European Commission v Kingdom of Spain.
Date: 2012-07-12
47. First of all, it should be recalled that, according to settled case-law, while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must none the less exercise that competence consistently with EU law (see, inter alia, Case C-155/09 Commission  v Greece  [2011] ECR I-65, paragraph 39; Case C-10/10 Commission  v Austria  [2011] ECR I-5389, paragraph 23; Case C-250/08 Commission  v Belgium  [2011] ECR I-12341, paragraph 33; and Case C-253/09 Commission  v Hungary  [2011] ECR I-12391, paragraph 42).
49. In respect of the grounds of challenge relating to the infringement of Articles 18 EC, 39 EC and 43 EC, it should be recalled that Article 18 EC, which sets out in general terms the right of every citizen of the European Union to move and reside freely within the territory of the Member States, finds specific expression in Article 39 EC with regard to freedom of movement for workers and in Article 43 EC with regard to freedom of establishment (see Case C-152/05 Commission  v Germany  [2008] ECR I-39, paragraph 18; Commission  v Greece , paragraph 41; and Commission  v Hungary , paragraph 44).
51. The Treaty provisions on freedom of movement for persons are intended to facilitate the pursuit by citizens of the European Union of occupational activities of all kinds throughout the European Union and they preclude measures which might place those citizens at a disadvantage when they wish to pursue an economic activity in the territory of another Member State (see Case C-152/05 Commission  v Germany , paragraph 21; Commission  v Greece , paragraph 43; and Commission  v Hungary , paragraph 46).
52. Even though those provisions, according to their wording, 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, it is important to state that, in that context, nationals of the Member States have in particular the right, which they derive directly from the Treaty, to leave their State of origin to enter the territory of another Member State and reside there in order to pursue an economic activity there (see, to that effect, inter alia, Case C-415/93 Bosman  [1995] ECR I-4921, paragraph 95, and Case C-212/06 Gouvernement de la Communauté française and Gouvernement wallon  [2008] ECR I-1683, paragraph 44).
53. Rules which preclude or deter a national of a Member State from leaving his country of origin in order to exercise his right to freedom of movement therefore constitute an obstacle to that freedom even if they apply without regard to the nationality of the workers concerned (see, inter alia, Case C-318/05 Commission  v Germany  [2007] ECR I-6957, paragraph 115).
54. Furthermore, it is also settled case-law that all measures which prohibit, impede or render less attractive the exercise of the freedom of movement must be regarded as restrictions on that freedom (see, as regards the freedom of establishment, Case C-442/02 Caixa Bank France [2004] ECR I-8961, paragraph 11, and Case C-371/10 National Grid Indus  [2011] ECR I-12273, paragraph 36).
55. Consequently, in contrast to the contentions of the Federal Republic of Germany and the Portuguese Republic, even a restriction on freedom of movement for persons which is of limited scope or minor importance is prohibited by Articles 39 EC and 43 EC (see, concerning the freedom of establishment, Case 270/83 Commission  v France  [1986] ECR 273, paragraph 21; Case C-34/98 Commission  v France  [2000] ECR I-995, paragraph 49; and de Lasteyrie du Saillant , paragraph 43).
59. However, it cannot be denied that the withdrawal of that advantage constitutes a clear disadvantage in terms of cash-flow. In this connection, the Court has repeatedly held that the exclusion of a cash-flow advantage in a cross-border situation where it is available in an equivalent domestic situation is a restriction on the freedom of establishment (see, to that effect, inter alia, Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others  [2001] ECR I-1727, paragraphs 44, 54 and 76; Case C-436/00 X and Y  [2002] ECR I-10829, paragraphs 36 to 38; Case C-446/03 Marks & Spencer  [2005] ECR I-10837, paragraph 32; and Case C-347/04 Rewe Zentralfinanz  [2007] ECR I-2647, paragraph 29).
60. As it is, that difference in treatment cannot be explained, in the present case, by an objective difference of situation. From the point of view of legislation of a Member State designed to tax realised income, the situation of a person transferring his residence to another Member State is similar to that of a person maintaining his residence in the former Member State, as regards the taxation of the income already realised in that Member State before the transfer of residence (see, by analogy, National Grid Indus , paragraph 38).
61. It must therefore be held that the measure at issue in the main proceedings is liable to obstruct the exercise of the freedoms laid down in Articles 39 EC and 43 EC.
– Justification for the restrictions
62. According to well-established case-law, national measures which are liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty may nevertheless be allowed provided that they pursue an objective in the public interest, that they are appropriate for attaining that objective and that they do not go beyond what is necessary to attain the objective pursued (see, inter alia, Case C-152/05 Commission  v Germany , paragraph 26; Commission  v Greece , paragraph 51; Commission  v Hungary , paragraph 69; and National Grid Indus , paragraph 42).
64. As regards the justification relating to the need to ensure effective recovery of the tax debt, it should first be stated that the Court has recognised that that need could justify a restriction on the fundamental freedoms (see, to that effect, FKP Scorpio Konzertproduktionen , paragraph 35).
68. In this connection, it must be stated that — contrary to the contentions of the Kingdom of Spain, the Federal Republic of Germany, the Kingdom of the Netherlands and the Portuguese Republic — the cooperation mechanisms existing at EU level between the authorities of the Member States are sufficient to enable the Member State of origin to recover the tax debt in another Member State (see, to that effect, National Grid Indus , paragraph 78).
70. Article 4(1) of Directive 2008/55 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 the transfer of the residence of an individual to that Member State, in so far as the information is necessary to enable the Member State of origin to recover a tax debt which existed already at the time of that transfer.
71. Moreover, Directive 2008/55 — and, in particular, Articles 5 to 9 thereof — provides the authorities of the Member State of origin with a framework for cooperation and assistance under which provision is also made for the recognition of instruments and the adoption of precautionary measures, which enables them subsequently actually to recover the tax debt in the host Member State (see, to that effect, National Grid Indus , paragraph 78).
72. It should also be noted, in this connection, that it is possible that the instruments for cooperation referred to above may not always function in an efficient and satisfactory manner in practice. However, the Member States should not be able to rely on the possible difficulties in obtaining the information required or on the shortcomings of cooperation between their tax authorities in order to justify a restriction of the fundamental freedoms secured by the Treaty (see, to that effect, Case C-334/02 Commission  v France  [2004] ECR I-2229, paragraph 33).
75. It follows, consequently, from the foregoing that Article 14(3) of Law 35/2006, which obliges taxpayers who transfer their residence abroad to include any income not yet charged to tax in the tax base for the last tax year in which they were treated as resident taxpayers, is disproportionate.
76. As regards the purported justification for the legislation at issue relating to the public interest in preserving the balanced allocation between the Member States of powers of taxation, it should be recalled that this 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; Case C-414/06 Lidl Belgium  [2008] ECR I-3601, paragraph 31; and National Grid Indus , paragraph 45).
77. It is also settled case-law that, in the absence of any unifying or harmonising measures adopted by 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, and National Grid Indus , paragraph 45). Such a justification can be accepted where, inter alia, the rules at issue are intended to prevent behaviour capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried on in its territory (see, to that effect, inter alia, Marks & Spencer , paragraph 46; Rewe Zentralfinanz , paragraph 42; and National Grid Indus , paragraph 46).
78. In this connection the Court has also held, as regards the transfer of the place of effective management of a company from one Member State to another Member State, that that fact 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, and National Grid Indus , paragraph 46). Accordingly, the Court has 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, and National Grid Indus , paragraph 46).
84. Admittedly, the Court has accepted that the need to preserve the coherence of a tax system may justify legislation restricting fundamental freedoms (see, to that effect, inter alia, Case C-204/90 Bachmann  [1992] ECR I-249, paragraph 21; Case C-157/07 Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt  [2008] ECR I-8061, paragraph 43; and Commission  v Hungary , paragraph 70).
85. However, for an argument based on such a justification to succeed, a direct link must be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy (see, inter alia, Case C-319/02 Manninen  [2004] ECR I-7477, paragraph 42; Case C-524/04 Test Claimants in the Thin Cap Group Litigation  [2007] ECR I-2107, paragraph 68; and Commission  v Hungary , paragraph 72), the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question (see, inter alia, Manninen , paragraph 43).
87. Secondly, it should be pointed out that the Kingdom of Spain merely relies on the need to preserve the coherence of the tax system without establishing that there is a direct link in the national legislation at issue between, on one hand, the tax advantage represented by the possibility of charging income to a number of tax periods and, on the other, the offsetting of that advantage by some kind of tax charge.
91. As regards the alleged existence of a restriction of Article 18 EC, it cannot reasonably be denied that the exclusion of persons wishing to move within the European Union for reasons not connected with the pursuit of an economic activity from entitlement to the cash-flow advantage concerned may, in some cases, be likely to deter those persons from exercising the fundamental freedoms guaranteed by Article 18 EC.
92. However, the Court has held that such a restriction can be justified in the light of EU law if it is based on objective public interest considerations independent of the nationality of the persons concerned and if it is proportionate to the legitimate objective pursued by the provisions of national law (see Joined Cases C-11/06 and C-12/06 Morgan and Bucher  [2007] ECR I-9161, paragraph 33, and Commission  v Hungary , paragraph 88).
93. In that connection, it should be noted that the same conclusion as that reached in paragraphs 51 to 88 above as regards the existence of and justification for restrictions of Articles 39 EC and 43 EC applies, for the same reasons (see, to that effect, Case C-152/05 Commission  v Germany , paragraph 30; Commission  v Greece , paragraph 60, and Commission  v Hungary , paragraph 89).
The grounds of challenge alleging infringement of the EEA Agreement
95. First of all, it should be observed that those provisions of the EEA Agreement are analogous to Articles 39 EC and 43 EC, which means that the considerations set out in paragraphs 51 to 64 above as regards those provisions apply, in principle, also to the corresponding provisions of the EEA Agreement.
96. Nevertheless, it should be stated that, as regards the justification concerning the need to ensure effective recovery of the tax debt, the framework of cooperation between the competent authorities of the Member States established by Directives 76/308, 77/799 and 2008/55 does not exist between those authorities and the competent authorities of a non-Member State, where that non-Member State has not entered into any undertaking of mutual assistance (see, inter alia, Case C-267/09 Commission  v Portugal  [2011] ECR I-3197, paragraph 55).
98. In addition, the Commission, by merely describing in very general terms in its observations submitted in reply to the statements in intervention of the Federal Republic of Germany, the Kingdom of the Netherlands and the Portuguese Republic the conventions linking the Kingdom of Spain to the States party to the EEA Agreement which are not members of the European Union, did not show that those conventions actually make provision for mechanisms for the exchange of information which are sufficient for the purposes of checking and reviewing the tax returns submitted by the taxable persons residing in those States.