paragraph 18).
36. It is also settled case-law that all measures which prohibit, impede or render less attractive the exercise of the freedom of establishment must be regarded as restrictions on that freedom (see Case C‑442/02 Caixa Bank France [2004] ECR I‑8961, paragraph 11; Columbus Container Services , paragraph 34; Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt , paragraph 30; and CIBA , paragraph 19).
37. In the case in the main proceedings, it is clear that a company incorporated under Netherlands law wishing to transfer its place of effective management outside Netherlands territory, in the exercise of its right guaranteed by Article 49 TFEU, is placed at a disadvantage in terms of cash flow compared to a similar company retaining its place of effective management in the Netherlands. In accordance with the national legislation at issue in the main proceedings, the transfer of the place of effective management of a Netherlands company to another Member State entails the immediate taxation of the unrealised capital gains relating to the assets transferred, whereas such gains are not taxed when such a company transfers its place of management within the Netherlands. The capital gains relating to the assets of a company transferring its place of management within the Netherlands are not taxed until they are actually realised and to the extent that they are realised. That difference of treatment relating to the taxation of capital gains is liable to deter a company incorporated under Netherlands law from transferring its place of management to another Member State (see, to that effect, de Lasteyrie du Saillant , paragraph 46, and N , paragraph 35).
38. That difference of treatment cannot be explained by an objective difference of situation. From the point of view of legislation of a Member State aiming to tax capital gains generated in its territory, the situation of a company incorporated under the law of that Member State which transfers its place of management to another Member State is similar to that of a company also incorporated under the law of the former Member State which keeps its place of management in that Member State, as regards the taxation of the capital gains relating to the assets which were generated in the former Member State before the transfer of the place of management.
42. According to settled case-law, a restriction of freedom of establishment is permissible only if it is justified by overriding reasons in the public interest. It is further necessary, in such a case, that it should be appropriate to ensuring the attainment of the objective in question and not go beyond what is necessary to attain that objective (Case C‑446/03 Marks & Spencer  [2005] ECR I‑10837, paragraph 35; Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas  [2006] ECR I‑7995, paragraph 47; Case C‑524/04 Test Claimants in the Thin Cap Group Litigation  [2007] ECR I‑2107, paragraph 64; and Case C‑303/07 Aberdeen Property Fininvest Alpha  [2009] ECR I‑5145, paragraph 57).
45. It must be recalled, first, that preserving the allocation of powers of taxation between the Member States is a legitimate objective recognised by the Court (see, to that effect, Marks & Spencer , paragraph 45; N , paragraph 42; Case C‑231/05 Oy AA [2007] ECR I‑6373, paragraph 51; and Case C‑414/06 Lidl Belgium  [2008] ECR I‑3601, paragraph 31). Secondly, it is settled case-law that, in the absence of any unifying or harmonising measures of the European Union, the 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‑540/07 Commission  v Italy  [2009] ECR I‑10983, paragraph 29 and the case-law cited).
46. The transfer of the place of effective management of a company of one Member State to another Member State cannot mean that the Member State of origin has to abandon its right to tax a capital gain which arose within the ambit of its powers of taxation before the transfer (see, to that effect, Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation  [2006] ECR I‑11673, paragraph 59). The Court has thus held that, in accordance with the principle of fiscal territoriality linked to a temporal component, namely the taxpayer’s residence for tax purposes within national territory during the period in which the capital gains arise, a Member State is entitled to charge tax on those gains at the time when the taxpayer leaves the country (see N , paragraph 46). Such a measure is intended to prevent situations capable of jeopardising the right of the Member State of origin to exercise its powers of taxation in relation to activities carried on in its territory, and may therefore be justified on grounds connected with the preservation of the allocation of powers of taxation between the Member States (see Marks & Spencer , paragraph 46; Oy AA , paragraph 54; and Case C‑311/08 SGI  [2010] ECR I‑487, paragraph 60).
48. Having regard to those factors, legislation such as that at issue in the main proceedings is appropriate for ensuring the preservation of the allocation of powers of taxation between the Member States concerned. The final settlement tax levied at the time of the transfer of a company’s place of effective management is intended to subject to the Member State of origin’s tax on profits the unrealised capital gains which arose within the ambit of that State’s power of taxation before the transfer of the place of management. Unrealised capital gains relating to an economic asset are thus taxed in the Member State in which they arose. Capital gains realised after the transfer of the company’s place of management are taxed exclusively in the host Member State in which they have arisen, thus avoiding double taxation.
49. The argument put forward by National Grid Indus that the tax at issue in the main proceedings cannot be justified because it is charged on an unrealised capital gain, not a realised capital gain, must be rejected. As the governments which have submitted observations to the Court observe, a Member State is entitled to tax the economic value generated by an unrealised capital gain in its territory even if the gain has not yet actually been realised.
50. It must also be examined whether legislation such as that at issue in the main proceedings goes beyond what is necessary to attain the objective it pursues (Case C‑262/09 Meilicke  [2011] ECR I‑0000, paragraph 42 and the case-law cited).
52. As the Advocate General observes in points 55 and 56 of her Opinion, establishing the amount of tax at the time of the transfer of a company’s place of effective management complies with the principle of proportionality, having regard to the objective of the national legislation at issue in the main proceedings, namely to subject to tax in the Member State of origin the capital gains which arose within the ambit of that State’s power of taxation. It is proportionate for that Member State, for the purpose of safeguarding the exercise of its powers of taxation, to determine the tax due on the unrealised capital gains that have arisen in its territory at the time when its power of taxation in respect of the company in question ceases to exist, in the present case the time of the transfer of the company’s place of effective management to another Member State.
57. The assets of a company are assigned directly to economic activities that are intended to produce a profit. Moreover, the extent of a company’s taxable profits is partly influenced by the valuation of its assets in the balance sheet, in so far as depreciation reduces the basis of taxation.
59. In those circumstances, the Member State of origin, contrary to the Commission’s submissions, is not obliged to take account of any exchange rate losses that may occur after the transfer by National Grid Indus of its place of effective management to the United Kingdom until the satisfaction or assignment of the claim held by that company. The tax due on the unrealised capital gains is determined at the time when the Member State of origin’s power to tax the company ceases to exist, in the present case at the time of the transfer of the company’s place of management. The taking into account by the Member State of origin either of an exchange rate gain or of an exchange rate loss occurring after the transfer of the place of effective management could not only call into question the balanced allocation of powers of taxation between the Member States but also lead to double taxation or double deduction of losses. That would in particular be the case if a company possessing a claim such as that at issue in the main proceedings, expressed in sterling, transferred its place of management from a Member State whose currency is the euro to another Member State in the euro zone.
61. Moreover, as appears from paragraph 58 above, the tax system of the host Member State will in principle take account, at the time when the assets of the undertaking in question are realised, of capital gains and losses realised in relation to those assets after the transfer of the place of management. However, a possible omission by the host Member State to take account of decreases in value does not impose any obligation on the Member State of origin to revalue, at the time of realisation of the asset concerned, a tax debt which was definitively determined at the time when the company in question, because of the transfer of its place of effective management, ceased to be subject to tax in the latter Member State.
62. It should be recalled in this connection that the Treaty offers no guarantee to a company covered by Article 54 TFEU that transferring its place of effective management to another Member State will be neutral as regards taxation. Given the relevant disparities in the tax legislation of the Member States, such a transfer may be to the company’s advantage in terms of tax or not, according to circumstances (see, to that effect, Case C‑365/02 Lindfors  [2004] ECR I‑7183, paragraph 34; Case C‑403/03 Schempp  [2005] ECR I‑6421, paragraph 45; and Case C‑194/06 Orange European Smallcap Fund  [2008] ECR I‑3747, paragraph 37). Freedom of establishment cannot therefore be understood as meaning that a Member State is required to draw up its tax rules on the basis of those in another Member State in order to ensure, in all circumstances, taxation which removes any disparities arising from national tax rules (see Case C‑293/06 Deutsche Shell  [2008] ECR I‑1129, paragraph 43).
64. It follows from the foregoing that Article 49 TFEU does not preclude legislation of a Member State under which the amount of tax on unrealised capital gains relating to a company’s assets is fixed definitively, without taking account of decreases or increases in value which may occur subsequently, at the time when the company, because of the transfer of its place of effective management to another Member State, ceases to obtain profits taxable in the former Member State. It makes no difference that the unrealised capital gains that are taxed relate to exchange rate gains which cannot be reflected in the host Member State under the tax system in force there.
– Immediate recovery of the tax at the time when the company transfers its place of effective management to another Member State
69. As to the administrative burden that could be occasioned by the deferred recovery of tax, it should be noted that the transfer of a company’s place of effective management may be accompanied by the transfer of a large number of assets. The Netherlands Government points out that the situation at issue in the main proceedings is untypical, since it concerns only the capital gain relating to a claim held by National Grid Indus.
70. It follows, as the Advocate General observes in point 69 of her Opinion, that the asset situation of a company may appear so complex that an accurate cross-border tracing of the destiny of all the items making up the company’s fixed and current assets until the unrealised capital gains incorporated into those assets are realised is almost impossible, and that such tracing will entail efforts representing a considerable or even excessive burden for the company in question.
71. It thus cannot be ruled out that the administrative burden that would be entailed by the annual return suggested by the Commission, which would necessarily relate to every asset in respect of which a capital gain was established at the time of the transfer of the place of effective management of the company concerned, would give rise as such, for that company, to a hindrance to freedom of establishment that would not necessarily be any less harmful to that freedom than the immediate recovery of the tax debt corresponding to the capital gain.
72. In other situations, on the other hand, the nature and extent of the company’s assets would make it easy to carry out a cross-border tracing of the individual assets for which a capital gain was ascertained at the time when the company transferred its place of effective management to another Member State.
73. In those circumstances, national legislation offering a company transferring its place of effective management to another Member State the choice between, first, immediate payment of the amount of tax, which creates a disadvantage for that company in terms of cash flow but frees it from subsequent administrative burdens, and, secondly, deferred payment of the amount of tax, possibly together with interest in accordance with the applicable national legislation, which necessarily involves an administrative burden for the company in connection with tracing the transferred assets, would constitute a measure which, while being appropriate for ensuring the balanced allocation of powers of taxation between the Member States, would be less harmful to freedom of establishment than the measure at issue in the main proceedings. If a company were to consider that the administrative burden in connection with deferred recovery was excessive, it could opt for immediate payment of the tax.
74. However, account should also be taken of the risk of non-recovery of the tax, which increases with the passage of time. That risk may be taken into account by the Member State in question, in its national legislation applicable to deferred payments of tax debts, by measures such as the provision of a bank guarantee.
77. It should be recalled, to begin with, that the tracing of assets relates only to the recovery of the tax debt, not to its ascertainment. As may be seen from paragraph 64 above, Article 49 TFEU does not preclude legislation of a Member State, such as that at issue in the main proceedings, under which the amount of tax due on capital gains relating to the assets of a company which ceases to obtain profits taxable in that Member State because of the transfer of its place of effective management to another Member State is fixed definitively at the time of that transfer. In so far as a company which opts for deferred payment of the tax necessarily considers that tracing the assets in respect of which a capital gain has been ascertained at the time of the transfer of the place of management will not cause it an excessive administrative burden, the burden to be borne by the tax authorities of the Member State of origin in connection with checking the declarations relating to such tracing cannot be regarded as excessive either.
78. Next, contrary to the assertions of the Netherlands, German and Spanish Governments, the existing machinery for mutual assistance between the authorities of the Member States is sufficient to enable the Member State of origin to check the truthfulness of the returns made by companies which have opted for deferred payment of the tax. Since the tax is definitively determined at the time when the company, because of the transfer of its place of effective management, ceases to obtain profits taxable in the Member State of origin, the assistance of the host Member State will concern not the correct ascertainment of the tax but only its recovery. Article 4(1) of Council Directive 2008/55/EC of 26 May 2008 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures (OJ 2008 L 150, p. 28) provides that ‘[a]t the request of the applicant authority, the requested authority shall provide any information which would be useful to the applicant authority in the recovery of its claim’. That directive thus enables the Member State of origin to obtain information from the competent authority of the host Member State on whether or not certain assets of a company which has transferred its place of effective management to the latter Member State have been realised, in so far as the information is necessary to enable the Member State of origin to recover a tax debt which arose at the time of that transfer. Moreover, Directive 2008/55, in particular Articles 5 to 9, provides the authorities of the Member State of origin with a framework of cooperation and assistance allowing them actually to recover the tax debt in the host Member State.
80. As the Advocate General observes in point 99 of her Opinion, the requirements of coherence of the tax system and the balanced allocation of powers of taxation coincide.
84. However, the mere fact that a company transfers its place of management to another Member State cannot set up a general presumption of tax evasion and justify a measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty (see, to that effect, ICI , paragraph 26; Case C‑478/98 Commission  v Belgium  [2000] ECR I-7587, paragraph 45; Case C‑436/00 X and Y [2002] ECR I‑10829, paragraph 62; Case C‑334/02 Commission  v France  [2004] ECR I‑2229, paragraph 27; and Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 50).
85. It thus follows from the foregoing that legislation of a Member State, such as that at issue in the main proceedings, which prescribes the immediate recovery of tax on unrealised capital gains relating to assets of a company transferring its place of effective management to another Member State at the very time of that transfer is disproportionate.
86. Consequently, the answer to Questions 2 and 3 is that Article 49 TFEU must be interpreted as:
– not precluding legislation of a Member State under which the amount of tax on unrealised capital gains relating to a company’s assets is fixed definitively, without taking account of decreases or increases in value which may occur subsequently, at the time when the company, because of the transfer of its place of effective management to another Member State, ceases to obtain profits taxable in the former Member State; it makes no difference that the unrealised capital gains that are taxed relate to exchange rate gains which cannot be reflected in the host Member State under the tax system in force there;
– precluding legislation of a Member State which prescribes the immediate recovery of tax on unrealised capital gains relating to assets of a company transferring its place of effective management to another Member State at the very time of that transfer.
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