Commission of the European Communities v Italian Republic.
Date: 2009-11-19
17. It should be recalled in that regard that Article 38(1)(c) of the Rules of Procedure provides that any application initiating proceedings must contain, in particular, the subject-matter of the proceedings and a summary of the pleas in law on which it is based. It is therefore the task of the Commission, in any application made pursuant to Article 226 EC, to indicate the complaints being made in a sufficiently precise and coherent manner, so as to enable the Member State to prepare its defence and the Court to verify the existence of the failure to fulfil obligations which is being claimed (see, to that effect, Case C‑347/88 Commission v Greece  [1990] ECR I‑4747, paragraph 28; Case C‑98/04 Commission v United Kingdom  [2006] ECR I‑4003, paragraph 18).
28. As a preliminary observation, it should be noted that, although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence consistently with Community law (see, for example, Case C‑446/03 Marks & Spencer  [2005] ECR I‑10837, paragraph 29).
29. Thus, 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‑470/04 N  [2006] ECR I‑7409, paragraph 44).
30. Directive 90/435 seeks, by the introduction of a common system of taxation, to eliminate any disadvantage to cooperation between companies of different Member States as compared with cooperation between companies of the same Member State and thereby to facilitate the grouping together of companies at Community level (Case C‑446/04 Test Claimants in the FII Group Litigation  [2006] ECR I‑11753, paragraph 103).
31. For holdings not falling under Directive 90/435, it is for the Member States to determine whether, and to what extent, the economic double taxation of distributed benefits must be avoided, and to introduce, for that purpose, unilaterally or by means of conventions concluded with other Member States, mechanisms to prevent or attenuate that economic double taxation. However, that mere fact does not authorise them to apply measures contrary to the freedoms of movement guaranteed by the EC Treaty (see, to that effect, Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation  [2006] ECR I‑11673, paragraph 54).
36. In that respect, it is true that the Court has held that the possibility cannot be excluded that a Member State might succeed in ensuring compliance with its obligations under the Treaty by concluding a convention for the avoidance of double taxation with another Member State (see, to that effect, Test Claimants in Class IV of the ACT Group Litigation , paragraph 71, and Amurta , paragraph 79).
37. It is, however, necessary for that purpose that application of the double taxation convention allow the effects of the difference in treatment under national legislation to be compensated for. The difference in treatment between dividends distributed to companies established in other Member States and those distributed to resident companies does not totally disappear unless the tax withheld at source under national legislation can be set off against the tax due in the other Member State in the full amount of the difference in treatment arising under the national legislation.
38. In this case, such a set-off against the tax due in the other Member State of the tax withheld at source in Italy is not guaranteed by Italian legislation. Set-off presupposes, in particular, that dividends coming from Italy are sufficiently taxed in the other Member State. As the Advocate General has pointed out in paragraphs 58 and 59 of her Opinion, if those dividends are not taxed, or are not sufficiently taxed, the sum withheld at source in Italy or a part thereof cannot be set off. In that case, the difference in treatment arising from the application of national legislation cannot be compensated for by applying provisions of the double taxation convention.
39. The choice as to whether to tax income from Italy in the other Member State, or the level at which it is to be taxed, depends not on the Italian Republic but on the tax rules laid down by the other Member State. The Italian Republic is therefore wrong to argue that set-off of the tax withheld at source in Italy against the tax due in the other Member State, pursuant to the provisions of conventions for the avoidance of double taxation, allows in all cases for the difference in treatment arising from the application of national legislation to be compensated for.
43. In dismissing that argument, it is sufficient to point out that it amounts to comparing regimes and situations which are not comparable, namely, on the one hand, physical persons who receive dividends and their income tax regime, and on the other, capital companies receiving outgoing dividends and the withholding at source which is levied by the Italian Republic. It is irrelevant in that respect that, according to the Italian Republic, the Italian legislation is designed to correct a possible imbalance at the level of the taxation of physical persons who hold shares in the companies to which the dividends are paid.
49. The differences in treatment authorised by Article 58(1)(a) must thus be distinguished from the forms of discrimination prohibited by Article 58(3). The case-law shows that, for national tax legislation such as that at issue here to be capable of being regarded as compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest (Case C‑35/98 Verkooijen  [2000] ECR I‑4071, paragraph 43; Case C‑319/02 Manninen  [2004] ECR I‑7477, paragraph 29; and Case C‑512/03 Blanckaert  [2005] ECR I‑7685, paragraph 42).
51. The Court has already held that in the context of measures laid down by a Member State in order to prevent or mitigate the imposition of a series of charges to tax on, or the economic double taxation of, profits distributed by a resident company, resident shareholders receiving dividends are not necessarily in a situation which is comparable to that of shareholders receiving dividends who are resident in another Member State ( Denkavit Internationaal and Denkavit France , paragraph 34).
52. However, as soon as a Member State, either unilaterally or by way of a convention, imposes a charge to tax on the income, not only of resident shareholders, but also of non-resident shareholders, from dividends which they receive from a resident company, the situation of those non-resident shareholders becomes comparable to that of resident shareholders ( Test Claimants in Class IV of the ACT Group Litigation , paragraph 68; Denkavit Internationaal and Denkavit France , paragraph 35; and Amurta , paragraph 38).
53. It is solely because of the exercise by that State of its taxing powers that, irrespective of any taxation in another Member State, a risk of a series of charges to tax or economic double taxation may arise. In such a case, in order for non-resident companies receiving dividends not to be subject to a restriction on the free movement of capital prohibited, in principle, by Article 56 EC, the State in which the company making the distribution is resident is obliged to ensure that, under the procedures laid down by its national law in order to prevent or mitigate a series of liabilities to tax or economic double taxation, non-resident shareholder companies are subject to the same treatment as resident shareholder companies ( Test Claimants in Class IV of the ACT Group Litigation , paragraph 70; Amurta , paragraph 39).
55. In that respect, the Italian Republic maintains that the difference in treatment is justified by imperative reasons in the public interest relating to the coherence of the tax system, the maintenance of a balanced distribution of the power to tax and the fight against tax evasion, which are grounds that the Court has recognised as being capable of justifying such differences (see, to that effect, Marks & Spencer , paragraph 51; Case C‑414/06 Lidl Belgium  [2008] ECR I‑3601, paragraph 42; and, regarding justification based on coherence of the tax system, Case C‑204/90 Bachmann  [1992] ECR I-249, paragraph 28, and Case C‑524/04 Test Claimants in the Thin Cap Group Litigation  [2007] ECR I-2107, paragraph 68).
57. Concerning the justification based on the fight against tax evasion, it should be noted that a restriction on the free movement of capital is permissible on that ground only if it is appropriate to ensuring the attainment of the objective thus pursued and does not go beyond what is necessary to attain it ( Marks & Spencer , paragraph 35; Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas  [2006] ECR I‑7995, paragraph 47; and Test Claimants in the Thin Cap Group Litigation , paragraph 64).
58. Thus a justification based on the fight against tax evasion is permissible only if it concerns purely artificial contrivances, the aim of which is to circumvent tax law, so that any general presumption of evasion is excluded. Thus, a general presumption of tax avoidance or evasion is insufficient to justify a tax measure which adversely affects the objectives of the Treaty (see, to that effect, Case C‑478/98 Commission  v Belgium  [2000] ECR I‑7587, paragraph 45, and Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 50 and case-law cited).
59. In this case, all dividends distributed to companies established in other Member States are generally made subject to a less favourable tax regime. Such less favourable treatment cannot therefore be justified by reference to the fight against tax evasion.
60. Moreover, 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), as amended by Council Directive 92/12/EEC of 25 February 1992 (OJ 1992 L 76, p. 1; ‘Directive 77/799’), may be invoked by a Member State in order to obtain from the competent authorities of another Member State all the information necessary to enable it correctly to establish the amount of the taxes covered by that directive ( Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 71).
63. The interpretation which, in the exercise of its jurisdiction under Article 234 EC, the Court of Justice gives to a rule of Community law, illuminates and explains the significance and the scope of that rule, such as it must or should have been applied from the moment of its entry into force (see, to that effect, Case 61/79 Denkavit Italiana  [1980] ECR 1205, paragraph 16), unless the Court has limited for the past the possibility of invoking the provision thus interpreted (see, to that effect, Denkavit Italiana , paragraph 17).
65. One of the main objectives of the EEA Agreement is to realise as completely as possible the free movement of goods, persons, services and capital throughout the whole of the European Economic Area (EEA), so that the internal market realised in the territory of the Community is extended to the EFTA States. In that regard, many provisions of the said agreement are designed to ensure as uniform an interpretation as possible of the latter over the whole of the EEA (see Opinion 1/92 of 10 avril 1992, [1992] ECR I‑2821). It is for the Court in that context to ensure that the rules of the EEA Agreement which are identical in substance with those of the Treaty are interpreted in a uniform manner within the Member States (Case C‑452/01 Ospelt and Schlössle Weissenberg  [2003] ECR I‑9743, paragraph 29).
66. It follows that, if restrictions on the free movement of capital between nationals of States party to the EEA Agreement must be assessed in the light of Article 40 of and Annex XII to that Agreement, those stipulations have the same legal scope as those of the substantially identical provisions of Article 56 EC (Case C‑521/07 Commission  v Netherlands  [2009] ECR I-0000, paragraph 33).
69. As the Court has already held, the case-law concerning restrictions on the exercise of freedom of movement within the Community cannot be transposed in its entirety to movements of capital between Member States and non-member countries, since such movements take place in a different legal context (see, to that effect, Case C‑101/05 A  [2007] ECR I‑11531, paragraph 60).
70. In this case, it should first be noted that the framework of cooperation between the competent authorities of the Member States established by Directive 77/799 does not exist between the latter and the competent authorities of a non-member State when the latter has not entered into any undertaking of mutual assistance.