European Commission v Hungary.
Date: 2019-05-21
25


According to settled case-law, the Court has jurisdiction to interpret EU law as regards its application in a new Member State with effect from the date of that State’s accession to the European Union (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 39 and the case-law cited).
51


As regards the Commission’s request for a declaration that Hungary has failed to fulfil its obligations under Article 49 TFEU, it should be noted that, when the right to acquire, use or dispose of immovable property on the territory of another Member State is exercised as the corollary of the right of establishment, it generates capital movements (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 54).
53


Although the contested provision is therefore capable, prima facie, of falling both within the scope of Article 49 TFEU and that of Article 63 TFEU, the fact remains that, in the present case, the restriction of the freedom of establishment arising from the contested provision which the Commission alleges in its action is the direct consequence of the restriction of the free movement of capital of which it also complains in this action. As the first alleged restriction is thus inextricably linked to the second, it is not necessary to consider the contested provision in the light of Article 49 TFEU (see, to that effect, judgments of 4 June 2002, Commission v Portugal, C‑367/98, EU:C:2002:326, paragraph 56; of 13 May 2003, Commission v Spain, C‑463/00, EU:C:2003:272, paragraph 86; and of 10 November 2011, Commission v Portugal, C‑212/09, EU:C:2011:717, paragraph 98 and the case-law cited).
54


It should be recalled that capital movements include investments in real estate on the territory of a Member State by non-residents, as is clear from the nomenclature of capital movements set out in Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the [EC] Treaty (an article repealed by the Treaty of Amsterdam) (OJ 1988 L 178, p. 5); that nomenclature still has the same indicative value for the purposes of defining the notion of capital movements (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 56 and the case-law cited).
55


That notion encompasses, inter alia, investments in real estate relating to the acquisition of a usufruct over land, as is attested, in particular, by the clarification, contained in the explanatory notes in Annex I to Directive 88/361, that the category of investments in real estate covered by the directive includes the acquisition of rights of usufruct over buildings and land (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 57).
58


By providing for the extinguishment, by operation of law, of rights of usufruct thus held over agricultural land by nationals of Member States other than Hungary, the contested provision restricts, by virtue of its very subject matter and by reason of that fact alone, the right of the persons concerned to the free movement of capital guaranteed by Article 63 TFEU. Indeed, the contested provision deprives those persons both of the possibility of continuing to enjoy their rights of usufruct, by preventing them, inter alia, from using and farming the land concerned or from letting it to tenant farmers and thereby making money from it, and of the possibility of alienating that right, for example by transferring it back to the owner. That provision is, moreover, liable to deter non-residents from making investments in Hungary in the future (see, to that effect, judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraphs 62 to 66).
59


As is apparent from the Court’s case-law, a measure such as the contested provision, which restricts the free movement of capital, is permissible only if it is justified by overriding reasons in the public interest and observes the principle of proportionality, a condition that requires the measure to be appropriate for ensuring the attainment of the objective legitimately pursued and not to go beyond what is necessary in order for it to be attained (see, to that effect, judgment of 11 November 2010, Commission v Portugal, C‑543/08, EU:C:2010:669, paragraph 83).
60


Such a measure may likewise be justified by the reasons referred to in Article 65 TFEU provided that it complies with the principle of proportionality (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 77 and the case-law cited).
61


It must also be pointed out in this connection that national legislation is appropriate for ensuring attainment of the objective relied on only if it genuinely reflects a concern to attain that objective in a consistent and systematic manner (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 78 and the case-law cited).
63


In addition, it should be borne in mind that the fundamental rights guaranteed by the Charter are applicable in all situations governed by EU law and that they must, therefore, be complied with inter alia where national legislation falls within the scope of EU law (see, in particular, judgments of 26 February 2013, Åkerberg Fransson, C‑617/10, EU:C:2013:105, paragraphs 19 to 21, and of 21 December 2016, AGET Iraklis, C‑201/15, EU:C:2016:972, paragraph 62).
64


That is inter alia the case where national legislation is such as to obstruct one or more of the fundamental freedoms guaranteed by the FEU Treaty and the Member State concerned relies on grounds envisaged in Article 65 TFEU, or on overriding reasons in the public interest that are recognised by EU law, in order to justify such an obstacle. In such a situation, the national legislation concerned can, according to settled case-law, fall within the exceptions thereby provided for only if it complies with the fundamental rights the observance of which is ensured by the Court (see, to that effect, judgments of 18 June 1991, ERT, C‑260/89, EU:C:1991:254, paragraph 43; of 27 April 2006, Commission v Germany, C‑441/02, EU:C:2006:253, paragraph 108 and the case-law cited; and of 21 December 2016, AGET Iraklis, C‑201/15, EU:C:2016:972, paragraph 63).
65


In that regard, as has already been held by the Court, the use by a Member State of the exceptions provided for by EU law in order to justify an impediment to a fundamental freedom guaranteed by the Treaty must be regarded as ‘implementing Union law’ within the meaning of Article 51(1) of the Charter (judgment of 21 December 2016, AGET Iraklis, C‑201/15, EU:C:2016:972, paragraph 64 and the case-law cited).
66


In this case, as has been stated in paragraphs 58 and 62 above, the contested provision constitutes a restriction of the free movement of capital and Hungary relies on the existence of overriding reasons in the public interest and of the grounds envisaged in Article 65 TFEU in order to justify that restriction. That being so, the compatibility of the contested provision with EU law must be examined in the light both of the exceptions thus provided for by the Treaty and the Court’s case-law, on the one hand, and of the fundamental rights guaranteed by the Charter, on the other hand (see, to that effect, judgment of 21 December 2016, AGET Iraklis, C‑201/15, EU:C:2016:972, paragraphs 65, 102 and 103), one of which is the right to property safeguarded by Article 17 of the Charter, which the Commission claims has been infringed in this case.
68


In that regard, it should be noted, as a preliminary point, that, as the Court has already stated, Article 17 of the Charter is a rule of law intended to confer rights on individuals (see, to that effect, judgment of 20 September 2016, Ledra Advertising and Others v Commission and ECB, C‑8/15 P to C‑10/15 P, EU:C:2016:701, paragraph 66).
69


As regards the substantive conditions set out in Article 17(1) of the Charter, it follows, first, from the Court’s case-law that the protection afforded by that provision concerns rights with an asset value creating an established legal position under the legal system concerned, enabling the holder to exercise those rights autonomously and for his or her own benefit (judgments of 22 January 2013, Sky Österreich, C‑283/11, EU:C:2013:28, paragraph 34, and of 3 September 2015, Inuit Tapiriit Kanatami and Others v Commission, C‑398/13 P, EU:C:2015:535, paragraph 60).
72


According also to the case-law of the European Court of Human Rights relating to Article 1 of Protocol No 1 to the ECHR, which must be taken into account pursuant to Article 52(3) of the Charter in interpreting Article 17 thereof, as the minimum threshold of protection (see, to that effect, judgments of 15 March 2017, Al Chodor, C‑528/15, EU:C:2017:213, paragraph 37; of 13 June 2017, Florescu and Others, C‑258/14, EU:C:2017:448, paragraph 49; and of 12 February 2019, TC, C‑492/18 PPU, EU:C:2019:108, paragraph 57), rights of use or of usufruct over immovable property are to be regarded as ‘possessions’ that are eligible for the protection guaranteed by Article 1 of that protocol (see, in particular, ECtHR, 12 December 2002, Wittek v. Germany, CE:ECHR:2002:1212JUD003729097, §§ 43 to 46; ECtHR, 16 November 2004, Bruncrona v. Finland, CE:ECHR:2004:1116JUD004167398, § 78; and ECtHR, 9 February 2006, Athanasiou and Others v. Greece, CE:ECHR:2006:0209JUD000253102, § 22).
88


As regards those requirements, account must also be taken of the provision made by Article 52(1) of the Charter, under which limitations may be imposed on the exercise of the rights recognised by the Charter, as long as the limitations are provided for by law, respect the essence of those rights and, subject to the principle of proportionality, are necessary and genuinely meet objectives of general interest recognised by the European Union or the need to protect the rights and freedoms of others.
91


In that regard, it should be observed that the Court has accepted that national legislation may restrict the free movement of capital on the ground of objectives such as those of preserving the farming of agricultural land by means of owner-occupancy and of encouraging a situation where agricultural property is lived on and farmed predominantly by the owners, as well as of preserving a permanent population in rural areas as a planning measure and of encouraging a reasonable use of the available land by resisting pressure on land (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 82 and the case-law cited).
92


The same is true of the objectives of maintaining a distribution of land ownership which allows the development of viable farms and sympathetic stewardship of green spaces and the countryside (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 83 and the case-law cited).
94


In that context, it must also be borne in mind that the reasons that may be invoked by a Member State by way of justification must be accompanied by an analysis of the appropriateness and proportionality of the restrictive measure adopted by that State and by specific evidence substantiating its arguments (judgment of 26 May 2016, Commission v Greece, C‑244/15, EU:C:2016:359, paragraph 42 and the case-law cited).
100


Indeed, it is apparent that other measures less restrictive of the free movement of capital than those laid down by the contested provision could have been adopted for the purpose of ensuring that the existence of a right of usufruct over land used for farming does not result in that land ceasing to be farmed. In that regard, it would, for example, have been possible to require the usufructuary to preserve such agricultural use, as the case may be, by actually farming the land concerned him‑ or herself, under conditions ensuring the viability of that farming (see, to that effect, judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraphs 92 and 93).
103


It should be recalled in that regard that, as a derogation from the fundamental principle of the free movement of capital, Article 65(1)(b) TFEU must be interpreted strictly (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 96 and the case-law cited).
108


Secondly, and in any event, the cancellation, by operation of law, of rights of usufruct for which there were longstanding entries in the land registers, which took place more than 10 years after that national legislation on exchange controls was repealed, is not a proportionate measure. Indeed, other measures with less far-reaching effects could have been adopted for the purpose of penalising from the outset any infringements of the national legislation on exchange controls, such as administrative fines (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 106 and the case-law cited).
112


In that regard, it should be borne in mind that, so far as concerns the prevention of practices intended to circumvent national law, it is true that the Court has already accepted that a measure restricting a fundamental freedom may, in appropriate cases, be justified where it is designed to combat wholly artificial arrangements, aimed at circumventing the national legislation concerned (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 114 and the case-law cited).
114


In the second place, according to the case-law a justification such as that mentioned in paragraph 112 above is permissible only in so far as it specifically targets artificial arrangements aimed at circumventing the national legislation concerned. This rules out in particular any enactment of a general presumption of abusive practices that would be sufficient to justify a restriction on the free movement of capital (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraphs 115 and 116 and the case-law cited).
115


In order to comply with the principle of proportionality, a measure pursuing such a specific objective of combating wholly artificial arrangements should, on the contrary, enable the national courts to carry out a case-by-case examination, having regard to the particular features of each case and taking objective elements as its basis, in order to assess the abusive or fraudulent conduct of the persons concerned (see, to that effect, judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 117 and the case-law cited).
119


Secondly, and in any event, it cannot reasonably be inferred from the mere fact that the holder of a right of usufruct over a parcel of agricultural land is a legal person or a natural person who does not have the status of close relation of the owner of that land that the conduct of such a person when acquiring such a right of usufruct constituted an abuse. As has been pointed out in paragraph 114 above, the enactment of a general presumption of abusive practices cannot be allowed (see, to that effect, judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 121).
120


Thus, other measures less restrictive of the free movement of capital, such as penalties or specific actions for a declaration of invalidity before the national courts in order to combat any circumventions of the applicable national legislation that are established, could, provided that they comply with the other requirements arising from EU law, be considered for the purpose of combating those abusive practices (see, to that effect, judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 122).
121


In this connection, Hungary’s line of argument that is based on budgetary considerations and considerations relating to the efficient use of judicial resources cannot be accepted. It is settled case-law that aims of a purely economic nature cannot constitute overriding reasons in the public interest justifying a restriction of a fundamental freedom guaranteed by the Treaty. The same is true of considerations of a purely administrative nature (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 123 and the case-law cited).