Staatssecretaris Van Financiën v. Verkooijen
(Case C-35/98)
Before the Court of Justice of the European
Communities
ECJ
(Presiding, RodrÍguez Iglesias P.; Moitinho de Almeida,
Sevón and Schintgen
PP.C., Kapteyn, Gulmann, Puissochet, Jann,
Ragnemalm, Wathelet ( Rapporteur)
and Macken JJ.) Antonio La Pergola, Advocate General.
6 June 2000
H1 Reference from the Netherlands by the Hoge Raad der Nederlanden
(Supreme
Court) under Article 177 (now Article 234 EC).
H2 Capital--taxation--Community law and national law--direct taxation of share
dividends--inclusion of dividends within taxable income of taxpayer who is a
natural person--tax exemption--limitation to shares in companies whose seat is
within national territory--Directive 88/361--receipt of dividends as a capital
movement--direct effect of directive--restrictive nature of criteria for exemption-objective justification--cohesion of tax system--requirement of direct link between
grant of tax advantage and offsetting of that advantage by fiscal levy relating to
same tax.
H3 In 1991, V resided in the Netherlands and was employed there by a Dutch
organisation which was indirectly controlled by a Belgian public limited liability
company. As part of an employees' savings plan, V acquired shares in the
Belgian company. In 1991, a dividend was distributed in respect of those shares
of about NLG 2,337. This was subject to a deduction at source of 25 per cent in
Belgium. V included the dividend as part of his taxable income in his Dutch tax
return for 1991. If he had been paid a dividend on shares in a Dutch company, V
would have been entitled to a tax exemption in relation to NLG 2,000 of the
dividend under Article 47b of the Income Tax Law. The Dutch company would,
however, have been obliged to pay a dividend tax. This dividend was a reduction
at source by way of income tax and applied in relation to dividends distributed to
natural persons. The tax exemption was in part intended to compensate for the
double taxation that would otherwise result, under the Dutch tax system, from
levying *1380 both corporation tax on profits accruing to companies, and tax on
the income of private shareholders imposed on the dividends distributed by those
companies. Because the dividend was from a Belgian company, the Dutch tax
authorities did not apply the dividend exemption in calculating V's liability to
income tax. V objected to this and brought proceedings before the national
courts, which held that the limitation of the dividend exemption to income from
shares from which Dutch dividend tax had been withheld was contrary to Articles
52 and 58 of the EC Treaty (now Article 48 EC) and to Directive 88/361
implementing Article 67 of the EC Treaty (now repealed by the Treaty of
Amsterdam). The State Secretary for Finance applied for review of the appeal
court judgment to the Dutch Supreme Court, which referred several questions of
interpretation to the European Court. According to Directive 88/361, Member
States were obliged to abolish restrictions on movements of capital taking place
between persons resident in Member States. Capital movements were classified
in accordance with a system of nomenclature in an annex to the Directive. The
capital movements listed in the annex included "participation in new or existing
undertaking with a view to establishing or maintaining lasting economic links" and
"acquisition by residents of foreign securities dealt in on a stock exchange".
Held:
Receipt of dividends on shares was a capital movement within the meaning
of Directive 88/361.
H4 (a) Although receipt of dividends was not expressly mentioned in the
nomenclature annexed to Directive 88/361 as "capital movements", it necessarily
presupposed participation in new or existing undertakings referred to in Heading
I(2) of the nomenclature. [28]
H5 (b) Where the company distributing dividends had its seat in a Member State
other than State in which the shareholder was resident and was quoted on the
stock exchange, receipt of dividends on shares in that company by the
shareholder might also be linked to "Acquisition by residents of foreign securities
dealt in on a stock exchange" as referred to in Heading III.A(2) of the
nomenclature annexed to Directive 88/361. [29]
Refusal of tax exemption was a restriction of the free movement of capital.
H6 Although direct taxation fell within the competence of the Member States,
they must none the less exercise that competence consistently with Community
law. Directive 88/361 brought about complete liberalisation of capital movements
and to that end Article 1(1) thereof required the Member States to abolish all
restrictions on such movements. That provision had direct effect. [32]-[33]
Wielockx v. Inspecteur der Directe Belastingen (C-80/94): [1995] E.C.R. I-2493;
[1995] 3 C.M.L.R. 85; Imperial Chemical Industries Plc (ICI) v. Colmer (C264/96): [1998] E.C.R. I-4695; [1998] 3 C.M.L.R. 293; *1381 Royal Bank of
Scotland Plc v. Greece (C-311/97): [1999] E.C.R. I-2651; [1999] 2 C.M.L.R. 973;
Criminal Proceedings against Bordessa and Others (C 358 & 416/93): [1995]
E.C.R. I-361; [1996] 2 C.M.L.R. 13, followed.
H7 (b) A legislative provision that only allowed exemption from dividend tax in the
case of dividends distributed by companies established in the State of taxation
had the effect of dissuading nationals of a Member State residing in the State of
taxation from investing their capital in companies with their seat in another
Member State. Such a provision also had a restrictive effect as regards
companies established in other Member States: it constituted an obstacle to the
raising of capital in the State of taxation, since the dividends which such
companies paid to residents of the State received less favourable tax treatment
than dividends distributed by a company established in that State, so that their
shares were less attractive to investors residing in the State of taxation than
shares in companies which had their seat in that Member State. [34]-[35]
H8 (c) It was therefore a restriction on capital movements prohibited by Article 1
of Directive 88/361 to make the grant of a tax advantage, such as the dividend
exemption, relating to taxation of the income of natural persons who were
shareholders, subject to the condition of dividends being paid by companies
established within national territory. [36]
H9 (d) It was true that Article 73d(1)(a) of the EC Treaty (now Article 58 EC)
granted to the Member States the possibility of applying the provisions of their
tax legislation which distinguished between taxpayers according to their place of
residence or the place where their capital was invested. However, such
provisions were anyway compatible with Community law in so far as they
established certain distinctions based, in particular, on the residence of
taxpayers, provided that they applied to situations which were not objectively
comparable or could be justified by overriding reasons in the general interests, in
particular, in relation to the cohesion of the tax system. [43]
Finanzamt Köln-Altstadt v. Schumacker (C-279/93): [1995] E.C.R. I-225; [1996] 2
C.M.L.R. 450; Bachman v. Belgium (C-204/90): [1992] E.C.R. I-249; [1993] 1
C.M.L.R. 785; EC Commission v. Belgium (C-300/90): [1992] E.C.R. I-305;
[1993] 1 C.M.L.R. 785, followed.
Restriction not objectively justified.
H10 (a) Aims of a purely economic nature could not constitute an overriding
reason in the general interest justifying a restriction of a fundamental freedom
guaranteed by the Treaty. [48]
Decker v. Caisse de Maladie des Employés Privés (C-120/95): [1998] E.C.R. I1831; [1998] 2 C.M.L.R. 879; Kohll v. Union des Caisses de Maladie (C-158/96):
[1998] E.C.R. I-1931; [1998] 2 C.M.L.R. 928, followed. *1382
H11 (b) Although the Court had held that the need to ensure the cohesion of a
tax system might justify rules liable to restrict fundamental freedoms, that was in
cases in which a direct link existed, in the case of one and the same taxpayer,
between the grant of a tax advantage and the offsetting of that advantage by a
fiscal levy, both of which related to the same tax. No such direct link existed
between the grant to shareholders residing in the State of taxation of income tax
exemption in respect of dividends received and taxation of the profits of
companies with their seat in another Member State. They were two separate
taxes levied on different taxpayers. [56]-[58]
Bachman v. Belgium (C-204/90): supra; EC Commission v. Belgium (C-300/90);
supra, followed.
H12 (c) Avoidance of a reduction in tax revenue could not be regarded as an
overriding reason in the public interest which might be relied on to justify a
measure which was in principle contrary to a fundamental freedom. [59]
Imperial Chemical Industries Plc (ICI) v. Colmer (C-264/96): supra, followed.
H13 (d) Unfavourable tax treatment contrary to a fundamental freedom could not
be justified by the existence of other tax advantages. [61]
EC Commission v. France (270/83): [1986] E.C.R. 273; [1987] 1 C.M.L.R. 410;
Asscher v. Staatssecretaris Van Financiën (C-107/94): [1996] E.C.R. I-3089;
[1996] 3 C.M.L.R. 61; Compagnie de Saint-Gobin Zn v. Finanzamt AachenInnenstadt (C-307/97): [1999] E.C.R. I-6161; [2001] 3 C.M.L.R. 34; Eurowings
Luftverkehrs AG v. Finanzamt Dortmund-Unna (C-294/97): [1999] E.C.R. I-7447;
[2001] 3 C.M.L.R. 64, followed.
H14 (e) Article 1(1) of Directive 88/361 therefore rendered unlawful a legislative
provision of a Member State which made the grant of exemption from income tax
payable on dividends distributed to natural persons subject to the condition that
those dividends were paid by a company whose seat was in that Member State.
[62]
Relevance of taxpayer's status.
H15 The position was not in any way changed by the fact that the taxpayer
applying for such a tax exemption was an ordinary shareholder or an employee
who held shares giving rise to the payment of dividends under an employees'
savings plan. [66]-[67]
H16 Representation
F. E. Dekker, tax adviser, for Mr Verkooijen.
J. G. Lammers, Acting Legal Adviser, acting as Agent, for the Dutch
Government.
G. De Bellis, Avvocato dello Stato, for the Italian Government.
J. E. Collins, Assistant Treasury Solicitor, acting as Agent, and R. Singh,
Barrister, for the UK Government. *1383
E. Mennens, Principal Legal Adviser, and H. Michard, of its Legal Service, acting
as Agents, for the EC Commission.
H17 Cases referred to in the judgment:
1. Wielockx v Inspecteur der Directe Belastingen (C-80/94), 11 August 1995:
[1995] E.C.R. I-2493; [1995] 3 C.M.L.R. 85.
2. Imperial Chemical Industries Plc (ICI) v. Colmer (C-264/96), 16 July 1998:
[1998] E.C.R. I-4695; [1998] 3 C.M.L.R. 293.
3. Royal Bank of Scotland Plc v. Greece (C-311/97), 29 April 1999: [1999] E.C.R.
I-2651; [1999] 2 C.M.L.R. 973.
4. Criminal Proceedings against Bordessa and Others (C 358 & 416/93), 23
February 1995: [1995] E.C.R. I-361; [1996] 2 C.M.L.R. 13.
5. Finanzamt Köln-Altstadt v. Schumacker (C-279/93), 14 February 1995: [1995]
E.C.R. I-225; [1996] 2 C.M.L.R. 450.
6. Bachman v. Belgium (C-204/90), 28 January 1992: [1992] E.C.R. I-249; [1993]
1 C.M.L.R. 785.
7. EC Commission v. Belgium (C-300/90), 28 January 1982: [1992] E.C.R. I-305;
[1993] 1 C.M.L.R. 785.
8. Decker v. Caisse de Maladie des Employés Privés (C-120/95), 28 April 1998:
[1998] E.C.R. I-1831; [1998] 2 C.M.L.R. 879.
9. Kohll v. Union des Caisses de Maladie (C-158/96), 28 April 1998: [1998]
E.C.R. I-1931; [1998] 2 C.M.L.R. 928.
10. EC Commission v. France (270/83), 28 January 1986: [1986] E.C.R. 273;
[1987] 1 C.M.L.R. 401.
11. Asscher v. Staatssecretaris Van Financiën (C-107/94), 27 June 1996: [1996]
E.C.R. I-3089; [1996] 3 C.M.L.R. 61.
12. Compagnie de Saint-Gobin Zn v. Finanzamt Aachen-Innenstadt (C-307/97),
21 September 1999: [1999] E.C.R. I-6161; [2001] 3 C.M.L.R. 34.
13. Eurowings Luftverkehrs AG v. Finanzamt Dortmund-Unna (C-294/97), 26
October 1999: [1999] E.C.R. I-7447; [2001] 3 C.M.L.R. 64.
H18 Further cases referred to by the Advocate General:
14. Metallgesellschaft Ltd and Others v. Commissioners of Inland Revenue and
Another (C 397 & 410/98), 8 March 2001: [2001] E.C.R. 1727; [2001] 2 C.M.L.R.
32.
15. EC Commission v. United Kingdom (C-246/89), 4 October 1991: [1991]
E.C.R. I-4585; [1989] 3 C.M.L.R. 601.
16. Futura Participations SA and Singer v. Administration des Contributions (C250/95), 15 May 1997: [1997] E.C.R. I-2471; [1997] 3 C.M.L.R. 483.
17. Safir v. Skattemyndigheten I Dalarnas Län (Skattemyndigheten I
Kopparbergs Län) (C-118/96), 28 April 1998: [1998] E.C.R. I-1897; [1998] 3
C.M.L.R. 739.
18. Luisi and Carbone v. Ministero de Tesoro (286/82 & 26/83), 31 January 1984:
[1984] E.C.R. 377; [1985] 3 C.M.L.R. 52. *1384
19. Vereniging Veronica Omroep Organasitie v. Commissariaat voor de Media
(C-148/91), 3 February 1993: [1993] E.C.R. I-487.
20. Office National des Pensions pour Travailleurs Salariés v. Damiani (53/79),
14 February 1980: [1980] E.C.R. 273, [1980] 1 C.M.L.R. 548.
21. Peureux v. Services Fiscaux de la Haute-Saône et du Territoire de Belfort
(86/78), 13 March 1979: [1979] E.C.R. 897; [1980] 3 C.M.L.R. 337.
22. Enderby v. Frenchay Health Authority and Another (C-127/92), 27 October
1993: [1993] E.C.R. I-5535; [1994] 1 C.M.L.R. 8.
23. Aprile Srl (In Liquidation) v. Amministrazione delle Finanze dello Stato (C125/94), 5 October 1995: [1995] E.C.R. I-2919.
24. Radio Televisive Italiane SpA (Rti) and Others v. Ministero delle Poste E
Telecomunicazioni and Others (C 320, 328-329 & 337-339/94), 12 December
1996: [1996] E.C.R. I-6471; [1997] 1 C.M.L.R. 346.
25. Trummer and Mayer (C-222/97), 16 March 1999: [1999] E.C.R. I-1661;
[2000] 3 C.M.L.R. 1143.
26. Brugnoni and Another v. Cassa di Risparmio di Genova E Imperia (157/85),
24 June 1986: [1986] E.C.R. 2013; [1988] 1 C.M.L.R. 440.
27. Svensson and Another v. Ministre du Logement et de l'Urbanisme (C484/93), 14 November 1995: [1995] E.C.R. I-3955.
28. Procureur du Roi v. Dassonville (8/74), 11 July 1974: [1974] E.C.R. 837;
[1974] 2 C.M.L.R. 436.
29. EC Commission v. France (18/84), 7 May 1985: [1985] E.C.R. 1339; [1986] 1
C.M.L.R. 605.
30. ED Srl v. Fenocchio (C-412/97), 22 June 1999: [1999] E.C.R. I-3485; [2000]
3 C.M.L.R. 855.
31. Criminal Proceedings against Ambry (C-410/96), 1 December 1998: [1998]
E.C.R. I-7875; [2001] 1 C.M.L.R. 646.
32. Kraus v. Land Baden-Württemberg (C-19/92), 31 March 1993: [1993] E.C.R.
I-1663.
33. Gebhard v. Consiglio Dell'Ordine degli Avvocati E Procuratori di Milano (C55/94), 30 November 1995: [1995] E.C.R. I-4165; [1996] 1 C.M.L.R. 603.
34. EC Commission v. Italy (103/84), 5 June 1986: [1986] E.C.R. 1759; [1987] 2
C.M.L.R. 825.
35. Criminal Proceedings against Van de Haar and Another (177 & 178/82), 5
April 1984: [1984] E.C.R. 1797; [1985] 2 C.M.L.R. 57.
36. Säger v. Dennemeyer and Co. Ltd (C-76/90), 25 July 1991: [1991] E.C.R. I4221; [1993] 3 C.M.L.R. 639. *1385
37. HM Customs and Excise v. Schindler and Others (C-275/92), 24 March 1994:
[1994] E.C.R. I-1039; [1995] 1 C.M.L.R. 4.
38. Corsica Ferries France v. Direction Générale des Douanes Françaises (C49/89), 13 December 1989: [1989] E.C.R. 4441; [1991] 1 C.M.L.R. 351.
39. Stichting Collectieve Antennevoorziening Gouda v. Commissariaat voor de
Media (C-288/89), 25 July 1991: [1991] E.C.R. I-4007.
40. EC Commission v. Netherlands (C-353/89), 25 July 1991: [1991] E.C.R. I4069.
41. Bond Van Adverteerders v. Netherlands (352/85), 26 April 1988: [1988]
E.C.R. 2085; [1989] 3 C.M.L.R. 113.
42. EC Commission v. France (216/84), 23 February 1988: [1988] E.C.R. 793.
43. Syndesmos ton en Elladi Touristikion Kai Taxidiotikon Graefeion (Settg) v.
Ypourgo Ergasias (C-398/95), 5 June 1997: [1997] E.C.R. I-3901; [1998] 1
C.M.L.R. 420.
44. EC Commission v. Denmark (C-243/89), 22 June 1993: [1993] E.C.R. I-3353.
45. Humblot v. Directeur des Services Fiscaux (C-112/84), 9 May 1985: [1985]
E.C.R. 1367; [1986] 2 C.M.L.R. 338.
46. EC Commission v. Greece (C-132/88), 5 April 1990: [1990] E.C.R. I-1567;
[1991] 3 C.M.L.R. 1.
47. Casarin v. Directeur Général des Impôts (113/94), 30 November 1995: [1995]
E.C.R. I-4203.
48. R. v. Inland Revenue Commissioners, Ex parte Commerzbank AG (C330/91), 13 July 1993: [1993] E.C.R. I-4017; [1993] 3 C.M.L.R. 457.
49. Johnston v. Chief Constable of the Royal Ulster Constabulary (222/84), 15
May 1986: [1986] E.C.R. 1651; [1986] 3 C.M.L.R. 240.
50. EC Commission v. Greece (305/87), 30 May 1989: [1989] E.C.R. 1461;
[1991] 1 C.M.L.R. 611.
51. Corsica Ferries Italia Srl v. Corpo dei Piloti del Porto di Genova (C-18/93), 17
May 1994: [1994] E.C.R. I-1783.
52. Halliburton Services BV v. Staatssecretaris Van Financiën (C-1/93), 12 April
1994: [1994] E.C.R. I-1137; [1994] 3 C.M.L.R. 377.
53. Criminal Proceedings against Skanavi and Another (C-193/94), 29 February
1996: [1996] E.C.R. I-929; [1996] 2 C.M.L.R. 372.
54. EC Commission v. France (C-334/94), 7 March 1996: [1996] E.C.R. I-1307;
[1997] 4 C.M.L.R. 662.
55. Centros Ltd v. Erhvervs- og Selskabsstyrelsen (C-212/97), 9 March 1999:
[1999] E.C.R. I-1459; [1999] 2 C.M.L.R. 551.
56. Ramrath v. Ministre de la Justice and Another (C-106/91), 20 May 1992:
[1992] E.C.R. I-3351; [1995] 2 C.M.L.R. 187. *1386
57. Institut National d'Assurances Sociales pour Travailleurs Independants
(INASTI) v. Kemmler (C-53/95), 15 February 1996: [1996] E.C.R. I-703.
58. R. v. HM Treasury and Commissioners of Inland Revenue, Ex parte Daily
Mail & General Trust Plc (81/87), 27 September 1988: [1988] E.C.R. 5483;
[1988] 3 C.M.L.R. 713.
59. Naranjo Arjona and Others v. Instituto Nacional de la Seguridad Social (Inss)
and Others (C 31-33/96), 9 October 1997: [1997] E.C.R. I-5501.
60. Gilly v. Directeur des Services Fiscaux du Bas-Rhin (C-336/96), 12 May
1998: [1998] E.C.R. I-2793; [1998] 3 C.M.L.R. 607.
61. Werner v. Finanzamt Aachen-Innenstadt (C-112/91), 26 January 1993:
[1993] E.C.R. I-429.
62. Skatteministeriet v. Vestergaard (C-55/98), 28 October 1999: [1999] E.C.R. I7641; [2001] 3 C.M.L.R. 65.
First Opinion of Advocate General La Pergola (delivered on 24 June 1999)
Subject-matter of the questions referred for a preliminary ruling
A1 The three questions referred to the Court for a preliminary ruling in the
present case concern the interpretation of Directive 88/361 [FN1] and of Articles
6 and 52 of the EC Treaty (now, after amendment by the Treaty of Amsterdam,
Articles 12 EC and 43 EC respectively). In particular, the Hoge Raad der
Nederlanden (Supreme Court of the Netherlands; hereinafter "the Hoge Raad") is
asking the Court to determine whether a tax provision making the grant of an
exemption (up to a certain amount) from income tax to natural persons in respect
of dividends distributed to shareholders subject to the condition that those
dividends are paid by a company whose seat is in the Member State where the
taxpayer is resident is compatible with the rules guaranteeing free movement of
capital, non-discrimination on the ground of nationality and freedom of
establishment. The questions referred by the national court are the following:
(1) Is Article 1(1) of Directive 88/361 in conjunction with Heading I(2) in Annex I
to that directive to be interpreted as meaning that a restriction arising from a
provision of the income tax legislation of a Member State which exempts
shareholders, up to a certain amount, from liability to income tax on dividends,
but restricts that exemption to dividends paid in respect of shares in companies
established in that *1387 Member State, has been prohibited since 1 July 1990
pursuant to Article 6(1) of that Directive?
FN1 Council Directive 88/361 for the implementation of Article 67 of the Treaty
(1988 O.J. L178; hereinafter: "the Directive"). When the Treaty of Amsterdam
came into force on 1 May 1999, Article 67 of the EC Treaty was repealed and
Chapter 4 of Title III of Part Three of the EC Treaty on the movement of capital
(which had been entirely revised following the insertion of Articles 73a to 73h by
the Treaty on European Union, which entered into force on 1 January 1994
pursuant to Article 73a) was entirely re-numbered (now Articles 56 EC to 70 EC
given that Articles 73a, 73e and 73h were repealed).
(2) If the answer to Question 1 is in the negative, are Articles 6 and/or 52 of the
EC Treaty to be interpreted as meaning that a restriction of the kind referred to in
that question is incompatible with one or both of those Articles?
(3) Do the answers to the questions set out above differ depending on whether
the person seeking the benefit of such an exemption is an ordinary shareholder
or an employee (of a subsidiary company) who holds the shares in question in
the context of an employees' savings plan ("werknemersspaarplan")?
The relevant Community legislation
A2 Article 1(1) of the Directive provides that:
[w]ithout prejudice to the following provisions, Member States shall abolish
restrictions on movements of capital taking place between persons resident in
Member States. To facilitate application of this Directive, capital movements shall
be classified in accordance with the Nomenclature in Annex I. [FN2]
FN2 Since the Directive was adopted "for the implementation of Article 67 of the
Treaty", it is worthwhile recalling that paragraph 1 of that article (abolished by the
Treaty of Amsterdam, see fn. 1) provided that: "[d]uring the transitional period
and to the extent necessary to ensure the proper functioning of the common
market, Member States shall progressively abolish between themselves all
restrictions on the movement of capital belonging to persons resident in Member
States and any discrimination based on the nationality or on the place of
residence of the parties or on the place where such capital is invested".
Heading I(2) of Annex I, entitled "Nomenclature of the capital movements
referred to in Article 1 of the Directive" (hereinafter "the Nomenclature"),
specifies, amongst "direct investments", "participation in new or existing
undertakings with a view to establishing or maintaining lasting economic links".
Pursuant to Article 6(1), the Directive entered into force on 1 July 1990. Lastly, I
would recall that Article 6 of the Treaty lays down a general prohibition on
discrimination on grounds of nationality, whereas Article 52 of the Treaty, in
conjunction with Article 58 of the EC Treaty (now Article 48 EC) guarantees
freedom of establishment for companies or firms, ensuring them the benefit of
"national treatment", in other words the application by the host Member State of
the legislation in force for its own nationals.
The national legislative framework
A3 It appears from the case file that under Article 47b of the Wet op de
Inkomstenbelasting 1964 ("the Income Tax Law") [FN3] natural persons *1388
are exempted, up to a specified amount, from income tax on dividends in respect
of shares. [FN4] Article 47b(1) provides that: "[t]he dividend exemption shall
apply to income from shares in companies treated as income for the purpose of
determining aggregate income from which a deduction for dividend tax has been
made ...". [FN5] Pursuant to Article 1(1) of the Wet op de Dividendbeslasting
1965 [FN6] ("the Dividend Tax law"), the tax is charged, by deduction at source,
only on dividends distributed by companies established in the Netherlands.
Accordingly, the exemption provided for under Article 47b applies only to
dividends distributed by companies established in the Netherlands. There is no
indication whatsoever in the case file that the sum paid by way of dividend tax is
deductible when income tax is assessed. The provision at issue does not
distinguish between ordinary shareholders and shareholders who are employees
of the company and acquired the shares in respect of which the dividend is paid
in the context of an employees' savings plan.
FN3 Hereinafter "Article 47b" or "the provision at issue"; that Article was
introduced by the Wet van 24 juni 1981 tot invoering van een voorraad-aftrek en
vermogensaftrek in de inkomstenbelasting en de vennootschapsbelasting
alsmede invoering van een beperkte rentevrijstelling en een beperkte
dividenvrijstelling in de inkomstenbelasting (Law of 24 June 1981 on the
introduction of a deduction in respect of stocks and of a deduction in respect of
capital on income tax and on company tax as well as a partial interest exemption
and a partial dividend exemption from income tax; Staatsblad 387).
FN4 In the version in force before 1997, at the time of the facts in the main
proceedings.
FN5 The italics are mine.
FN6 Staatsblad 621.
A4 It appears from the preparatory work for the introduction of Article 47b into the
Dutch legal system that that article was part of a series of measures which were
"intended to raise the level of undertakings' equity capital and to stimulate
interest on the part of private individuals in Dutch shares. [FN7] A second
justification came to light only at the last stage of the preparatory work, when the
draft legislation was before the first chamber of Parliament (Eerste Kamer): the
"compensating" effect of the dividend exemption in respect of what essentially
constitutes double taxation was also taken into consideration. As I have just
pointed out, the Dutch tax system provides for both a withholding tax on
dividends and a tax on the income of natural persons in receipt of those
dividends. [FN8]
FN7 Parliamentary documents II, 1980-1981, 16539, p. 10, paragraph 1. The
legislative history shows, in particular, that the second chamber of Parliament
(Tweede Kamer) took into consideration the fact that the "exemption in respect of
dividends makes it more attractive to invest in Dutch stock. As a result of this
measure in particular, the (share) issuing possibilities of Dutch companies will
increase. Thanks to the exemption in respect of dividends, this measure will,
moreover, deter investors from turning away from shares or not investing in
shares".
FN8 In this regard, the Dutch Staatssecretaris van Financiën had occasion to
observe that "the exemption in respect of dividends functions, for the benefit of
small investors in particular, as a measure compensating for double taxation"
(parliamentary documents I, 1981, 16539, No. 3, p. 5, last sentence). The
solution, consisting in a partial exemption from income tax, adopted by the
Netherlands for resolving the economic effects of double taxation is just one of
the methods applied in practice by the various tax systems for resolving the
same problem. There are two general categories of such methods, depending on
the tax (or the tax "bracket") against which the "compensation" is applied:
corporation tax or the deduction at source which affects the dividends and
income tax payable by shareholders on the dividends concerned. In the United
Kingdom, for example, British taxpayers are granted--under certain conditions-tax credits in connection with dividends received from companies established in
the same Member State (see Joined Cases C 397 & 410/98, Metallgesellschaft
Ltd and Others v. Commissioners of Inland Revenue and Another: [2001] E.C.R.
1727; [2001] 2 C.M.L.R. 32 *1389 ). For a summary of the solutions adopted for
mitigating the effects of double taxation and an examination of the issues
involved, see S.-O. Lodin, The imputation systems and cross-border dividends-the need for new solutions, in EC Tax Review, 1998, p. 229, and K. Ståhl,
Dividend taxation in a free capital market, in EC Tax Review, 1997, p. 227.
The facts and the main proceedings
A5 In 1991, Mr Verkooijen resided in the Netherlands where he was employed by
Fina Nederland BV, a Dutch company indirectly controlled by Petrofina NV
(hereinafter "Petrofina"), a public limited liability company established in Belgium
and quoted on the Brussels and Antwerp stock exchanges. Mr Verkooijen
acquired shares in the Petrofina group in the context of a company savings plan
open to all employees of that group. In 1991, those shares yielded dividends in
the sum of approximately NLG 2,337. [FN9] It appears from the case file that
those dividends were subject in Belgium to a deduction at source, but that no
taxes were levied in the Netherlands other than, as we will see below, that
assessed against Mr Verkooijen himself. Mr Verkooijen had included the
dividends in question in his statement of income for the 1991 tax year. In
assessing Mr Verkooijen's income tax, the tax office assessed his taxable income
without applying the exemption under Article 47b in respect of the dividends paid
by Petrofina. The tax authorities considered that Mr Verkooijen was not entitled
to the benefit of that exemption inasmuch as it relates only to share dividends in
respect of which the (Dutch) dividend tax has already been levied. In substance,
instead of assessing Mr Verkooijen on the basis of a taxable income of NLG
164,697, the tax authorities raised that amount to NLG 166,697. [FN10]
FN9 Equivalent to approximately 1,060 euros.
FN10 For married persons like Mr Verkooijen, the exemption in question is
limited to an amount of NLG 2,000 (about 910 euros) in taxable income.
Originally, the exemption in respect of dividends applied to an amount of NLG
500 (about 227 euros); by law of 6 September 1985 (Staatsblad 504) that
amount was increased to NLG 1,000 (about 454 euros), or to NLG 2,000 in the
case of married couples taxed jointly.
A6 After unsuccessfully objecting to the assessment, Mr Verkooijen challenged
before the Gerechtshof te 's-Gravenhage the tax authorities' decision confirming
that assessment. By judgment of 10 April 1996, the Gerechtshof found in favour
of Mr Verkooijen, reducing his taxable income by the sum of NLG 2,000 on the
ground that the Dutch tax legislation restricted the movement of capital and
freedom of establishment. The Staatssecretaris van Financiën [FN11] applied for
review of the judgment of the Gerechtshof to the Hoge Raad which referred the
abovementioned questions to the Court for a preliminary ruling. I shall examine
the substance of those questions by reference to the national legal framework
outlined above. Where necessary, I will set out the arguments put forward in
these proceedings by the defendant and by the governments of the Member
States which have submitted observations in this case.
FN11 The State Secretary for Finance (hereinafter "the State Secretary").
*1390 The substance
Question 1
A7 By its first question, the national court is essentially asking whether a national
provision which partially exempts natural persons from income tax on share
dividends provided the dividends are paid in respect of a company established in
the Member State concerned is compatible with the Directive.
(1) The Community legal order and direct taxation
A8 Contrary to the position adopted by Mr Verkooijen, the UK Government and
the Commission, the Italian Government submits by way of introduction that the
provision in question does not restrict free movement of capital since direct
taxation has not been harmonised at Community level: therefore, each Member
State is free to determine its own arrangements for taxing income. I cannot share
that view. The Court has consistently held that "although direct taxation falls
within their competence, the Member States must none the less exercise that
competence consistently with Community law". [FN12]
FN12 Case C-246/89, EC Commission v. United Kingdom: [1991] E.C.R. I-4585;
[1989] 3 C.M.L.R. 601, para. [12]; Case C-279/93, Finanzamt Köln-Altstadt v.
Schumacker: [1995] E.C.R. I-225; [1995] 2 C.M.L.R. 450, para. [21]; Case C80/94, Wielockx v. Inspecteur der Directe Belastingen [1995] E.C.R. I-2493;
[1995] 3 C.M.L.R. 85, para. [16]; Case C-107/94, Asscher v. Staatssecretaris
Van Financiën: [1996] E.C.R. I-3089; [1996] 3 C.M.L.R. 61, para. [36]; Case C250/95, Futura Participations SA and Singer v. Administration des Contributions:
[1997] E.C.R. I-2471: [1997] 3 C.M.L.R. 483, para. [19]; Case C-118/96, Safir v.
Skattemyndigheten I Dalarnas Län: [1998] E.C.R. I-1897; [1998] 3 C.M.L.R. 739,
para. [21]; see also Case C-264/96, Imperial Chemical Industries Plc (ICI) v.
Colmer: [1998] E.C.R. I-4695; [1998] 3 C.M.L.R. 293, para. [19]; and Case C311/97, Royal Bank of Scotland Plc v. Greece [1999] E.C.R. I-2651; [1999] 2
C.M.L.R. 973, para. [19].
A9 Following essentially the same argument as the Italian Government, the
Dutch Government points out that, in 1975, the Commission had submitted a
proposal for a Council directive concerning the harmonisation of systems of
company taxation and of withholding taxes on dividends [FN13] only to withdraw
it in 1990. [FN14] The Commission justified the withdrawal of that proposal on the
ground that the measures it proposed were outdated both in terms of general
concept [FN15] and of specific detail. [FN16] Unlike the Dutch Government, I
believe that the very existence of that proposal and the concerns reiterated by
the Commission when it was withdrawn in 1990 show the significance at *1391
Community level of the effects of direct taxation of the movement of capital. It is
not by chance that, in withdrawing the proposal, the Commission acknowledged
the need for the Council to adopt without delay two proposals for directives
(already before it for examination) designed to harmonise certain aspects of the
national taxation systems. [FN17]
FN13 [1975] O.J. C253/2 (hereinafter "the proposal").
FN14 See Notice of the Commission to the Parliament and the Council,
document SEC(90) 601 final of 20 April-18 May 1990 (hereinafter "the Notice").
FN15 Namely, a centralised concept of fiscal harmonisation and of economic and
monetary union, rather than an approach emphasising the co-ordination and
approximation of national policies, taking into account also the principle of
subsidiarity (see the Notice, p. 10).
FN16 The 1975 proposal, which the Council and the European Parliament had
not debated further, no longer satisfied the requirements of the Community in the
nineties (ibidem).
FN17 Those proposals are not Council Directives 90/434 on the common system
of taxation application to mergers, divisions, transfers of assets and exchanges
of shares concerning companies of different Member States ([1990] O.J. L225/1)
and 90/435 on the common system of taxation applicable in the case of parent
companies and subsidiaries of different Member States ([1990] O.J. L255/6); see
the Notice, p. 13.
A10 According to the Dutch Government, it is, moreover, legitimate for Member
States to regard provisions such as those at issue as compatible with Article 1(1)
of the Directive. When the Directive came into force, the Commission did not
warn the Dutch Government that the provision is at issue might be inconsistent
with Community law. That is all the more significant because the Netherlands is
not the only Member State to provide in its tax system for a mechanism
mitigating the effects of double taxation, which is limited to "internal relationships"
in order to encourage investment in national securities. [FN18] However, that
observation of the Netherlands is irrelevant in the context of proceedings brought
before the Court pursuant to sub-paragraph (a) of the first paragraph of Article
177 of the EC Treaty (now sub-paragraph (a) of the first paragraph of Article 234
EC) which relates exclusively to the interpretation of Community law. Decisions
handed down by the Court pursuant to Article 177 of the Treaty are based on an
"objective" jurisdiction and it is not necessary to take into consideration the
subjective circumstances (for example, good faith) of the subject required to
apply the rule to be interpreted. The subjective element can, if need be, enter into
account in proceedings brought before the Court for non-compliance with the
Treaty or secondary legislation. [FN19]
FN18 See to that effect D. Servais, Un espace financier européen, Office for
Official Publications of the European Communities, Luxembourg, 1995, 3rd
Edition, p. 57, point 3.1.3.; see also Lodin, cited above, and Ståhl, cited above.
FN19 See Case 26/69, EC Commission v. France [1970] E.C.R. 565, in which
the Court rejected as not sufficiently well-founded the Commission's infringement
claim in proceedings under Article 169 of the EC Treaty (now Article 226 EC),
holding that the error on the part of the Member State concerned was excusable
in view of the "equivocal nature" of the legal situation (paragraph 32).
(2) Does the possible restriction concern the movement of capital?
A11 Referring to the rule in Case 204/90, Bachmann v. Belgium, [FN20] the UK
and French Governments argue that Article 67 of the Treaty is not relevant since
it is secondary to the provisions guaranteeing other fundamental freedoms. In
Bachmann, the Court stated that "Article 67 does not prohibit restrictions which
do not relate to the movement of capital but which result indirectly from
restrictions on other *1392 fundamental freedoms". [FN21] In other words, Article
67 comes into play only where a transfer of assets does not constitute a payment
connected with trade in goods or services. [FN22] However, the Governments
which have submitted observations in this case have not indicated which other
fundamental freedoms are more directly restricted by the provision at issue. That
aside, reasoning in accordance with the aforecited case law, I believe that this is
clearly a case where Article 67 is not of a residual nature. In acquiring the
Petrofina shares, [FN23] Mr Verkooijen certainly did not effect a payment in
consideration for a service. It was a genuine financial transaction undertaken for
the purpose of investing a specific sum in the shares of a company established in
another Member State: namely, a genuine cross-border movement of capital. In
Case C-148/91, Vereniging Veronica Omroep Organisatie v. Commissariaat voor
de Media, [FN24] where the national measure at issue restricted the
participation, permitted under national legislation, by a broadcasting station in the
capital of another broadcasting station established, or to be established, in
another Member State, the Court considered as already decided the question
whether the purchase of such participations constituted a movement of capital
within the meaning of Article 67 and proceeded directly to examining the merits.
The Court thus clearly established the relevance of that article for the purposes
of the case before it. In any event, in the present case, it is for the national court
to assess the relevance of the question referred for a preliminary ruling in
connection with capital movements. [FN25]
FN20 [1992] E.C.R. I-249; [1993] 1 C.M.L.R. 785.
FN21 Paragraph 34 of the judgment (the italics are mine).
FN22 See Joined Cases C 358 & 416/93, Criminal Proceedings against
Bordessa and Others: [1995] E.C.R. I-361; [1996] 2 C.M.L.R. 13, paras [13] &
[14]. Also see Joined Cases 286/82 & 26/83, Luisi and Carbone v. Ministero de
Tesoro: [1984] E.C.R. 377; [1985] 3 C.M.L.R. 52 in which the Court held in
interpreting Article 67 that "movements of capital are financial operations
essentially concerned with the investment of the funds in question rather than
remuneration for a service" (para. [21]). Concerning the notion of subsidiarity
under Article 67 as applied in the case law of the Court, see the opinion of
Advocate General Tesauro in Safir (paras 9-18).
FN23 This transaction constitutes the very premise for the receipt by Mr
Verkooijen of the dividends at issue here (on this point, see point 13 below).
FN24 [1993] E.C.R. I-487.
FN25 See Case 53/79, Office National des Pensions pour Travailleurs Salariés v.
Damiani: [1980] E.C.R. 273; [1980] 1 C.M.L.R. 548, paragraph 5, in which the
Court stated that "it is not for this Court to pronounce on the expediency of the
request for a preliminary ruling. As regards the division of jurisdiction between
national courts and the Court of Justice under Article 177 of the Treaty it is for the
national court, which is alone in having a direct knowledge of the facts of the
case and of the arguments put forward by the parties, and which have to give
judgment in the case, to appreciate, with full knowledge of the matter before it,
the relevance of the question of law raised by the dispute before it and the
necessity for a preliminary ruling so as to enable it to give judgment". See also,
inter alia, Case 86/78, Peureux v. Services Fiscaux de la Haute-Saône et du
Territoire de Belfort: [1979] E.C.R. 897; [1980] 3 C.M.L.R. 337, para. [6]; Case C127/92, Enderby v. Frenchay Health Authority and Another: [1993] E.C.R. I-5535;
[1994] 1 C.M.L.R. 8, para. [10]; Case C-125/94, Aprile Srl (In Liquidation) v.
Amministrazione delle Finanze dello Stato: [1995] E.C.R. I-2929, para. [16];
Joined Cases C 320, 328-329 & 337-339/94, Radio Televisive Italiane SpA (Rti)
and Others v. Ministero delle Poste E Telecomunicazioni and Others: [1996]
E.C.R. I-6471; [1997] 1 C.M.L.R. 346, paras [20] & [21].
(3) Does the national measure restrict the movement of capital?
A12 All the governments which submitted observations deny the existence of any
restriction whatsoever contrary to Article 1(1) of the Directive, essentially on the
basis of two types of considerations:
(a) the link between the provision at issue (which only affects *1393 dividends)
and free movement of capital is too tenuous and indirect for Article 47b to fall
within the scope of the Directive;
(b) neither the acquisition of shares in companies established in a Member State
other than the Netherlands nor the distribution of dividends as a result of
participations in foreign companies is, as such and per se, hindered or restricted
in the present case.
A13 As regards point (a), there is a link between the Dutch measure and
movement of capital and that link is not so indirect as to exclude this case from
the scope of the Directive. It is true that dividend payments are not directly
classified as "capital movements" under the Nomenclature. [FN26] However, the
accrual of a dividend necessarily presupposes "participation in undertakings" or
the "acquisition of securities" and these most certainly are capital movements
within the meaning of Article 67. [FN27] That is sufficient, in my view, to bring the
provision at issue within the scope of the Directive. What is more, the movement
of capital consisting in investment in shares in companies is often prompted by
the intention of collecting the dividends to which the shareholder is entitled on the
ground of that participation. The Court recently stated that, for a restriction or an
obstacle to a particular transaction to be covered by Article 73b of the EC Treaty
(now Article 56 EC), that transaction need only be "inextricably linked" to a
movement of capital, [FN28] that is to say constitute a prerequisite thereof.
[FN29] The Court has also for a long time held that the concept of capital
movement restrictions must be interpreted *1394 broadly. [FN30] Therefore,
neither the nature nor the subject-matter of the national measure at issue is
decisive for the purpose of applying Article 67. What is decisive is its possible
effect on capital movements. I believe that such an approach is fully consistent
with the wording of Article 1(1) of the Directive (in force at the material time) and
of Article 73b of the Treaty (currently in force) which, by prohibiting without
reserve all restrictions on the free movement of capital, "enshrines" and, as it
were, "constitutionalises" the principle already laid down in the Directive. [FN31]
FN26 I do not believe that omission justifies the conclusions drawn by the
Governments concerned. The Nomenclature is merely illustrative, not
exhaustive: see Case C-222/97, Trummer and Mayer: [1999] E.C.R. I-1661;
[2000] 3 C.M.L.R. 1143, para. [21], as well as the introduction to the
Nomenclature itself ("[t]his Nomenclature is not an exhaustive list for the notion of
capital movements").
FN27 The Nomenclature provides for the case of "[p]articipation in new or
existing undertakings with a view to establishing or maintaining lasting economic
links" (Heading I(2), referred to in the first question) and "[a]cquisition by
residents of foreign securities dealt in on a stock exchange" (Heading III(A)(2);
Petrofina is a company quoted on the Brussels and Antwerp stock exchanges).
Also see Veronica, referred to in para. A11 of this Opinion.
FN28 See Trummer and Mayer, para. [24].
FN29 See para. 9 of my Opinion in Trummer and Mayer. Whereas that case
related to a national measure concerning the prerequisite (the creation of a
mortgage) of a capital movement (the liquidation of a real estate investment), in
this case Article 47b involves the product of such a movement. In any event, in
both cases the national measure in question concerns an operation (the creation
of a mortgage) or a payment (the dividends) which is inextricably linked to a
movement of capital.
FN30 As long ago as Case 157/85, Brugnoni and Another v. Cassa di Risparmio
di Genova & Imperia: [1986] E.C.R. 2013; [1988] 1 C.M.L.R. 440, the Court
stated that, although not taking the form of exchange authorisations or affecting
the acquisition of foreign securities, administrative obstacles such as the
compulsory deposit of foreign securities with a bank nonetheless constitute a
hindrance to the "widest liberalisation" of capital movements (see para. [22]). In
Case C-484/93, Svensson and Another v. Ministre du Logement et de
l'Urbanisme: [1995] E.C.R. I-3955, the Court ruled that a national provision
requiring a bank to be established in a Member State in order for recipients of
loans residing in the same Member State to obtain an interest rate subsidy from
the State out of public funds was incompatible with Article 67 (see para. [10] of
the judgment), underscoring the fact that, for Article 67 to apply, it is not
necessary for a national rule directly to concern a capital movement as such and
per se (in our case an investment in shares, in Svensson a bank loan).
FN31 In the text I indicate the reasons, drawn from the Court's case law, why I
consider that the provision at issue produces a sufficiently direct effect on capital
movements. It must be observed--using the analogies between the fundamental
freedoms outlined in point 17, the list of which is certainly not exhaustive (see, for
example, fn. 84, in fine)--that applying to capital movements the principles
enunciated in Case 8/74, Procureur du Roi v. Dassonville: [1974] E.C.R. 837,
[1974] 2 C.M.L.R. 436, para. [5], in respect of free movement of goods leads to
the conclusion that even an indirect obstacle to capital movements such as is
incompatible (see, a contrario, Bachmann, paragraph 34, and supra, para. 11 of
the Opinion) with Article 1(1) of the Directive (and, today, with Article 56 EC).
Moreover, the Court held that a national rule limiting the grant of a tax benefit to
publishers who have their books printed in the Member State concerned is
incompatible with Article 30 of the EC Treaty (now, after amendment, Article 28
EC) (Case 18/84, EC Commission v. France: [1985] E.C.R. 1339; [1986] 1
C.M.L.R. 605). See also the Opinion of Advocate General Cosmas (Case C412/97, ED Srl v. Italo Fenocchio [1999] E.C.R. I-3845; [2000] 3 C.M.L.R.),
where it is stated that "indirect" restrictions on free movement of goods and
capital are in principle permissible (paras 23 & 24).
A14 As regards the contention that capital movements are neither hindered nor
restricted (see paragraph 12(b) above), I would observe that, as the
corresponding legislative history clearly shows, the purpose of Article 47b was to
introduce "preferential" tax treatment for those looking to the Dutch stock market,
thus encouraging them to invest their capital in the Netherlands. Considering its
wording, the provision at issue is certainly direct and suitable for the required
purpose. Not even the Dutch Government denies that. If that is indeed the case, I
would be inclined to define it as a measure based on a "protectionist" policy. It
can be argued that--in so far as it applies to the dividends distributed by Dutch
companies to taxpayers resident in the Netherlands--Article 47b does not ipso
facto prohibit either investment in shares in companies established in another
Member State or the distribution of dividends on such shares. I believe, however,
that the possibility cannot be ruled out that such a measure is at least liable to
deter or discourage taxpayers resident in the Netherlands from investing their
capital abroad. Indeed, depending on where the capital is invested, the provision
at issue can have a distorting effect on the relationship between the economic
profitability of an investment and its return after tax to the investor. Contrary to
the view of the governments which have submitted observations, that distorting
effect is not so secondary as to have no impact on the legal *1395 analysis.
[FN32] As the Commission observed a few years ago, [FN33] with the
completion of the single market, the physical and technical obstacles to the
exercise of the fundamental freedoms have been eliminated. As a result,
differences between the taxation systems of the Member States are accentuated
and exert considerable influence precisely on investment decisions. Moreover, I
must add that dividend taxation is becoming an increasingly important factor in
investment decisions as a result of the implementation of economic and
monetary union (the next stage after 1992 in the progress towards a fullyintegrated single market) and with the disappearance from 1 January 1999 of
exchange risks within 11 Member States. It follows that the obstacle in the form
of tax treatment differences must be considered from that point of view. The
shares of a growing number of large European companies are quoted on the
stock exchange and can even be purchased via internet, regardless of the
Member State in which the issuing company is established. In such a context,
obstacles to free movement are greatly diminished and taxation differences
based on the "nationality" of the securities, which cannot fail to influence
investment decisions, must be strictly controlled in the light of Community law.
FN32 "The link between free movement of capital and taxation is clear. Capital
moves in response to two elements: the rate of remuneration and the rate of
taxation", P. Julliard, Lecture critique des articles 73 B, 73 C et 73 D du traité de
la Communauté européene, in A. Weber (ed.), Währung und Wirtschaft,
Festschrift für Prof. Dr. Hugo J. Hahn zum 70. Geburtstag, Nomos
Verlagsgesellschaft, Baden-Baden, 1997, p. 177, in particular p. 184 (the
translation is my own). Also see the conclusions of the Report of the Committee
of independent experts on company taxation, issued by the Commission on 18
March 1992, Office for Official Publications of the European Communities,
Luxembourg, 1992 (hereinafter the "Ruding Report"), also published in European
Taxation, 1992, p. 105.
FN33 See the Notice, p. 10.
A15 Again on the basis of the elements of the national legislation emerging from
the case file, there is a second aspect of Article 47b which is relevant for the
purposes of Article 67 and Article 1(1) of the Directive. The "geographical" limit of
the exemption certainly has a restrictive and dissuasive effect even on
companies established in other Member States in that it constitutes an obstacle
to the raising of capital: those companies are dissuaded from placing their own
shares in the Netherlands since their shares are less attractive to investors in
view of the fact that the dividends paid to the shareholders of such companies
*1396 receive less favourable tax treatment than dividends distributed by
companies established in the Member State concerned. [FN34]
FN34 According to Servais, op. cit. "fiscal regimes designed to develop certain
forms of investment, [inducing] the acquisition of national securities ... are
discriminatory vis à vis foreign securities" (see p. 57). The Court has already had
occasion to consider a restriction producing restrictive effects on two levels: see
Case C-410/96, [2001] 1 C.M.L.R. 646, Criminal Proceedings against Ambry:
[1998] E.C.R. I-7875; paras 28 & 29, concerning a national rule requiring a
guarantor providing financial guarantees in favour of a bank or insurance
company established in another Member State to enter into an additional
agreement with a bank or an insurance company established on national
territory. The Court observed that such a rule has a restrictive or dissuasive
effect (a) on financial institutions established in other Member States since it
prevents them from offering the required guarantees directly to residents of the
Member State concerned in the same way as a guarantor established on national
territory, and (b) on residents of the Member State concerned who are
discouraged from turning to financial institutions established in another Member
State since the obligation for such financial institutions to enter into another
guarantee agreement with a bank or an insurance company established in that
Member State is likely to entail additional costs which are normally passed on to
the consumer in the fee charged for issuing the guarantee.
A16 In view of the foregoing, I consider that Article 47b constitutes a restriction
within the meaning of Article 1(1) of the Directive introduced by the Community
legislature to ensure the full liberalisation of capital movements. [FN35]
Moreover, the Court has consistently held that for a national measure to qualify
as a restriction or an obstacle to a fundamental freedom, it suffices that it
"discourage" or "dissuade" the persons concerned from exercising a right or an
option which is a component of such a freedom. [FN36]
FN35 See Bordessa, para. [17]. Chronologically, it must be observed that the
facts of the case, involving a tax declaration for the 1991 fiscal year, are
subsequent to the date of full liberalisation provided for in Article 6(1) of the
Directive, namely 1 July 1990.
FN36 See, for example, Trummer and Mayer, para. [26]; Ambray, paras [28] &
[29]; Safir, para. [30]; Case C-19/92, Kraus v. Land Baden-Württemberg: [1993]
E.C.R. I-1663, para. [32]; Svensson, para. [10]; Case C-55/94, Gebhard v.
Consiglio Dell'Ordine degli Avvocati E Procuratori di Milano: [1995] E.C.R. I4165: [1996] 1 C.M.L.R. 603, para. [37]; Bachmann, para. [31].
A17 According to the governments which have submitted observations, and the
UK Government in particular, the provision at issue complies with Article 1(1) of
the Directive by virtue of a sort of de minimis rule: those governments contend
that the measure in question has too tenuous an effect on capital movements.
[FN37] I would like to make a few comments in that regard. The allegedly
tenuous nature of the effects of the provision at issue clearly depends on the sum
to be invested and on the resources of the investor. For a small investor who
necessarily invests only limited sums, the exemption under Article 47b probably
constitutes, contrary to the view of the UK Government, a significant *1397 factor
in the decision as to where to invest his capital. [FN38] In any event, the
argument put forward by the governments which submitted observations runs
counter to the case law since the Court has ruled that even national rules which
merely constitute a "hindrance" to capital movements are contrary to the
directives for the implementation of Article 67. [FN39] I believe that that case law
can be placed on a par with the case law concerning free movement of goods,
[FN40] in which the Court has ruled that "a national measure does not fall outside
the scope of the prohibition in Article 30 merely because the hindrance to imports
which it creates is slight. [FN41] There is similar case law with regard to freedom
of movement for persons [FN42] and freedom to provide services [FN43]:
[a]s the Court has decided on various occasions, the articles of the EEC Treaty
concerning the free movement of goods, persons, services and capital are
fundamental Community provisions and any restriction, even minor, of that
freedom is prohibited. [FN44]
FN37 The UK Government stressed the following elements: (i) there are
instances where an investment in foreign shares does not involve any capital
movement whatsoever, if the shares are traded between Dutch residents; (ii)
given the low amount of the de qua exemption, it seems unlikely that that
exemption would actually influence an investor's decision to acquire foreign
securities since investors will often already hold shares yielding at least NLG
2,000 and are generally more sensitive to the profitability outlook of companies in
whose shares they intend to invest; and (iii) the exemption itself applies only to
natural persons and not to legal persons, so that it makes no difference to the
latter where the funds are invested.
FN38 See the statement of the State Secretary cited in fn. 8.
FN39 See Brugnoni and Another, para. [22].
FN40 The analogy is all the more fitting--and I see no reason for regarding
restrictions on one fundamental freedom any differently from restrictions on
another (see Gebhard, para. [37])--because both Article 30 of the Treaty (see
Dassonville, para. (5) and Article 1(1) of the Directive (now Article 56 EC) do not
merely require the elimination of national measures which are discriminatory in
nature but prohibit all restrictions.
FN41 Case 103/84, EC Commission v. Italy: [1986] E.C.R. 1759; [1987] 2
C.M.L.R. 825, para. [18]; and Joined Cases 177 & 178/82, Criminal Proceedings
against Van de Haar and Another: [1984] E.C.R. 1797; [1985] 2 C.M.L.R. 566,
para. [13].
FN42 See, for example, Kraus, para. [32]; in the context of freedom of
establishment, see Avoir Fiscal (Case 270/83, EC Commission v. France: [1986]
E.C.R. 273; [1987] 1 C.M.L.R. 401, para. [21]) in which the Court stated that
Article 52 [of the Treaty] prohibits all discrimination, "even if only of a limited
nature" regardless of "the extent of the disadvantages ... [suffered] as a result".
FN43 "Article 59 of the [EC] Treaty [now, after amendment, Article 49 EC]
requires not only the elimination of all discrimination against a person providing
services on the ground of his nationality but also the abolition of any restriction",
Case C-76/90, Säger v. Dennemayer and Co. Ltd: [1991] E.C.R. I-4221; [1993] 3
C.M.L.R. 639, para. [12]; to the same effect, see Case C-275/92, HM Customs
and Excise v. Schindler and Others: [1994] E.C.R. I-1039; [1995] 1 C.M.L.R. 4,
para. [43].
FN44 Case C-49/89, Corsica Ferries France v. Direction Générale des Douanes
Françaises: [1989] E.C.R. 4441; [1991] 1 C.M.L.R. 357, para. [8] (the italics are
mine).
(4) Is the national measure applicable in a discriminatory manner?
A18 The parties which submitted observations in this case focused their attention
on whether or not free movement of capital is restricted. However, consideration
must also be given to the compatibility of Article 47b with Community provisions
on free movement of capital. That observation is inspired by the wording of
Article 67(1) (fully implemented by Article 1(1) of the Directive) which requires
Member States to abolish any "discrimination based on ... the place where such
capital is invested". The Directive brought about the "maturity" of the single
market in respect of capital movements as well. The very notion of fullyguaranteed free movement should mean that the national legislature cannot
consider the place of origin or of destination of the capital--namely, the place
where the capital is invested--as being a *1398 legitimate basis for distinction for
the purposes of legislation in that area. More specifically: a rule of national law
treating capital movements differently solely on the ground of the place where
they are located should, I believe, be regarded as incompatible with the Treaty
even without assessing how far the national measure restricts the freedom
concerned. [FN45] Any discrimination automatically entails a restriction, unless of
course the measures adopted by the national legislature are justified by a
relevant ground for intervention under Community law. [FN46] In Svensson and
Gustavsson, [FN47] the Court held that a national measure concerning tax
credits on mortgage interest which introduced a distinction according to the
Member State in which the lending bank was located was discriminatory (and,
what is more, unjustified). That case concerns the movement of capital and is
clearly similar to the case at hand. It makes no difference that in Svensson and
Gustavsson the national measure provided for different treatment depending on
the Member State from which the capital originated (restriction on imports) rather
than the Member State to which the capital was transferred (restriction on
exports) as in the present case. In view of the foregoing, there is no doubt that
Article 47b constitutes a measure which is applicable in a discriminatory manner
according to the place where the capital yielding a return for taxpayers of the
Member State in question is invested and that, as a consequence, and on the
same ground, the contested provision is incompatible with Article 1(1) of the
Directive. That has significant consequences as regards the permissible
justifications in this case: it is not possible to rely upon an imperative requirement
in the general interest not contemplated by the Treaty in order to justify a
difference in treatment that is in principle incompatible with Article 1(1) of the
Directive (and with Article 67(1)). It is settled case law that only express
derogations (such as Articles 36, 48(3) and 56(1) of the EC Treaty (now, after
amendment, Articles 30 EC, 39(3) EC and 46(1) EC respectively) and *1399
Article 66 of the EC Treaty (now Article 55 EC)) can bring such discrimination
into line with Community law. [FN48]
FN45 See Avoir Fiscal, para. [21].
FN46 Among those who argue that a "distinction" in treatment per se on the sole
ground of the place where capital is invested is unlawful, see A. P. Dourdo, Free
movement of capital and capital income taxation within the European Union, in
EC Tax Review, 1994, p. 176, pp. 184 and 185 in particular; J.-H. Hauptmann,
Comments on Article 73b in Traité sur l'Union européene--Commentaire article
par article, under the direction of V. Constantinesco, J.-P. Jacqué, R. Kovar and
D. Simon, Economica, Paris, 1995, p. 176, point 6; P. Julliard, Comments on
Article 67, in Traité instituant la CEE--Commentaire article par article, under the
direction of V. Constantinesco, J.-P. Jacqué, R. Kovar and D. Simon, Economica,
Paris, 1992, p. 353, point 5(b); S. Mohamed, Community rules on the Free
Movement of Capital, Stockholm University, 1997 pp. 36 to 38; Ståhl, op. cit., p.
232; W. Vermeend, Tax Policy In Europe, in EC Tax Review, 1998, p. 151, in
particular p. 152. The Ruding Report, op. cit., moreover, stresses the fact that
discrimination on the sole ground of the place where capital is invested tends to
fragment capital markets within the Community (see Section III, Chapters 4 and
10).
FN47 See fn. 30.
FN48 See, most recently, Royal Bank of Scotland, para. [32]; see also Svensson
and Gustavsson, para. [15]; Schindler (on Question 6); Case C-288/89, Stichting
Collectieve Antennevoorziening Gouda v. Commissariaat voor de Media: [1991]
E.C.R. I-4007, para. [11]; Case C-353/89, EC Commission v. Netherlands: [1991]
E.C.R. 2085; [1989] 3 C.M.L.R. 113, paras [32] & [33]. See Bachmann, however,
where the Court held that a discriminatory national measure was justified by an
overriding reason in the general interest not provided for in the Treaty.
(5) Is the national measure justified?
A19 It must now be determined whether, in the light of the foregoing, Article 47b
runs counter to the criteria set out in the case law according to which, in order not
to be contrary to Community law, in addition to being suitable and proportionate
to the objective pursued by the authority which adopts them, measures of this
type must be justified by express derogations, if they are applicable in a
discriminatory manner, and also by overriding reasons in the general interest, if
they are applicable in a non-discriminatory manner. [FN49]
FN49 The Court has now extended the application of those principles, which
were originally developed in the context of free movement of goods, to all the
freedoms (see, for example, Gebhard, para. [37]).
A20 First, I would observe that none of the governments which submitted
observations, much less the Dutch Government, relied upon the derogating
provisions set out in the Directive--the only ones in force at the material time
[FN50]--to justify the difference of treatment introduced by the legislation in
question. Strictly speaking, therefore, the obstacle to capital movements creates
by Article 47b should be regarded as neither justified nor justifiable tout court.
The governments which submitted observations nevertheless maintain that the
provision at issue warrants an exception for two sets of reasons, the first based
on the Court's case law on overriding reasons in the general interest and the
second on a specific derogating provision which was expressly introduced into
the EC Treaty by the EU Treaty and came into force after the facts in the main
proceedings, namely Article 73d(1)(a) of the EC Treaty (now, after amendment,
Article 58(1)(a) EC).
FN50 Those derogating provisions include the protective measures which a
Member State is authorised to take where short-term capital movements of
exceptional magnitude impose severe strains on foreign-exchange markets and
lead to serious disturbances in the conduct of that Member State's monetary and
exchange rate policies (see Article 3(1)), as well as the right of Member States to
take the requisite measures to prevent infringements of their laws and
regulations, inter alia, in the field of taxation and prudential supervision of
financial institutions (see Article 4, first paragraph).
(6) Overriding reasons in the general interest
A21 The Member States which have submitted observations in these
proceedings contend that the provision at issue must be regarded as objectively
justified for two reasons: the intention to promote the economy of the country by
encouraging investment of savings in shares *1400 of companies established in
the Member State concerned, and the intention of mitigating the effects of the
double taxation of share dividends distributed by Dutch companies resulting from
the levying both of divided tax and of income tax borne by natural persons
receiving the dividends. The second reason, they maintain, is strictly connected
with the aim of preserving the cohesion of the Dutch tax system. The exemption
is limited to "national" dividends because only the dividends distributed by
companies established in the Netherlands are subject to the corresponding tax in
that country. If the exemption were extended to the dividends distributed by
companies established in other Member States, which are therefore not required
to make a deduction at source on dividends for the Dutch tax authorities, the
cohesion of the tax system would be undermined and the Dutch Government
would be obliged to forgo tax entirely on part of the dividends (of foreign origin)
paid to shareholders resident for tax purposes in the Netherlands. "Extending"
the application of the exemption would mean forgoing all taxation on a portion of
the income of natural persons and, the governments which have submitted
observations maintain, there is no provision of Community law imposing such a
result. In short, they rely on the strict correlation between the possibility of
exempting dividends from income tax levied on natural persons and the
application of dividend tax to those dividends.
A22 The Court has repeatedly stated that aims of a purely economic nature,
such as, certainly, the intention to promote the economy of a country, cannot
constitute an overriding reason in the general interest justifying a restriction of a
fundamental freedom guaranteed by the Treaty. [FN51] Nor, in the absence of an
express derogating provision, can such an aim justify a national measure which
is applicable in a discriminatory manner. What is more, as Advocate General
Elmer observed in Svensson and Gustavsson, "[n]ational provisions of law may
give the immediate appearance of being justified from the strict point of view of
the national economy but nevertheless be contrary to Community rules." [FN52]
Moreover, a national measure that is inspired by such an aim and simultaneously
has the effect of restricting free movement must certainly be characterised as
protectionist and is, therefore, contrary to the fundamental requirement of
bringing about a single market. The Court has consistently held that protectionist
measures are incompatible with the Treaty. [FN53] For the foregoing reasons, I
am confident that the first justification put forward in *1401 connection with Article
47b by the governments which have submitted observations must be rejected as
inadmissible.
FN51 See, for example, Case 216/84, EC Commission v. France [1988] E.C.R.
793, para. [12]; C-398/95, Syndesmos ton en Elladi Touristikion Kai Taxidiotikon
Graefeion (Settg) v. Ypourgo Ergasias: [1997] E.C.R. I-3091; [1998] 1 C.M.L.R.
420, para. [23], and Collectieve Antennevoorziening Gouda, para. [14].
FN52 See para. 28 of the Opinion.
FN53 See the measures encouraging the public to buy goods produced in the
Member State concerned; for example, Case C-243/89, EC Commission v.
Denmark: [1993] E.C.R. I-3353, para. [23], where the Court stated that the use of
a "buy Danish clause" in the context of a public works tender is contrary to
Articles 30, 48 and 59 of the EC Treaty (now, after amendment, Articles 28 EC,
39 EC and 49 EC). The tax measures favouring national products over imports
which the Court held to be contrary to Article 95 of the EC Treaty (now, after
amendment, Article 90 EC) in view of their protectionist effects also come to mind
(see, for example, Case 112/84, Humblot v. Directeur des Services Fiscaus:
[1985] E.C.R. 1367; Case C-132/88, EC Commission v. Greece: [1990] E.C.R. I1567; [1991] 3 C.M.L.R. 1; Case C-113/94, Casarin v. Directeur Général des
Impôts: [1995] E.C.R. I-4203).
A23 It must now be determined whether the national governments were justified
in putting forward the need to preserve the cohesion of the tax system
concerned. Despite the discriminatory nature of the provision at issue (see
paragraph A18 above), the substance of that justification must be examined in
the light of certain case law of the Court according to which even national
measures applicable in a discriminatory manner (in this case, based on the place
where the capital is invested) can be excepted--solely on the basis of that
overriding reason in the general interest--on grounds not provided for in an
express derogating clause. In two judgments of the same date concerning one
and the same national measure which was found to be contrary to Articles 48
and 49 of the Treaty (now, after amendment, Articles 39 EC and 49 EC), the
Court for the first time--in the case of a measure applicable in a discriminatory
manner--accepted the justification, not contemplated by the Treaty, of the need
to ensure the cohesion of the tax system. [FN54] That case law, which because
of its obscure reasoning runs counter to the line of decided cases concerning the
four fundamental freedoms, seems to have been confirmed in other judgments of
the Court concerning the fundamental freedoms. In Svensson and Gustavsson
[FN55] and in ICI, [FN56] for example, the Court examined, ruling that they were
contrary to the Treaty, national measures (in ICI, of a fiscal nature) applicable in
a discriminatory manner [FN57] where a company's place of business (or rather,
the Member State in which a company was established) was the discretionary
criterion for the grant or withholding of advantages to certain parties. [FN58] In
considering national measures of that kind, the Court explicitly confirmed the
general principle that overriding reasons in the general interest which are not
*1402 recognised by the Treaty [FN59] cannot be relied upon to justify a
difference in treatment that is in principle contrary to Articles 52 and 59 of the
Treaty [FN60] and cited on each occasion the rules in Bachmann and
Commission v. Belgium, but it nonetheless examined the substance--instead of
dismissing it as inadmissible-- of the justification based on the need to preserve
the cohesion of the tax system in question. [FN61] The Court thus seems to have
confirmed--once again with very succinct reasons--that the overriding reasons in
the general interest which could be relied upon to justify national measures
restricting the fundamental freedoms included one which was more "overriding",
so to speak, than the others because it could be validly relied upon even in the
case of national legislation applicable in a discriminatory manner. [FN62]
FN54 See Bachmann and Case C-300/900, EC Commission v. Belgium: [1992]
E.C.R. I-305; [1993] 1 C.M.L.R. 785.
FN55 Cited in fn. 30.
FN56 Cited in fn. 12.
FN57 For the Court's express findings: in Svensson and Gustavsson, see para.
[12] on the "services" aspect and, in ICI, see para. [24]. It should be noted that
concerning the "capital" aspect, in Svensson and Gustavsson the Court does not
make any express statement on the question whether or not the measure at
issue is applicable in a discriminatory manner; in that respect, see para. A18 of
this Opinion.
FN58 Regarding the facts of Svensson and Gustavsson, see fn. 30 and para.
A25 of this Opinion. In ICI, the UK legislature used the place of business of
controlled companies as a criterion for applying different tax treatment to
companies of a consortium established in the Member State concerned; in
particular, that measure granted the advantage of group tax relief exclusively to
companies controlling, solely or mainly, subsidiaries established on the national
territory (see para. [23] of the judgment).
FN59 The only exceptions in the case of freedom of establishment (ICI) are set
out in Article 56(1) of the Treaty; the exceptions concerning freedom to provide
services (Svensson and Gustavsson) are limited to the circumstances mentioned
in Article 66 of the Treaty (now, after amendment, Article 55 EC) which refers
back to Article 56 (now, after amendment, Article 46 EC).
FN60 See Svensson and Gustavsson, para. [15] and ICI, para. [28].
FN61 See Svensson and Gustavsson, para. [18], and ICI, para. [29]. However, it
must be observed that in ICI, while on the one hand reiterating the general
principle that overriding reasons in the general interest cannot be relied upon to
justify national measures applicable in a discriminatory manner, and on the other
examining the merits of the argument based on the need to ensure the cohesion
of the tax system, the Court nonetheless applied that principle correctly and
rejected as inadmissible another reason put forward by the Member State
concerned, namely the need to prevent a loss of tax revenue (see para. [28] of
the judgment).
FN62 To the same effect, see Asscher (freedom of establishment) and
Schumacker (freedom of movement for workers) where the Court, recalling the
Bachmann case, went on to consider the merits of the justification relating to the
need to ensure fiscal cohesion (at paras [58]-[60] & [39]-[42] respectively) after
establishing that the national measure in question was discriminatory (at paras
[48] & [49], and [27]-[38] respectively).
A24 In this case, the UK and Dutch Governments are relying on the requirement
based on the need to ensure the cohesion of the tax system concerned, less with
reference to the "positive" material scope of the disputed measure (namely, the
cases to which that measure applies) than with reference to its "negative"
material scope (namely, the cases to which it cannot apply). In other words, it is
precisely on the ground of the need to safeguard fiscal cohesion that, having
provided for the exemption at issue, [FN63] the Dutch legislature did not extend it
to cover dividends distributed by a company established in another Member
State.
FN63 As both the Commission and Mr Verkooijen pointed out, the tax system
applicable in the Netherlands prior to 1981, when Article 47b was adopted, was
already distinguished by a certain degree of cohesion in so far as that system did
not provide for exceptions eliminating or mitigating the economic consequences
of the double taxation of dividends distributed to Dutch taxpayers by companies
established in the Netherlands.
A25 According to the case law of the Court, the need to preserve the cohesion of
the tax system can only justify a restriction of a fundamental freedom where there
is a direct link between tax relief (namely, a loss of tax revenue for the
administration) and a tax levy. [FN64] *1403 Such a link exists, for example,
where the deductibility of insurance contributions from taxable income is made
subject to the condition that the insurer is also established in the Member State
concerned so as to ensure that the Member State can effectively tax the capital
paid out when the risk is realised, namely when the insurance policy is
redeemed. [FN65] Such a tax system allows one and the same individual to
defer, but not to avoid, taxation. Where, by contract, policyholders are allowed to
deduct contributions paid to a company established in another Member State, the
tax authority of the Member State concerned would suffer a loss of revenue if the
policyholder had returned to his Member State of origin at the time of repayment
or settlement. The Court has held, therefore, that in such a tax system there is a
link between the deductibility and the subsequent taxation, and that that link is
direct since the two measures concern one and the same taxpayer at different
moment in his life. By contrast, it cannot be maintained that there is a direct link
between the grant of an interest rate subsidy to borrowers, on the one hand, and
its financing by means of the profit tax on financial establishments, on the other,
[FN66] since:
it is by no means certain that the credit ... institutions will general taxable funds
as a result of the interest rate subsidy scheme. There is in fact a basis of
assessment only if the operations of the relevant credit institution as a whole
produce a surplus, which is not necessarily the case since the result of
operations may be negatively affected by other factors, for example losses on
loans or exchange losses on holdings of securities. [FN67]
FN64 See ICI, para. [29]; Asscher, paras [58]-[60]; Svensson and Gustavsson,
para. [18]; Bachmann, paras 22 and 23, and EC Commission v. Belgium, paras
[14]-[16].
FN65 See Bachmann and EC Commission v. Belgium.
FN66 See Svensson and Gustavsson, para. [18].
FN67 See para. 31 of the Opinion of Advocate General Elmer in Svensson and
Gustavsson.
A26 According to the principles which can be inferred from the case law of the
Court, extending the exemption of dividends referred to in Article 47b to Mr
Verkooijen would, I believe, have the effect of damaging the link between the
possibility of exempting dividends from income tax and their subjection to
dividend tax. The Netherlands introduced the tax relief at issue solely on the
premiss that its tax system could in any event have an impact on the income
concerned by the exemption. That is true for dividends distributed by Dutch
companies, which are the only dividend subject to Dutch dividend tax, the very
premise of the exemption. Applying the exemption to dividends distributed by a
company etablished in another Member State would have an adverse effect on
the revenue from the tax in question: on the one hand, the Member State which
has adopted the system concerned would be unable to levy dividend tax while,
on the other hand, it would be obliged to grant the taxpayer an exemption (even
only partial) from the tax on income which is subject onto to that tax, the only tax
that can be levied in connection with one component of his income, namely
dividends originating from abroad.
A27 Moreover, in my view, the link between the exemption referred to in *1404
Article 47b and the levy of the dividend tax is direct. As is clear from the
legislative history of the provision at issue by which the Dutch legislature sought
to mitigate the effects of double taxation [FN68] from the economic point of view,
the dividend tax and the income tax payable by natural persons referred to in the
order for reference affect one and the same taxpayer (the recipient of the
dividends). By contrast, in Svensson and Gustavsson, where the Court held that
the cohesion of the Luxembourg tax system was not at risk, the tax credit and the
tax (which were allegedly linked) did not concern one and the same taxpayer but
different taxpayers, [FN69] namely borrowers and financial establishments.
[FN70] That is not all. Whereas in circumstances such as those in Bachmann,
several years can lapse between the deductibility of contributions and the levy of
tax on social security benefits, in the present case, by contrast, the levy of
dividend tax and the application of the exemption take place practically
simultaneously, when taxable income is assessed for a given tax year. [FN71]
FN68 See para. A4 above.
FN69 See para. 30 of the Opinion of Advocate General Elmer.
FN70 More recently and, essentially, to the same effect, see ICI, para. [29], and
paras 26 to 28 of the Opinion of Advocate General Tesauro.
FN71 Again from the perspective of the cohesion of its tax system, and in
particular the need to avoid effects that were not intended by the national
legislature, the Dutch Government also pointed out that a general application of
the exemption would have the effect of favouring shareholders of companies
established in Member States where the tax rules offsetting the effects of double
taxation of dividends apply at source, namely on dividend tax, over shareholders
of Dutch companies. According to the Dutch Government, shareholders investing
in shares of foreign companies would thus benefit more from the mitigation of
double taxation than shareholders of Dutch companies: that would go beyond the
intended purpose of the exemption and would have the added effect, if I
understand correctly, of hindering the second aim of the tax measure in question,
namely supporting the national economy. The reasoning of the Dutch
Government is not convincing. First, Community law does not prevent Member
States from treating purely internal cases less favourably than those dealt with by
the Treaty. Secondly, I would recall that the Court has already had occasion to
rebut the argument that certain disadvantages (in this case, the fact of not
benefiting from the exemption) can be justified because they are offset by
advantages for the persons concerned in another Member State (in the situation
outlined by the Netherlands, a "reduction" applied to dividend tax, a measure
unknown in the Dutch tax system): see Case C-330/91, R. v. Inland Revenue
Commissioners, Ex parte Commerzbank AG: [1993] E.C.R. I-4017; [1983] 3
C.M.L.R. 457, paras [18] & [19], and Avoir Fiscal (para. [21]; see also para. 7 of
the Opinion of Advocate General Mancini).
(7) Is the national measure suitable and proportionate?
A28 According to case law, for national measures which are liable to restrict or
make less attractive the exercise of fundamental freedoms guaranteed by the
Treaty to qualify as bieng effectively justified by overriding reasons in the general
interest, they must be suitable for securing the attainment of the objective which
they pursue and they must not go beyond what is necessary in order to attain it.
[FN72]
FN72 See, inter alia, Gebhard, para. [37], and Kraus, para. [32].
A29 I do not believe that there are any doubts concerning the suitability of the
provision at issue for mitigating, at least partially, the effects on *1405 the
recipient shareholder of the double taxation of dividends in the Netherlands, and
none of the parties which have submitted observations in this case has raised
any in that regard. As regards the proportionality of the provision at issue to the
aim pursued by the Dutch legislature, it is for the national court, by reason of the
division of jurisdiction provided for in Article 177 of the Treaty, to determine
whether or not the restriction of a fundamental freedom arising from a national
measure could have been avoided or reduced without jeopardising the aims
pursued by that measure. [FN73] In this regard, the only alternative put forward
in the course of these proceedings (by the Commission during the oral procedure
because of its supposedly less restrictive effects on capital movements), namely
the application of an exemption or tax credit in respect of dividends originating in
another Member State, is not consistent--in this case and considering the
relevant national provisions described in points 3 and 4 above--with the aim of
preserving fiscal cohesion since, in the absence of any agreements with other
States for that purpose, [FN74] such a measure clearly cannot fail to affect the
Dutch tax revenue without any consideration or readjustment.
FN73 Case 222/84, Johnston v. Chief Constable of the Royal Ulster
Constabulary [1986] E.C.R. 1651, [1996] 3 C.M.L.R. 240, para. [39].
FN74 On this subject, see paras A46-A56 below, and para. 54 in particular.
(8) The derogation under Article 73d(1)(a)
A30 Apart from the justifications based on overriding reasons in the general
interest that emerge from the case law of the Court, all the governments which
have submitted observations argue that Article 47b must in any event be
excepted under the derogation in Article 73d(1)(a) of the Treaty [FN75] since,
even though that provision came into *1406 force only in 1994 (subsequent to the
facts of this case), it essentially reproduces the earlier legislation. [FN76]
FN75 Article 73d of the Treaty provides: 1. The provisions of Article 73b shall be
without prejudice to the right of Member States: (a) to apply the relevant
provisions of their tax law which distinguish between tax-payers who are not in
the same situation with regard to their place of residence or with regard to the
place where their capital is invested; (b) to take all requisite measures to prevent
infringements of national law and regulations, in particular in the field of taxation
and the prudential supervision of financial institutions ... 2. The provisions of this
chapter shall be without prejudice to the applicability of restrictions on the right of
establishment which are compatible with this Treaty. 3. The measures and
procedures referred to in paragraphs 1 and 2 shall not constitute a means of
arbitrary discrimination or a disguised restriction on the free movement of capital
and payments as defined in Article 73b." Article 73b(1) of the Treaty states:
"Within the framework of the provisions set out in this chapter, all restrictions on
the movement of capital between Member States and between Member States
and third countries shall be prohibited".
FN76 Regarding the troubled history of the Treaty's provisions on capital
movements, see fn. 1 above; Article 73d(1)(a) introduces, in particular, a
derogation (hereinafter referred to as "the derogation") to the freedom in
question, that was not explicitly provided for in the previously applicable
provisions of the Treaty or in the Directive.
A31 Although the questions referred for a preliminary ruling do not in this case
concern the provisions introduced by the EU Treaty, the above-mentioned line of
reasoning is nonetheless clearly relevant. Its interest derives from the fact that
the governments which have submitted observations are not claiming that it is a
"new" derogation valid retroactively, but merely that it "constitutionalises" in the
Treaty a principle that was previously in force and which therefore applies to the
facts of the main proceedings. The national court itself dwelt at some length on
this point in the findings section of the order for reference. The derogation is thus
relied on to demonstrate that under the provisions previously in force, the
Member States already had the power to apply tax rules discriminating between
taxpayers in different situations based on the place where their capital was
invested. Moreover, it would seem that the governments which have submitted
observations rely on the specificity of tax legislation: in view of the nature of the
subject matter concerned, that power is virtually unconditional. As a result,
according to those governments, the derogation is not subject to the limitations
laid down in Article 73d(3) of the Treaty, corresponding to the last sentence of
Article 36 of the Treaty. That conclusion is essentially based on a literal
interpretation of the Article itself. [FN77] Thus, the power in question is
unconditional: it is not subject to judicial review either as regards the merits of the
overriding reasons in the general interest that purportedly justify different
treatment based on the place where the capital is invested, or as regards the
proportionality of the measure to the objectives pursued.
FN77 The governments which submitted observations emphasise, in particular,
the fact that Article 73d(3) mentions only "measures" and "procedures" and
therefore refers solely to the literal wording of Article 73d(1)(b) and (2), whereas
Article 73d(1)(a) refers to "provisions".
A32 I can agree with that reasoning up to a point. On the one hand, I am
convinced that the derogation does not constitute a step backwards in the acquis
communautaire. It can reasonably be said to antedate the provisions in force
before 1 January 1994. [FN78] It is true that, in its case law, the Court has
allowed Member States to maintain certain distinctions (based, for example, on
the taxpayers' place of residence) in their taxation rules, provided such
distinctions are based on *1407 situations that are not objectively comparable
[FN79] or, in the case of rules applicable in a discriminatory manner, that they
are justified by overriding reasons in the general interest. [FN80]
FN78 With few exceptions, legal writers agree that Article 73d(1)(a) of the Treaty
is not at all a step backwards, in seeming contradiction with the letter of Article
67(1) (prohibiting discrimination based on the place where capital is invested),
but must be read in harmony with the pre-existing system as interpreted in caselaw (see, inter alia, Dourado, op. cit., pp. 180, 181 and 184; P. Farmer and R.
Lyal, EC Tax law, Clarendon press, Oxford, 1994, p. 334; J.-M. Hauptmann,
"Commentaire sur l'art. 73 D", in Traité Sur l'Union Européene, op. cit., p. 184;
Lodin, op. cit., p. 231; Mohamed, op. cit., pp. 134 to 135; M. Peters, "Capital
movements and taxation in the EC", in EC Tax Review, 1998, p. 1, and
especially pp. 10 and 11; Servais, op. cit., p. 64, note 58; R. Smits, "Freedom of
payments and capital movements under EMU" in A. Weber (ed.) Währung und
Wirtschaft, op. cit., pp. 245, 262 and 263; Ståhl, op. cit., pp. 229 and 231; J. A.
Usher, The Law of Money and Financial Services in the European Community,
Clarendon Press, Oxford, 1994, pp. 32 et seq.; S. van Thiel, "The Prohibition of
Income Tax Discrimination in the European Union: What Does it Mean?", in
European Taxation, 1994, p. 303, and especially p. 309; P. Vigneron and P.
Steinfeld, "La Communauté européene et la libre circulation des capitaux: les
nouvelles dispositions et leurs implications", in CDE, 1996, p. 401, especially pp.
411, 432 and 433).
FN79 As regards the importance that the Court places on "substance" in
establishing whether or not two distinct situations are comparable, without going
into distinctions of a more "formal" nature (such as that between resident and
non-resident) that are frequently found in national legislation, see Schumacker,
para. [34] (where the reasoning would appear to hinge on the term "situation",
already employed in paras [24] & [31]), and points 35 to 38 of the Opinion of
Advocate General Léger (see also the latter's Opinion in Wielockx, para. 21); the
term "situation" is also used in Article 73d(1)(a) of the Treaty. See, moreover,
Royal Bank of Scotland, paras [27]-[31]; Asscher, para. [42]; Wielockx, paras
[18]-[22], and Avoir Fiscal, para. [19].
FN80 See the judgments in Bachmann and EC Commission v. Belgium.
A33 On the other hand, I reject the argument that different tax treatment based
on the place where capital is invested--which is permitted since the Treaty
provides for the possibility of a derogation--must always be regarded as justified.
First, according to the case law of the Court itself--to which I have just referred-any distinction [FN81] rooted in the tax legislation of a Member State must be
based on objective factors, [FN82] or in any event be justified, and must thus
pass the proportionality test; otherwise, the assertion--which I believe constitutes
the cornerstone of the observations submitted by the governments and which I
support--that the derogation must be understood and applied in accordance with
the case law of the Court would be deprived of all meaning. It follows that the
limitations set out in Article 73d(3) of the Treaty also apply to the derogation
referred to in paragraph 1(a) of the same Article which, contrary to the opinion of
the governments which have submitted observations, must be read as a whole.
[FN83] Secondly, to consider--as an absolute presumption--that all the situations
covered by the derogation are justified per se would mean attributing to the
derogation itself the specific capacity, not contemplated by the Treaty, of
distinguishing--for reasons I cannot see--the cases concerned by *1408 this
derogation from all other exceptional cases--set out expressis verbis in the
Treaty--which are such as to justify restrictions of the fundamental freedoms.
FN81 Including, therefore, the distinction based on the place where capital is
invested.
FN82 See Schumacker, para. [37].
FN83 This is the view of all the writers who consider that the derogation is not
"new" but simply the expression of principles already established by the Court
(see fn. 78 above); also see S. Kollia, in the "Capital" chapter, in Repertoire de
droit communautaire, Dalloz, Paris, volume I, para. 92. Considering the close
structural similarity between Article 36 and Article 73d of the Treaty, the above
reconstruction seems to accord with the case law which draws analogies with the
general system guaranteeing the fundamental freedoms (see Gebhard, para.
[37].
A34 If we apply to the present case the derogation set out in Article 73d(1)(a) of
the Treaty and adopt the above-mentioned criteria for interpretation, the result is
substantially comparable to the result obtained on the basis of the provisions
previously in force. Considered as such, Article 47b provides for differentiated
treatment based solely on the place where the Dutch taxpayer's capital is
invested, and that provision does not avoid the prohibition under Article 73b of
the Treaty. The fact that such difference in treatment, set out in a provision of tax
law, may be justified by an overriding reason in the general interest recognised
by the Court simply means that the national measure in question is liable--again,
in principle, since it is not arbitrarily discriminatory in nature--to fall within the
scope of the derogation. The discrimination introduced by the Dutch tax
legislation can be regarded as justified and effectively covered by the derogation
only if it has satisfied in concreto the requirement of proportionality according to
the canons of interpretation traditionally applied by the Court even before the
new rules on the movement of capital came into force. [FN84]
FN84 See Bachmann, para. [27], and EC Commission v. Belgium, para. [20].
A35 In conclusion, a measure limiting the benefit of an exemption from income
tax solely to dividends distributed by companies established in the Member State
concerned constitutes an obstacle contrary to Article 1(1) of the Directive.
However, the refusal to apply that exemption also to dividends distributed by
companies established in other Member States is in principle justified by the
need to preserve the cohesion of the tax system in question. My opinion, based
on the provisions of Community law in force at the material time, is not affected
by the derogation contained in Article 73d(1)(a) of the Treaty. In adopting the
derogating provision in question, the Community legislature was not introducing a
new principle into the provisions on capital movements; on the contrary, it merely
made explicit in the text of the Treaty a pre-existing rule which is thus part of the
system I described in my analysis for the provision at issue.
Question 2
A36 If the first question is answered in the negative, the Hoge Raad asks the
Court whether Articles 6 and/or 52 of the Treaty preclude a national measure
such as Article 47b.
A37 I agree with the governments which have submitted observations. Article 6
of the Treaty, which enshrines the principle prohibiting discrimination on the
ground of nationality, is not relevant here since it is a general rule designed to
apply to situations governed by Community law which are not covered by any
specific non- *1409 discrimination rules [FN85] such as, precisely, Article 52 of
the Treaty which, in the case of undertakings, must be read in conjunction with
Article 58. That provision grants freedom of establishment to nationals of another
Member State, allowing them to set up and manage undertakings and companies
under the conditions laid down for its own nationals by the law of the Member
State of establishment.
FN85 See, inter alia, Case 305/87, EC Commission v. Greece: [1989 E.C.R.
1461; [1991] 1 C.M.L.R. 611, paras [12] & [13]; Case 18/93, Corsica Ferries Italia
Srl v. Corpo dei Piloti del Porto di Genova: [1994] E.C.R. I-1783, para. [19]; Case
C-1/93, Halliburton Services BV v. Staatssecretaris Van Financiën: [1994] E.C.R.
I-1137; [1994] 3 C.M.L.R. 377, para. [12]; Case C-193/94, Criminal Proceedings
against Skanavi and Another: [1996] E.C.R. I-929; [1996] 2 C.M.L.R. 372, paras
[20] & [21].
A38 As a preliminary point, the UK and Dutch Governments submitted that
Article 52 of the Treaty is not applicable to the present case since it is a general
provision as opposed to the more specific rules on free movement of capital
which must be applied by way of exception. As we have seen, those
governments defend the provision at issue, maintaining that it is compatible with
Community rules guaranteeing free movement of capital. If my understanding is
correct, those governments argue that Article 52 of the Treaty does not preclude
the provision at issue which is consistent with Article 1(1) of the Directive. In my
view, that argument is not relevant here. It is admittedly true that the second
paragraph of Article 52 of the Treaty enshrines the principle of national treatment
with regard to the establishment of undertakings in another Member State
"subject to the provisions of the chapter relating to capital" [FN86]; however, that
provision merely expresses the concern of the draftsmen of the Treaty not to
superimpose provisions on freedom of establishment and free movement of
capital, in other words, to avoid applying two sets of provisions to one and the
same restriction. On the other hand, it is quite possible for one and the same
provision of a Member State's legislation to contain several distinct aspects, all of
which are relevant to the Treaty, as in the case of a national measure restricting
more than one fundamental freedom simultaneously and to an equal degree. In
Svensson and Gustavsson, the Court held that one and the same measure was
contrary to both Article 59 and Article 67 of the Treaty. More recently, Advocate
General Tesauro acknowledged that, in principle, "it would ... be possible for
[two] sets of provisions to apply together, but only in relation to the provisions
restricting simultaneously, although from different angles, [two distinct
fundamental freedoms]", including movement of capital. [FN87] In that regard, I
would point out that in Veronica Omroep Organisatie, where the Court held that
the national measure at issue (see para A11 above) was compatible with both
the provisions on freedom to provide *1410 services and those on free
movement of capital, it simultaneously examined the case in the light of two
distinct sets of rules and did not at all rule out the relevance of the "services"
aspect, despite the fact that the national measure was compatible with the Treaty
from the "capital" angle.
FN86 Correspondingly, in its present version, Article 73d(2) of the Treaty is
worded analogously as regards capital movements: "the provisions of this
Chapter shall be without prejudice to the applicability of restrictions on the right of
establishment which are compatible with this Treaty".
FN87 See para. 17 of the Opinion in Safir.
A39 As regards the substance of Article 47b, I must first observe that, even from
the--different--perspective of the provisions on freedom of establishment (for
undertakings), that provision is applicable in a discriminatory manner (as Mr
Verkooijen did not fail to point out), since it distinguished between dividends
distributed by Dutch companies and those distributed by companies established
in other Member States. Unless the distinction under Dutch tax legislation is
based on situations that are objectively not comparable or is justified by a
relevant overriding reason in the general interest (see the end of point 32 above),
this observation alone is sufficient for Article 47b to be regarded as contrary to
Article 52 of the Treaty: "Article 52 prohibits all discrimination, even if only of a
limited nature". [FN88]
FN88 See Avoir Fiscal, para. [21].
A40 Moreover, as for whether or not there is a restriction under Article 52 of the
Treaty, it may seem, at first sight, that the provision at issue only "indirectly"
concerns the issuing companies: Article 47b is not, strictly speaking, part of the
tax system for companies, since it affects the benefits enjoyed by shareholders
who are natural persons (the exemption applies only in respect of income tax on
natural persons, see point 3 above) after corporation tax has been assessed on
the profit from company activities (which has given rise to the dividends
distributed). However, as we shall see below, the tax regime applicable to
dividends originating in another Member State cannot-- under aspects other than
those examined in the section on Question 1--fail to influence [FN89] certain
decisions which companies established on Community territory (including in the
Netherlands, therefore) must take as regards their principal or secondary place of
business.
FN89 See para. 16 and the case-law of the Court cited in fn. 36.
A41 There are many situations in which a national measure such as Article 47b
restricts--to a greater or lesser extent--freedom of establishment:
(a) as Mr Verkooijen has observed, a company that has its principal place of
business in another Member State and plans to set up a secondary place of
business [FN90] in the Netherlands *1411 will be dissuaded from doing so in any
form other than a company if it intends to turn to the capital market in that
Member State in order to raise the capital needed to manage an undertaking.
[FN91] The provision at issue essentially encourages preference to be given to
establishment in the form of a subsidiary, which is legally independent of the
parent company by which it is controlled, rather than the alternative of a branch,
defined as a part of a de facto whole or simply as a limb of the company, allowing
a measure of decentralisation. [FN92] In Centros, the Court recently confirmed
that freedom of establishment includes the right for a company to set up a
secondary place of business in another Member State and to carry on its
business in the form it considers most appropriate [FN93]: all restrictions on that
freedom of choice must thus be regarded as contrary to Article 52 of the Treaty.
FN90 Article 52 of the Treaty does not merely guarantee freedom of
establishment on a primary basis: under the first paragraph of Article 52 and the
first paragraph of Article 58 of the Treaty, freedom of establishment includes the
right of companies formed in accordance with the law of a Member State and
having their registered office, central administration or principal place of business
within the Community to pursue their activities in another Member State through
a branch or agency. On this substantive question, see Case C-334/94, EC
Commission v. France: [1996] E.C.R. I-1307; [1997] 4 C.M.L.R. 662, para. [19],
and Case C-212/97, Centros Ltd v. Ehrverus-og Selskabsstyrelsen: [1999]
E.C.R. I-1459; [1999] 2 C.M.L.R. 551, para. [21]. On a more general level, see
Case C-106/91, Ramrath v. Ministère de la Justice and Another: [1992] E.C.R. I3351; [1995] 2 C.M.L.R. 187, para. [20]; Gebhard, para. [24], and Case C-53/95,
Institut National d'Assurance Sociales pour Travailleurs Independants (INASTI) v.
Kemmler: [1996] E.C.R. I-703, para. [10].
FN91 The right of establishment includes the right to "manage undertakings"
(see the second paragraph of Article 52 of the Treaty and Gebhard, para. [23]:
"the right of establishment ... allows all types of self-employed activity to be taken
up and pursued on the territory of any other Member State, undertakings to be
formed and operated ..."; the italics are mine).
FN92 See para. 15 of my Opinion in Centros.
FN93 See paras [20]-[22] of the judgment, and the case law references to the
same effect. Among these, see Avoir fiscal where the Court stated that "the
second sentence of the first paragraph of Article 52 expressly leaves traders free
to choose the appropriate legal form in which to pursue their activities in another
Member State" (para. [22]; the italics are mine).
(b) a company established in the Netherlands whose shareholders (though not
necessarily all of them) are natural persons resident there for tax purposes and
which intends to set up a principal place of business in another Member State (by
transferring its registered office and thus acquiring the status of a company of the
host Member State) [FN94] will be dissuaded from doing so, since its Dutch
shareholders would automatically forgo the advantage provided for in Article 47b
because their dividends would no longer be distributed by a "Dutch" company.
FN94 See, a contrario, Case 81/87, R. v. HM Treasury and Commissioner of
Inland Revenue, Ex parte Daily Mail and General Trust Plc: [1988] E.C.R. 5483;
[1988] 3 C.M.L.R. 713, paras [24] & [25], where the Court held that "Articles 52
and 58 of the Treaty cannot be interpreted as conferring on companies
incorporated under the law of a Member State a right to transfer their central
management and control and their central administration to another Member
State while retaining their status as companies incorporated under the legislation
of the first Member State" (the italics are mine).
(c) I believe that Article 47b also plays a role in the case of a merger involving a
company established in the Netherlands whose shareholders are natural persons
resident in the *1412 Netherlands. As in the case under (b) above, those
shareholders lose the advantage under the provision at issue (i) in the case of a
merger by incorporation, where the incorporating company does not have its
registered office in the Netherlands, and (ii) in the case of a true merger, where
the ensuing, newly-formed company does not have its registered office in the
Netherlands. [FN95] In both cases, the dividends paid to Dutch taxpayers
following such mergers will no longer originate from a company established in the
Netherlands.
FN95 These operataions entail the "transfer" of the company's registered office
to another Member State (see situation (b)) and a different strategy in terms of
the location of the management of the undertaking.
A42 The aspects I have just indicated by way of example specifically concern
Article 52 of the Treaty. In (a), (b) and (c), the exercise of the freedom of
establishment which is restricted (discouraged or influenced) by the provision at
issue concerns certain management decisions concerning undertakings in the
form of a company (the form of the decentralisation of activities, the location of
the registered office, merger with other undertakings, respectively) that do not
involve (directly at least) capital movements within the meaning of Article 67 of
the Directive, such as that effected by Mr Verkooijen when he acquired the
Petrofina shares.
A43 Moreover, as regards the view of the governments which have submitted
observations that the effects of Article 47b on freedom of establishment are too
tenuous, I would point out that the Court has consistently held that Article 52 of
the Treaty prohibits "any restriction, even minor, of that freedom" (see the end of
paragraph A17). [FN96]
FN96 The Ruding Report shows that, in the case of 48 per cent of Community
undertakings, tax considerations are nearly always crucial in deciding where to
establish a production unit (see Chapter 10, Section II, on the impact of
differences in taxation between the Member States); on the other hand, the
percentages are 38 per cent in the case of a sales point, 41 per cent for a
research and development centre, 57 per cent for a co-ordination centre and 78
per cent for a finance centre.
A44 Assuming that, under certain aspects, the provision at issue is inconsistent
with Article 52 of the Treaty, we must now determine whether it can be regarded
as justified, suitable for attaining the objective pursued by the legislature, and
proportionate. Despite the various aspects under which Article 47b can be
deemed incompatible with Treaty provisions on freedom of establishment, I
believe that--as regards the determination and existence of a justification and the
appropriateness and proportionality of the national measure--the line of
reasoning followed in the section on Question 1 (see points 19 to 29) also applies
here: the provision at issue is the same (within the same tax system) and the fact
that it is also applicable in a discriminatory manner from the "exercise of freedom
of establishment" point of view has the consequences already described (see
paragraph A23) in *1413 respect of the determination of the causes which may
justify that measure.
A45 To conclude, I believe that a national measure such as the one at issue here
is inconsistent with Article 52 of the Treaty under several aspects but that, in
principle, it must nevertheless be regarded as justified by the need to ensure the
cohesion of the tax system of the Member State concerned.
Questions 1 and 2: a comprehensive approach
A46 In the foregoing examination of the first two questions referred for a
preliminary ruling, I have concentrated on the elements that emerge clearly from
the case file. I believe it is now worthwhile considering certain other elements
which are relevant, in my view, for the purpose of giving a proper answer to the
questions referred, namely, for the reasons set out below, the provisions of the
bilateral Double-Taxation Convention concluded between Belgium and the
Netherlands [FN97] (that is, the Member State where Petrofina has its registered
office and the dividends at issue in the main proceedings originated, and the
Member State where Mr Verkooijen is resident, rsepectively). Admittedly, the fact
that both the order for reference and the observations submitted in the course of
the proceedings before the Court [FN98] barely refer to the Convention could at
once raise doubts on the proper formulation of the question referred by the Hoge
Raad: by failing to consider the Convention (even if only to dismiss it as irrelevant
to the proceedings), the order for reference does not appear to provide a
sufficiently precise description of the legal background to the questions at issue.
Moreover, as Advocate General Léger rightly observed in Wielockx, [FN99]
"double-taxation conventions ... are an integral part of national tax law", and they
must therefore be duly taken into account, in any event, in order to have a
complete picture of the ins and outs in tax cases involving a cross-border
element.
FN97 Convention signed in Brussels on 19 October 1970 (see Moniteur BelgeBelgisch Staatsblad of 25 September 1971, No. 187, p. 11096), hereinafter "the
Convention".
FN98 See, however, the passage referring to tax agreements in the observations
submitted by the Dutch Government (para. 14).
FN99 Para. 54 of the Opinion.
A47 Nevertheless, to fulfil the obligations of judicial co-operation under Article
177 of the Treaty, I believe that it is for the Court to take into consideration all
relevant elements of which it is aware, in order to provide the national court with
a useful answer. In that regard, I would recall that the Court has already had
several occasions to dwell (more or less at length) on these conventions, even
where they were not the object of the questions referred for a preliminary ruling.
[FN100] Therefore, *1414 it is necessary (or at least appropriate) here not to
disregard [FN101] the provisions of a bilateral convention, such as that
concluded between Belgium and the Netherlands, which the Court has already
considered at length [FN102] and which contains provisions that specifically and
directly concern the case at issue. [FN103]
FN100 See Wielockx, the operative part of the judgment and paras [24] to [27],
and Bachmann (para. [26]), where absolutely no reference was made to
international conventions either in the arguements of the parties before the Court
or in the Opinion of Advocate General Mischo (for a description of that case, see
para. A25 of this Opinion). According to V. Petrella (Il principio di non
discriminazione nell'imposizione del reddito transnazionale. Analisi del principio
nel contesto giuridico comunitario, doctoral thesis, Università degli Studi
"Federico II", Naples, 1999, Chapter IV, Section 5): "[if fiscal cohesion is
understood] as preserving the macro-economic balances underlying any tax
system ... the judgment [Bachmann] is open to censure in that it disregards the
system introduced by bilateral agreement by failing to note that the provisions of
the [double taxation] agreement produce a macroeconomic equilibrium, if only at
bilateral level. The convention concluded between the Kingdom of Belgium and
the Federal Republic of Germany distributes the fiscal power of the two countries
by conferring on the Federal Republic of Germany the exclusive power to tax
insurance sums paid to taxpayers residing in Germany at the time of payment,
regardless of where the premiums were paid and the system to which they were
subject" (on the basis of her interpretation of para. [26] of the judgment, the
author in essence believes that, in Bachmann, the Court held that the conclusion
of bilateral treaties establishing taxation rules for insurance contracts involving a
cross-border element--such as those at issue-- was irrelevant on the ground that,
because they are bilateral, such treaties cannot uniformly regulate transactions
within the Community). To the same effect, see B. Knobbe-Keuk, "Restrictions on
the Fundamental Freedoms Enshrined in the EC Treaty by Discriminatory Tax
Provisions--Ban and Justification", in EC Tax Review, 1994, p. 74, especially p.
80. Thereinafter, in Wielockx, case law evolved considerably in terms of the
importance that the Court attaches to bilateral tax agreements for the proper
resolution of the questions referred to it: "In Wielockx, the Court notes the
anomaly [of the result in Bachmann] and, overturning its conclusions in
Bachmann, holds that fiscal cohesion must be appraised in the context of a
State's overall taxation system, including also the system set up by bilateral
agreements" (Petrella, ibid.; the italics are mine). Also see Royal Bank of
Scotland (para. [31]) where, although the French Government referred to the
double taxation agreement between Greece and the United Kingdom (the two
Member States concerned by the facts in the main proceedings), that agreement
was the object neither of the question referred to the Court for a preliminary
ruling, since the referring court was uncertain as to compatibility with Community
law solely as regards internal national law, nor of the description of the legal
context presented in Judge-Rapporteur Wathelet's Report for the Hearing.
FN101 Less, here, to ascertain the merits of a justification (fiscal cohesion) of a
measure applicable in a discriminatory manner (see Bachmann and Wielockx
where, as I have already pointed out, the Court did not follow the same line of
reasoning), than to decide, as we will see further on (paras 52- 56), whether or
not a national law is applicable in a discriminatory manner, or whether it
constitutes a restriction on a fundamental freedom.
FN102 See Wielockx, paras [24] & [25], as well as para. 54 and fn. 41 of the
Opinion of Advocate General Léger.
FN103 See Avoir Fiscal, paragraph 26, where the Court rejected the argument of
the French Government--which relied upon double-taxation agreements to justify
the national measure concerned--on the ground that those agreements did not
deal with the cases at issue.
A48 By way of a further preliminary comment, I would observe that in preliminary
rulings the Court has already had occasion to rely upon ambivalent wording in
order to cover all possible alternative legal frameworks. In Joined Cases C 3133196, Naranjo Arjona and Others v. Institution Nacional de la Seguridad Social
(Inss) and Others, [FN104] the Court interpreted Community law by referring first
to the provisions of national law indicated by the national court (paragraphs 15 to
24 and *1415 the operative part of the judgment) and then broadening its
analysis to encompass an international convention (cited by the Commission but
not mentioned in the order for reference), in the event that the convention were to
be deemed applicable "in practice" (paragraphs 25 to 29 and the operative part
of the judgment). In that case, the Court stated that "[i]t is therefore for the
national court to verify whether application of that convention would in practice be
[relevant]" (paragraph 29) before indicating in the operative part of the judgment
the solution to the questions raised by the national court both for the case where
only the national law of the Member State concerned was applicable and for the
case where the national court considered it more appropriate to rule on the basis
of the international convention. [FN105] Similarly, for the reasons already
indicated, I believe that in the case at issue in the main proceedings before the
Hoge Raad, it is necessary to consider in the alternative, a legal framework
incorporating the Convention, in addition to the rules of national law indicated in
the order for reference.
FN104 [1997] E.C.R. I-5501.
FN105 The operative part of the judgment in Naranjo Arjona and Others
essentially reflects my Opinion where I outlined the two (alternative) answers
which I proposed should be given to the questions referred for a preliminary
ruling.
(1) The Double-Taxation Convention between Belgium and the Netherlands
A49 Let me now consider specifically this convention, but only in so far as it has
a bearing on this case. My comments may, however, also apply in cases other
than this one, since the provisions on "cross-border" dividends between Belgium
and the Netherlands are modelled (like practically all comparable conventions
concluded between the Member States of the Community) [FN106] on the Model
Double-Taxation Convention proposed by the OECD. [FN107] I would also point
out that my Opinion based solely on the national legislation of the Netherlands
remains unchanged in the non-hypothetical [FN108] case where national
legislation is not coupled with a double-taxation convention containing provisions
such as those examined below.
FN106 See Case C-336/96, Gilly v. Directeur des Services Fiscaux du Bas-Rhin:
[1998] E.C.R. I-2793; [1998] 3 C.M.L.R. 607, para. [24].
FN107 Organisation for Economic Co-operation and Development.
FN108 As late as 1992, the Ruding Report identified a number of cases where
Member States had not concluded bilateral double-taxation agreements with
each other (see Chapters 3 and 10, Section III, on tax agreements).
A50 Article 10(1) of the Convention establishes the basic principle that the
Contracting State where the shareholder is resident is entitled to charge tax on
dividends originating in the other Contracting State. [FN109] Article 10(2) of the
Convention also entitles the State of origin of the dividends (namely, the country
where the distributing company is *1416 established) to charge tax on them (as a
rule, by deduction at source, in addition to tax on company profits) below a
maximum limit. [FN110] Moreover, under Article 24 of the convention, [FN111]
the Netherlands must award a tax credit in order to avoid double taxation of the
divends paid to its taxpayers holding shares in companies established in
Belgium, provided that, and to the extent that, a deduction at source such as that
provided for in Article 10(2) of the Convention has already been made from those
dividends in Belgium. [FN112] In essence, in the case of a Dutch taxpayer
receiving dividends from a Belgian company, the Convention provides for a
mechanism which is quite common in practice and is designed less to mitigate
than to avoid the effects of double taxation.
FN109 Under Article 10(1) of the Convention (whose content, like that of
paragraph 2, reflects that of Article 10 of the OECD Model Convention):
"Dividends paid by a company which is a resident of a Contracting State to a
resident of the other Contracting State may be taxed in that other State".
FN110 Article 10(2) of the Convention states: "However, such dividends may
also be taxed in the State of which the company paying the dividends is a
resident and according to the laws of that State, but the tax so charged shall not
exceed: (1) 5 per cent of the gross amount of the dividends if the beneficial
owner is a company (other than a partnership) which holds directly at least 25
per cent of the capital of the company paying the dividends; (2) 15 per cent of the
gross amount of the dividends in all other cases ...". Moreover, under the last part
of that same paragraph, those limits do not affect the taxation of the company in
respect of the profits out of which the dividends are paid. Although the
Convention establishes the reciprocal obligation for Contracting States to apply-in the case of dividends paid to a shareholder resident in the Contracting State--a
dividend tax not exceeding 15 per cent, Mr Verkooijen claims that a withholding
tax of 25 per cent had already been deduced in Belgium in respect of the
dividends he received.
FN111 Which corresponds to Article 23 of the OECD Model Convention.
FN112 Article 24(1) of the Convention provides that "as regards residents of the
Netherlands, double taxation shall be avoided as follows: (1) In assessing tax,
the Netherlands may include in the taxable amount elements of income or private
assets which are taxable in Belgium in accordance with this Convention; ... (3)
The Netherlands shall grant ... a reduction in the tax thus assesses in respect of
such elements of income as are taxable in Belgium pursuant to Article 10(2) and
are included in the basis of assessment referred to in (1). That reduction shall be
equal to the lower of: (a) an amount equal to the tax charged in Belgium; (b) an
amount equal to the fraction of the Dutch tax calculated in accordance with (1),
which corresponds to the relationship between the amount of such elements of
income and the taxable amount referred to in (1). ..." As for Belgium, Article 24(2)
requires--as a rule--Belgium to exempt its taxpayers in respect of income on
which tax has already been charged in the Netherlands. "Exemption" and "tax
credit" are the two basic methods for avoiding double taxation indicated in Article
23 of the OECD Model Convention. In the present case, it cannot be established
from the file whether the Netherlands tax authorities applied--in accordance with
Article 24(1) of the Convention--to the dividends paid by Petrofina to Mr
Verkooijen the tax credit in respect of the dividend tax already deducted in
Belgium or whether Mr Verkooijen never applied for that advantage, designed to
avoid double taxation.
A51 Considering the whole framework of relevant provisions--both national and
international--the Dutch tax system--which seeks to eliminate, or at least mitigate,
the effects of double taxation both in purely "internal" cases and in "cross-border"
cases--is therefore characterised by the consistent nature of the treatment
applied to different circumstances. I would observe, moreover, that by applying a
tax credit to dividends distributed by Belgian companies, the Netherlands
apparently achieves a more effective result than that attained--in respect of
dividends distributed by Dutch companies--by means of the partial exemption
granted under Article 47b. As I have *1417 just pointed out, in the case of "crossborder" dividends, it is more appropriate to speak of the elimination rather than
the mitigation of double taxation.
(2) Capital movements
A52 That being said, let us now consider the circumstances underlying the first
question. Take the case of a Dutch taxpayer who, like Mr Verkooijen, has
invested in shares of a company established in Belgium and has thus received a
tax credit in accordance with Article 24(1) of the Convention. What if that
taxpayer also asks to benefit from the exemption under Article 47b? Although he
may justify his request on the ground of the principle of equal treatment of capital
invested in different places, not only is that taxpayer actually seeking more
favourable treatment than those who are resident for tax purposes in the
Netherlands and have invested in Dutch shares, he is essentially seeking-despite the fact that he is in principle entitled to a tax credit under the Convention
(thus already avoiding the effects of double taxation)--to avoid income tax, at
least in respect of a taxable income of NLG 2,000. Such a result is inconsistent
with the aims of the Treaty (and of the Directive) and unjustifiably interferes with
the taxation power of the Member State concerned. Community rules on capital
movements are not designed to create incentives for those movements, but to
remove all obstacles by requiring Member States to treat Community situations
no less favourably than purely internal situations. In this case we are dealing with
a Member State that has already concluded and implemented in its national legal
system a convention designed to avoid double taxation of "cross-border"
dividends, a convention which certainly does not hinder free movement of capital
according to Article 1(1) of the Directive (or Article 73b of the Treaty). I do not
see on what basis Community law could require that Member State also to apply
to those dividends the tax treatment reserved for "national" dividends. That
obligation would be tantamount to forgoing tax revenue and, what is more, it
would be purely unilateral since there is no reciprocal obligation on the part of
another Member State. Therefore, in my view, the national provisions are not
open to criticism since they generally display a form of cohesion which goes
beyond the purely national level. That point is important and warrants two
additional observations.
A53 First, the foregoing observations do not refer to cohesion as a means for
offsetting the disadvantage arising from the national measure (namely, the fact
that the taxpayer does not benefit from a certain tax exemption) with an
advantage of another kind, in another Member State: in its case law, the Court
has held that such broad cohesion cannot effectively justify taxation. [FN113] The
case at issue is different. Cross-border investment and domestic investment are
subject to *1418 different rules and regulations of the national legislature, some
deriving from conventions, some arising autonomously from the national legal
system. The distinguishing feature in the present case is the linkage between the
fiscal advantages and disadvantages provided for in the legal system, considered
as a whole, of one and the same Member State. The Netherlands does not
extend the exemption provided for in Article 47b to dividends originating from
Belgium because in the Netherlands those dividends have the advantage of a tax
credit in accordance with Article 24(1) of the Convention.
FN113 See end of fn. 71.
A54 I would observe, moreover, that the fact that the Netherlands grants a tax
credit corresponding to the deduction at source made in Belgium does not
adversely affect the cohesion of the tax system concerned. From that point of
view, fiscal cohesion is no longer claimed within the system of taxation itself, or
on the basis of a strict correlation between the exemption from income tax and
the subjection of the dividends to a corresponding tax, but rather by virtue of a
different macro-economic balance, which is international and results from the
bilateral regulation of the intersts of the Contracting States as governed by
conventions: "[f]iscal cohesion ... is shifted to another level, that of the reciprocity
of the rules applicable in the Contracting States". [FN114] Although it is true that
the obligation to grant a tax credit in respect of the deduction at source made by
the other contracting State (Article 24(1) of the Convention) reduces the tax
revenue of the Netherlands, it is equally true that that State is entitled to made a
deduction at source from the dividends paid by Dutch companies to shareholders
residing in Belgium (Article 10(2) of the Convention).
FN114 Wielockx, paragraph 24. The Ruding Report also held such reciprocity to
be essential for imposing on Community Member States the obligation to grant to
"cross-border" dividends the advantages applicable to dividends of "national"
origin.
A55 That being said, it is now easier to see--taking into consideration all relevant
provisions of the legal system in question, including the provisions of the
aforesaid bilateral convention--how to classify the provision at issue in the main
proceedings. I have already stated that Article 47b constitutes an obstacle to
capital movements and is contrary to Article 1(1) of the Directive. However, that
conclusion was based solely on the provisions of national law indicated by the
Hoge Raad in its order for reference to the Court and the arguments submitted
by the parties in the present proceedings. If, however, we take into consideration
the conventions which specifically concern the circumstances in Mr Verkooijen's
case, the national measure limiting the exemption under Article 47b to dividends
distributed by Dutch companies is no longer, in the eyes of Community law, a
measure having the effect of dissuading Dutch taxpayers from investing their
capital in Belgium. For those who invest in shares in companies established in
that State, the tax system of the Netherlands, considered as a whole, provides an
even more effective solution than that introduced (10 years after the Convention
was concluded) in the *1419 "internal" case; moreover, Community law does not
prohibit Member States from treating purely internal situations less favourably.
[FN115] The Dutch taxpayer wishing to invest his capital in shares with a view to
collecting the corresponding dividends may thus choose between shares in
companies established in Belgium (in which case he is assured so-called fiscal
neutrality under the Convention, avoiding double taxation entirely) and shares in
companies established in the Netherlands (in which case the effects of double
taxation are simply mitigated, to a limited degree). In essence, therefore, the tax
system of the Netherlands is distinguished by a sort of fiscal neutrality as regards
investments in shares in Belgian and Dutch companies. Considering the relevant
legal framework in its entirely, I believe we can also rule out the aspect of
discrimination referred to in paragraph 18 above. The fact that the advantage
provided for in Article 47b does not apply in respect of dividends distributed by
companies established in another Member State is accounted for by the fact that
the Convention establishes a particular system for that category of dividends: the
two categories of dividends ("national" and "cross-border") are not, therefore, in a
comparable situation and the two advantages, concerning different situations,
cannot be aggregated. [FN116]
FN115 See, for example, Case C-112/91, Werner v. Finanzamt AachenInnenstadt: [1993] E.C.R. I-429 where the Court held that tax legalisation treating
national citizens less favourably than foreigners (reverse discrimination) was
compatible with Community law. See, more recently, Asscher, where the Court
confirmed the compatibility with Community law of reverse discrimination
measures, stating that, although the rules on freedom of establishment cannot be
applied to situations which are purely internal, a Member State cannot interpret
those rules in such a way as to exclude its own nationals from the benefit of
Community law where those nationals are in an equivalent situation to that of
other Community nationals enjoying the rights and liberties guaranteed by the
Treaty (see para. 32).
FN116 My conclusions concerning the classification of the provision at issue are
supported by those of the 1992 Ruding Report (already cited in fn. 32). That
report recommends that Member States whose legal order provides for a form of
tax advantage in respect of dividends paid by companies established in the
Member State in question to those who are resident for tax purposes grant, on a
reciprocal basis, an equivalent advantage in respect of dividends distributed by
companies established in another Member State (see Chapter 10, Section III, in
the part devoted to company tax regimes). In the absence of Community
harmonisation, the Ruding Report claims that such a solution has the advantage
of reducing to a minimum possible distortions. In the context of its bilateral
relations with Belgium, the Netherlands grants an advantage on "cross-border"
dividends which is not equal to, but greater than that on "national" dividends. Let
me add that the provisions of the convention are fully in line with the
Commission's recommendations advocating a measure with less restrictive
effects on capital movements, namely a tax credit for diviends originating in
another Member State (see para. 29).
(3) Freedom of establishment
A56 In paragraphs A36 to A45, I explained the reasons why, in my view, in the
light of national provisions alone, the provision at issue must be regarded as
compatible with Article 52 of the Treaty. As for capital movements, however, a
more comprehensive analysis encompassing the provisions of conventions
described above leads me to reconsider *1420 my opinion on freedom of
establishment. As I said, the "cohesion" distinguishing the Dutch tax system as a
whole makes it "neutral" in respect of the taxation of dividends for shareholders
who are natural persons. It follows that such cohesion, or neutrality, also rules
out the existence of any discrimination or restriction from the angle of freedom of
establishment. Moreover, the fact that, as we have seen, "cross-border"
dividends enjoy truly privileged treatment compared with "national" dividends has
the effect of encouraging both capital movements between Member States and
the exercise, in certain cases at least (see point 41(b) and (c)), of the right of
establishment.
Question 3
A57 By its third and last question, the Hoge Raad asks whether the answers to
the first two questions are likely to differ if the investor is an employee of a
company controlled by the issuing company, who holds the shares giving rise to
the dividends in the context of an employees' savings plan.
A58 The parties which have submitted observations in these proceedings
generally agree that that question must be answered in the negative, considering
also that Article 47b does not lay down different rules depending on the type of
taxpayer holding shares. That Article does not distinguish between third-party
investors and investors holding shares in the context of an employees' savings
plan. As regards the first question for a preliminary ruling, which I have already
considered, I share the position of the parties: the Treaty and the Directive
guarantee the widest possible freedom as regards capital movements, [FN117]
without any other conditions or distinctions based on the nature or characteristics
of the person undertaking such a movement. The freedom in question must be
understood as being guaranteed to all persons under the same conditions.
FN117 See Bordessa, para. [17], and Brugnoni and Another, para. [22] (although
the latter judgment concerns a time when only certain capital movements had
been liberalised, the findings of the Court concerning those capital movements
are now generally applicable since the Directive brought about full liberalisation
in this field).
A59 However, Mr Verkooijen submits an additional line of reasoning, concerning
more specifically the object of the second question. He essentially takes the view
that the limit introduced by Article 47b for the cases subject to the exemption has
a negative influence on the professional mobility of employees, precisely
because that provision excludes the application of the exemption to dividends
distribution by the foreign companies employing them. That makes it more
difficult for foreign companies to attract employees to the Netherlands. Foreign
companies would be obliged to set up employees' participation schemes or
employees' savings plans comparable to those which only companies
established in the Netherlands can offer, and this would contribute to increasing
the costs for a foreign company establishing a place of business in the
Netherlands. While it is not my *1421 purpose to ignore the case law of the Court
according to which all restrictions, even minor, on freedom of establishment are
contrary to Article 52 of the Treaty, [FN118] I believe, however, that the link
between the provision at issue and the exercise of freedom of establishment in
the Netherlands of companies with employees' savings plans comparable to that
of Petrofina is too tenuous and indirect to have any intrinsic importance for the
purposes of Article 52 of the Treaty. Even assuming it were sufficient to qualify
as a restriction contrary to the article concerned, that link is not such as to alter
my opinion on the second question, particularly as regards the existence of a
valid justification for the restriction. Moreover, any restriction would disappear in
any event if the overall legal framework of reference also included provisions of
conventions such as Articles 10 and 24 of the Double-Taxation Convention
between Belgium and the Netherlands.
FN118 See the case law referred to in para. A17, especially in fn. 42.
Conclusion
A60 In the light of the foregoing, I propose that the Court give the following
answers to the questions submitted by the Hoge Raad:
(1) Article 1(1) of Council Directive 88/361/EEC of 24 June 1988 for the
implementation of Article 67 of the Treaty and Article 52 of the EC Treaty (now,
after amendment, Article 43 EC) must be interpreted as precluding the legislation
of a Member State which makes the grant of an exemption from the income tax
payable on dividends from shares subject to the condition that those dividends
are paid by a company established in that Member State, unless the legislation in
question is necessary to ensure the cohesion of the tax system. It is for the
national court to establish whether that legislation goes further than is necessary
to ensure the cohesion of the tax system.
However, where the Member State concerned has concluded a double-taxation
convention containing provisions such as those in Articles 10 and 24 of the
Convention concluded on 19 October 1990 between Belgium and the
Netherlands, Article 1(1) of Directive 88/361 and Article 52 of the Treaty must be
interpreted, solely as regards capital movements and the exercise of freedom of
establishment between contracting Member States, as not precluding national
legislation such as that presently at issue.
(2) The answer under (1) is not affected by the fact that the recipient of the
dividends is an employee of a company controlled by the issuing company, who
acquired the shares in question in the context of an employees' savings plan set
up by the company controlling the subsidiary.
*1422 Second Opinion of Advocate General La Pergola (delivered on 14
December 1999)
A61 The present case was referred by the Hoge Raad der Nederlanden
(Supreme Court of the Netherlands) under Article 177 of the EC Treaty (now
Article 234 EC) which has asked the Court to determine whether tax legislation
granting to natural persons an exemption, up to a certain amount, from income
tax on dividends paid to shareholders, on condition that the companies to which
the dividends relate are established in the Member State where the taxpayer is
resident, is compatible with the rules of Community law guaranteeing free
movement of capital and freedom of establishment. The main proceedings arise
because the tax authorities in the Netherlands did not grant Mr Verkooijen the
exemption in respect of dividends he received in 1991 from a company
established in Belgium.
A62 By order of 17 September 1999, the Court re-opened the oral stage of the
proceedings which had been closed with my Opinion of 24 June 1999, being of
the view that it was appropriate to clarify certain elements of the Dutch tax
system that had been raised by Mr Verkooijen and the Dutch Government in
letters received at the Court Registry on 29 and 30 June 1999. I had not
considered these matters beforehand as there was no reference to them in the
case file. I had given my Opinion at the time on the premise that at the point at
which the income tax of natural persons was assessed, there was in the
Netherlands no provision for the deduction of the amount of the dividend tax
levied at source on dividends paid by companies established in that Member
State (see paragraph A63). While I recognised that there was in this case an
obstacle to free movement of capital and freedom of establishment, I had
concluded that restricting the exemption to natural persons who received
dividends from companies established in the Netherlands did not infringe
Community law. In my opinion, it was a solution justified by the necessity of
preserving the cohesion of the Dutch tax system (see paragraphs A23-A27 and
A44 of my Opinion, as well as point 1 of the conclusions thereto).
A63 On the basis of the information given by Mr Verkooijen and the Dutch
Government following the reading of my Opinion, it appears that the tax
legislation of the Netherlands provides that, when income tax on the aggregate
income of natural persons is assessed, the amount deducted from dividends
when the dividend tax was levied is taken into account. I have now taken account
of this and I believe that my earlier Opinion still applies as regards the existence
of an obstacle to free movement of capital and freedom of establishment.
[FN119] However, now that the description of the legal framework is complete, I
must *1423 reconsider whether, in relation to the first two questions referred, the
justification based on the need to preserve the cohesion of the Dutch tax system
is still valid.
FN119 The answer to the third question referred for a preliminary ruling also
remains unchanged since the new elements of the national legal framework
referred to by Mr Verkooijen and the Dutch Government do not impinge upon it.
A64 First of all, the underlying objective of the exemption designed to reduce the
weight of double taxation cannot be understood as meaning that the Dutch
legislature took account of the fact that in our case two taxes (dividend tax and
tax on the income of natural persons) are charged on one and the same
dividend, as income accruing to one and the same taxpayer (see paragraphs A4
and A21 of the Opinion of 24 June 1999). In fact, by virtue of the mechanism
outlined in the preceding paragraph, the dividend tax constitutes simply a
payment on account, withheld at source by the company distributing the
dividends, of part of the tax on aggregate income to which a shareholder is
subject. The double taxation referred to by the Dutch Government does not
therefore exist other than in an economic sense, that is, resulting from a first levy
of the tax on profits accruing to the companies distributing dividends and a
second levy--when the income tax of natural persons is assessed--on the same
profits when they are distributed in the form of dividends to the shareholder.
A65 According to all the governments present at this stage of the proceedings
the extension of the exemption to dividends received by shareholders resident in
the Netherlands from companies established in other Member States would
undermine the cohesion of the Dutch tax system. These governments assert that
to grant an exemption (albeit partial) from income tax to natural persons in
respect of dividends distributed by companies established in Member States
other than the Netherlands would mean that the Netherlands had to exempt a
part of the income of the shareholder resident there for tax purposes without
being able to render the distributing company liable to a tax on profits.
A66 The justification based on the need to preserve the cohesion of a Member
State's tax system has been argued before the Court on a number of occasions
[FN120] but accepted only in Case C-204/90, Bachmann v. Belgium. [FN121]
That case concerned Belgian legislation which granted a tax deduction in respect
of pension and life assurance contributions on condition that the premiums had
been paid to insurance companies established in Belgium. In Bachmann, the
Court acknowledged that thee was a direct link betweent he right to deduct
contributions and the taxation of sums payable by the insurers under pension
and life assurance contracts. In that case, the Court later observed in Case C107/94, Asscher v. Staatssecretaris Van Financiën [FN122]: *1424
[t]axpayers had a choice between being able to deduct the assurance premiums
but being taxed on the capital and pensions received when the contract matured
and not being able to deduct the premiums but in that case not being taxed on
the capital and pensions received at maturity (paragraph 58).
FN120 See the case law referred to in para. A23 of the Opinion of 24 June 1999
to which can be added Case C-294/97, Eurowings Luftverkehrs AG v. Finanzamt
Dortmund-Unna: [1999] E.C.R. I-7447; [2001] 3 C.M.L.R. 64 and Case C-55/98,
Skatteministeriet v. Vestergaard: [1999] E.C.R. I-7641; [2001] 3 C.M.L.R. 65.
FN121 [1992] E.C.R. I-249; [1993] 1 C.M.L.R. 785.
FN122 [1996] E.C.R. I-3089; [1996] 3 C.M.L.R. 61.
The Court justified the national legislation at issue in Bachmann specifically on
the ground that the Belgian legislature would have been able to compensate for
the possible deduction from income tax of insurance premiums paid in another
Member State by taxing pensions, annuities or capital sums only, clearly, where
the insurers paying them were established in Belgium. In the Court's view, the
cohesion of the system required that the tax-deductible premium be paid in
Belgium precisely because only in that case could the taxpayer who enjoyed the
benefit of the deduction be subject to the other levy on income, capital or
pensions. Essentially, as the Commission noted at the hearing of 30 November
1999, Bachmann concerned one and the same taxpayer being subject to a single
levy on income, which might or might not be deferred. [FN123]
FN123 To the same effect, see the recent case of Eurowings Luftverkehr (paras
20 & 42 of the judgment and para. A46 of Advocate General Mischo's Opinion)
and the Opinion of Advocate General Saggio in Vestergaard (paras A38 & A39),
to which the Court refers expressly in para. [24] of the judgment.
A67 The present proceedings, however, involve two separate taxes--one on
company profits, the other on the income of natural persons, to which the
exemption applies--concerning two separate persons, the company distributing
dividends and the recipient shareholder (see above, point 4). Anyone seeking to
discern a link between the tax on companies, which affects the profits of the
company distributing dividends, and the exemption from which the shareholder
benefits would, in my view, have to recognise that such a link is only indirect.
Here, therefore, the direct link identified by the Court in Bachmann on the basis
of strict, but in my view sound, criteria does not apply. Those criteria prescribe
that the legislature concerned must establish a specific link between the
exemption, the tax deduction, and the subjection to tax, offsetting one of these
fiscal choices against the other so that the tax authorities can tax one and the
same person at different times or in different ways, but always in respect of the
same taxable assets or income and always in order to ensure that each taxpayer
is treated in a consistent manner. Hitherto, justifications, on the ground of the
cohesion of the tax system, for tax provisions which constitute an obstacle to one
or more of the fundamental freedoms but which lack this essential link, which
must be direct purely in the sense set out above, between the different
components of the tax system, have been *1425 rejected. [FN124] I see no
reason here to depart from this clear and settled case law.
FN124 See Case C-279/93, Finanzamt Köln-Altstadt v. Schumacker: [1995]
E.C.R. I-225; [1996] 2 C.M.L.R. 450, paras [40]-[42]; Case C-484/93, Svensson
and Another v. Ministre du Logement et de l'Urbanisme: [1995] E.C.R. I-3955,
para. [18]; Asscher paras [58] et seq.; Case C-264/96, Imperial Chemical
Industries Plc (ICI) v. Colmer: [1998] E.C.R. I-4695; [1998] 3 C.M.L.R. 293, para.
[29]; Eurowings, para. 42; and Vestergaard, para. 24.
A68 In the light of the foregoing, and with the answer to the third question
submitted by the Hoge Raad remaining as indicated in point 2 of the conclusions
to my Opinion of 24 June 1999, I propose that the Court give the following
answer to the first two questions:
Article 1(1) of Council Directive 88/361 for the implementation of Article 67 of the
Treaty and Article 52 of the EC Treaty (now, after amendment, Article 43 EC)
must be interpreted as precluding legislation of a Member State which grants an
exemption from the income tax payable on share dividends subject to the
condition that those dividends are paid by a company established in that Member
State.
JUDGMENT
1 By order of 11 February 1998, received at the Court on 13 February 1998, the
Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred to the
Court for a preliminary ruling under Article 177 of the EC Treaty (now Article 234
EC) three questions on the interpretation of Council Directive 88/361 for the
implementation of Article 67 of the Treaty [FN125] and of Articles 6 and 52 of the
EC Treaty (now, after amendment, Articles 12 EC and 43 EC).
FN125 [1988] O.J. L178/5.
2 Those questions were raised in proceedings between the Staatssecretaris van
Financiën (State Secretary for Finance) and Mr Verkooijen, a Dutch national,
concerning the refusal to grant him exemption from income tax on share
dividends received from a company established in a Member State other than the
Netherlands.
The national legislation
3 At the material time, income tax in the Netherlands was governed by the Wet
op de Inkomstenbelasting 1964. [FN126]
FN126 1964 Law on income tax, as in force prior to 1997, hereinafter "the
Income Tax Law".
4 Under Article 24 of the Income Tax Law, incoming from assets, including
dividends and other payments associated with the holding of shares, was subject
to income tax. Any taxpayer completing a Dutch tax return was therefore obliged
to in include divends as income from assets forming part of his taxable income.
5 Only natural persons are subject to Dutch income tax ("inkomstenbelasting")
and this case is therefore concerned only with the distribution of dividends to
natural persons.
6 *1426 When they are distributed by companies established in the Netherlands,
dividends are subject to a deduction at source by way of income tax: the tax
collected in that way is known as dividend tax. The rules for deduction of that tax
are laid down in Article 1(1) of the Wet op de Dividendbelasting 1965, [FN127]
according to which:
A direct tax known as dividend tax shall be charged to any person who, directly
or on the basis of certificates, receives income from shares, participation
certificates, profit-sharing bonds of public limited companies, private limited
companies, partnershps limited by shares and other companies all or part of
whose capital is divided into shares, established in the Netherlands.
FN127 1965 Law on the taxation of dividends, Stbl. 1965, p. 621, hereinafter "the
Dividend Tax Law".
7 The dividend tax may be a definitive tax. In particular, that is so where
dividends on shares in a company established in the Netherlands are paid to a
person who is not subject to Dutch income tax.
8 Conversely, where such dividends are paid to a person who is subject to Dutch
income tax, the dividend tax constitutes, by virtue of Article 63(1) of the Income
Tax Law, a payment on account ("voorheffing") of income tax. Under Article 15 of
the Algemene Wet inzake Rijksbelastingen, [FN128] when income tax on
aggregate income is assessed, that payment on account is set off against the tax
payable on aggregate income.
FN128 General Law on State Taxes.
9 Article 47b of the Income Tax Law exempts income from shares, up to a
specified amount, from income tax. That exemption applies to income from
shares on which Dutch dividend tax has been levied, which, under Article 1(1) of
the Dividend Tax Law, is equivalent to income from shares in companies
established in the Netherlands. The initial exemption of NLG 500 was raised to
NLG 1,000 (an exemption of NLG 2,000 being available for married persons)
pursuant to the Law of 6 September 1985. [FN129]
FN129 Stbl. 1985, p. 504.
10 As in force at the material time, Article 47b of the Income Tax Law provided:
1. The dividend exemption shall apply to income from shares in companies
treated as income for the purpose of determining aggregate income from which a
deduction for dividend tax has been made or has not been made pursuant to
Article 4(1) of the Wet op de Dividendbelasting 1965. Dividends shall be
exempted up to NLG 1,000, provided that they do not exceed the amount of the
income indicated above, less the costs relating thereto other than interest on
debts and costs relating to loans.
...
3. The sum of NLG 1,000 mentioned in paragraphs 1 and 2 shall be increased to
NLG 2,000 for any taxpayer to whom his spouse's income, referred to in Article
5(1), is attributed.
11 It is clear from the legislative history of that provision that the *1427 dividend
exemption (and its limitation to dividends paid by companies established in the
Netherlands) fulfilled a twofold objective: first, the exemption was intended to
raise the level of undertakings' equity capital and to stimulate interest on the part
of private individuals in Dutch shares; secondly, in particular for small investors,
the exemption was intended to compensate in some measure for the double
taxation which would otherwise result, under the Dutch tax system, from the
levying both of corporation tax on profits accruing to companies and of tax on the
income of private shareholders imposed on the dividends distributed by those
companies.
The main proceedings
12 In 1991, Mr Verkooijen resided in the Netherlands and was employed there by
Fina Nederland BV, a distributor of petroleum products indirectly controlled by
Petrofina NV, a public limited liability company established in Belgium and
quoted on the stock exchange.
13 In the context of an employees' savings plan ("werknemersspaarplan") open
to all employees of the group, Mr Verkooijen acquired shares in Petrofina NV. In
1991 a dividend was distributed in respect of those shares of about NLG 2,337
(after conversion into Dutch guilders) which was sujbect to a deduction at source
of 25 per cent in Belgium. In his Dutch tax return for 1991, Mr Verkooijen
included that dividend as part of his taxable income.
14 For the purpose of taxing Mr Verkooijen's income, the tax inspector did not
apply the dividend exemption on the ground that Mr Verkookijen was not entitled
to it since the dividends received by him from Petrofina had not been subject to
the Dutch dividend tax. The notice informing Mr Verkooijen of his liability to
income tax and his contribution to the general social insurance scheme
("volksverzekeringen") for 1991 therefore indicated taxable income of NLG
166,697, including the entire dividend paid to him by Petrofina.
15 Mr Verkooijen objected to that notice, contending that the first NLG 2,000 (he
being married) of the dividend received by him should have been exempt from
income tax under Article 47b(1) and (3) of the Income Tax Law.
16 The tax inspector dismissed that objection, whereupon Mr Verkooijen
appealed against that decision to the Gerechtshof te 's-Gravenhage. That court
held that the limitation of the dividend exemption to income from shares from
which Dutch dividend tax had been withheld was contrary to Articles 52 and 58 of
the EC Treaty (now Article 48 EC) and to Directive 88/361. It therefore annulled
the tax inspector's decision and amended the tax notice, so that the tax was then
calculated on taxable income of NLG 164,697.
17 The Staatssecretaris van Financiën applied for review of the judgment of the
Gerechtshof te 's-Gravenhage to the court making the present reference.
*1428 The relevant Community legislation
18 The dispute in the main proceedings arose before the entry into force of the
Treaty on European Union and therefore the Treaty provision concerning the free
movement of capital which was applicable at the material time was Article 67 of
the EEC Treaty (repealed by the Treaty of Amsterdam). It was worded as follows:
During the transitional period and to the extent necessary to ensure the proper
functioning of the common market, Member States shall progressively abolish
between themselves all restrictions on the movement of capital belonging to
persons resident in the Member States and any discrimination based on the
nationality or on the place of residence of the parties or on the place where such
capital is invested.
19 That provision was implemented by various directives, including Directive
88/361, which was applicable at the material time.
20 Article 1(1) of that Directive provides:
Without prejudice to the following provisions, Member States shall abolish
restrictions on movements of capital taking place between persons resident in
Member States. To facilitate application of this directive, capital movements shall
be classified in accordance with the Nomenclature in Annex I.
21 The capital movements listed in Annex I to Directive 88/361 include:
I. Direct investment
...
2. Participation in new or existing undertaking with a view to establishing or
maintaining lasting economic links.
...
III. Operations in securities normally dealt in on the capital market (not
included under I, IV and V)
...
A --transactions in securities on the capital market
...
2. Acquisition by residents of foreign securities dealt in on a stock exchange.
...
22 The last paragraph of the introduction to Annex I states that the list of capital
movements is not exhaustive:
This nomenclature is not an exhaustive list of the notion of capital movements-whence a heading XIII--F. Other capital movements-- Miscellaneous. It should
not therefore be interpreted as restricting the scope of the principle of full
liberalisation of capital movements as referred to in Article 1 of the Directive.
23 Article 6(1) of Directive 88/361 provides:
Member States shall take the measures necessary to comply with this directive
no later than 1 July 1990. They shall forthwith inform the Commission thereof.
They shall also make known, by the date of their *1429 entry into force at the
latest, any new measure or any amendment made to the provisions governing
the capital movements listed in Annex I.
The questions referred to the Court
24 In those circumstances, the Hoge Raad der Nederlanden stayed proceedings
pending a preliminary ruling from the Court of Justice on the following questions:
1. Is Article 1(1) of Directive 88/361/EEC in conjunction with Heading I(2) in
Annex I to that Directive to be interpreted as meaning that a restriction arising
from a provision of the income tax legislation of a Member State which exempts
shareholders, up to a certain amount, from liability to income tax on dividends,
but restricts that exemption to dividends paid in respect of shares in companies
established in that Member State, has been prohibited since 1 July 1990
pursuant to Article 6(1) of that Directive?
2. If the answer to Question 1 is in the negative, are Articles 6 and/or 52 of the
EC Treaty to be interpreted as meaning that a restriction of the kind referred to in
that question is incompatible with one or both of those Articles?
3. Do the answers to the questions set out above differ depending on whether
the person seeking the benefit of such an exemption is an ordinary shareholder
or an employee (of a subsidiary company) who holds the shares in question in
the context of an employees' savings plan (werknemersspaarplan)?
The first question
25 By its first question, the national court seeks essentially to ascertain whether
Article 1(1) of Directive 88/361 precludes a legislative provision of a Member
State which, like the provision at issue in the main proceedings, make the grant
of exemption from income tax payable on dividends paid to natural persons who
are shareholders subject to the condition that those dividends are paid by a
company whose seat is in that Member State.
26 It is necessary first to consider whether the fact that a national of a Member
State residing in that Member State receives dividends on shares in a company
whose seat is in another Member State is covered by Directive 88/361, which
implements Article 67 of the Treaty.
27 Although the Treaty does not define the term capital movements, Annex I to
Directive 88/361 contains a non-exhaustive list of the operations which constitute
capital movements within the meaning of Article 1 of the Directive.
28 Although receipt of dividends is not expressly mentioned in the nomenclature
annexed to Directive 88/361 as "capital movements", it necessarily presupposes
participation in new or existing undertakings referred to in Heading I(2) of the
nomenclature.
29 Moreover, since, in the main proceedings, the company distributing dividends
has its seat in a Member State other than the Netherlands and is quoted on the
stock exchange, receipt of dividends on shares in that company by a Dutch
national may also be linked to "Acquisition *1430 by residents of foreign
securities dealt in on a stock exchange as referred to in Heading III.A(2) of the
nomenclature annexed to Directive 88/361", as Mr Verkooijen, the UK
Government and the Commission contend. Such an operation is thus
indissociable from a capital movement.
30 Consequently, the receipt by a national of a Member State residing in that
Member State of dividends on shares in a company whose seat is in another
Member State is covered by Directive 88/361.
31 Secondly, it is necessary to consider whether the fact that a Member State
refuses to exempt its taxpayers who receive dividends on shares in a company
whose seat is in another Member State from liability to tax on those dividends
constitutes a restriction of capital movements within the meaning of Article 1 of
Directive 88/361.
32 It must be borne in mind at the outset that, although direct taxation falls within
their competence, the Member States must none the less exercise that
competence consistently with Community law. [FN130]
FN130 Case C-80/94, Wielockx v. Inspecteur der Directe Belastingen: [1995]
E.C.R. I-2493; [1995] 3 C.M.L.R. 85, para. [16]; Case C-264/96, Imperial
Chemical Industries Plc (ICI) v. Colmer: [1998] E.C.R. I-4695; [1998] 3 C.M.L.R
293, para. [19]; and Case C-311/97, Royal Bank of Scotland Plc v. Greece:
[1999] E.C.R. I-2651; [1999] 2 C.M.L.R. 973; [1999] E.C.R. I-2651, para. [19].
33 Secondly, Directive 88/361, which applied at the material time, brought about
complete liberalisation of capital movements and to that end Article 1(1) thereof
required the Member States to abolish all restrictions on such movements. The
direct effect of that provision was recognised by the Court in Joined Cases C 358
& 416/93, Criminal Proceedings against Bordessa and Others. [FN131]
FN131 [1995] E.C.R. I-361; [1996] 2 C.M.L.R. 13, para. [33].
34 A legislative provision such as the one at issue in the main proceedings has
the effect of dissuading nationals of a Member State residing in the Netherlands
from investing their capital in companies which have their seat in another
Member State. It is also clear from the legislative history of that provision that the
exemption of dividends, accompanied by the limitation of that exemption to
dividends on shares in companies which have their seat in the Netherlands, was
intended specifically to promote investments by individuals in companies so
established in the Netherlands in order to increase their equity capital.
35 Such a provision also has a restrictive effect as regards companies
established in other Member States: it constitutes an obstacle to the raising of
capital in the Netherlands since the dividends which such companies pay to
Dutch residents receive less favourable tax treatment than dividends distributed
by a company established in the Netherlands, so that their shares are less
attractive to investors residing in the Netherlands than shares in companies
which have their seat in that Member State.
36 It follows that to make the grant of a tax advantage, such as the dividend
exemption, relating to taxation of the income of natural *1431 persons who are
shareholders, subject to the condition that the dividends paid by companies
established within national territory constitutes a restriction on capital movements
prohibited by Article 1 of Directive 88/361.
37 According to the governments which have submitted observations, even if a
national provision such as that relating to the dividend exemption were assumed
to constitute a restriction within the meaning of Directive 88/361, it would be
necessary to take account, in interpreting the Community law applicable at the
material time, of the Community rules which entered into force on 1 January
1994, in particular Article 73d(1)(a) of the EC Treaty (now Article 58(1)(a) EC).
38 The Dutch Government states, first, that that provision grants the Member
States, by way of exception to the prohibition of any restriction of capital
movements between Member States laid down in Article 73b of the EC Treaty
(now Article 56 EC), the right to apply the relevant provisions of their tax law
which distinguish between taxpayers who are not in the same situation with
regard to their place of residence or with regard to the place where their capital is
invested. It is clear from Declaration No. 7 annexed to the Final Act of the Treaty
on European Union that Article 73d(1)(a) of the Treaty allows national tax
provisions which were in force in the Member States before it came into effect to
continue to distinguish between taxpayers according to their place of residence
or the place where their capital is invested.
39 Next, both the Dutch Government and the UK Government maintain that
Articles 73b to 73g of the EC Treaty (Article 73c of the EC Treaty has become
Article 57 EC, Article 73e of the EC Treaty was repealed by the Treaty of
Amsterdam and Articles 73f and 73g of the EC Treaty have become Articles 59
EC and 60 EC) which were introduced by the Treaty on European Union must be
regarded as marking an advance in the process of liberalisation of capital or, at
least, as reproducing the law as it was by "constitutionalising" or "codifying" the
existing principles; they cannot be a step backwards.
40 Consequently, according to those same governments, the possibility under
Article 73d(1)(a) of the Treaty of applying national tax provisions distinguishing
between taxpayers according to their place of residence or the place where their
capital is invested existed before that provision entered into force, in particular by
virtue of Directive 88/361.
41 According to those same governments, a legislative provision of the kind at
issue in the main proceedings which, for the purpose of exemption dividends,
draws a distinction between taxpayers who are not in the same situation with
regard to the place where their capital is invested is not contrary to Community
law.
42 In that connection, since the facts of the main proceedings antedate the entry
into force of the Treaty on European Union, it is necessary to *1432 consider the
compatibility of a legislative provision of the kind at issue in the main proceedings
solely with reference to the provisions of the EEC Treaty and Directive 88/361.
43 In addition, the possibility granted to the Member States by Article 73d(1)(a) of
the Treaty of applying the relevant provisions of their tax legislation which
distinguish between taxpayers according to their place of residence or the place
where their capital is invested has already been upheld by the Court. According
to that case law, before the entry into force of Article 73d(1)(a) of the Treaty,
national law provisions of the kind to which that Article refers, in so far as they
establish certain distinctions based, in particular, on the residence of taxpayers,
could be compatible with Community law provided that they applied to situations
which were not objectively comparable [FN132] or could be justified by overriding
reasons in the general interest, in particular in relation to the cohesion of the tax
system. [FN133]
FN132 See, in particular, Case C-279/93, Finanzamt Köln-Alstadt v.
Schumacker: [1995] E.C.R. I-225; [1996] 2 C.M.L.R. 450.
FN133 Case C-204/90, Bachmann v. Belgium: [1992] E.C.R. I-249; [1993] 1
C.M.L.R. 785 and Case C-300/90, EC Commission v. Belgium: [1992] E.C.R. I305; [1993] 1 C.M.L.R. 785.
44 In any event, Article 73d(3) of the Treaty states specifically that the national
provisions referred to by Article 73d(1)(a) are not to constitute a means of
arbitrary discrimination or a disguised restriction on the free movement of capital
and payments, as defined in Article 73b.
45 Furthermore, the argument that "the measures and procedures" referred to in
Article 73d(3) of the Treaty do not relate to Article 73d(1)(a), in which the term
"provisions" is used, is irrelevant. Apart from the fact that it is difficult to
distinguish between "measures" and "provisions", the term "measures and
procedures" does not appear at all in paragraph 2, even though Article 73d(3)
refers expressly to that paragraph.
46 Accordingly, it is necessary to examine whether the restriction on capital
movements arising from a legislative provision such as that at issue in the main
proceedings may be objectively justified by an overriding reason in the general
interest.
47 The UK Government submits, first, that a legislative provision such as the one
at issue in the main proceedings may be objectively justified by the intention to
promote the economy of the country by encouraging investment by individuals in
companies with their seat in the Netherlands.
48 In that connection, it need merely be pointed out that, according to settled
case law, aims of a purely economic nature cannot constitute an overriding
reason in the general interest justifying a restriction of a fundamental freedom
guaranteed by the Treaty. [FN134]
FN134 Case C-120/95, Decker v. Caisse de Maladie des Employés Privés:
[1998] E.C.R. I-1831; [1998] 2 C.M.L.R. 879 *1433 , para. [39], and Case C158/96, Kohll v. Union des Caisses de Maladie: [1998] E.C.R. I-1931; [1998] 2
C.M.L.R. 928, para. [41].
49 Secondly, all the governments which submitted observations maintain that the
fact of restricting the exemption of dividends to those distributed by companies
with their seat in the Netherlands was justified by the need to preserve the
cohesion of the Dutch tax system.
50 In their submission, the exemption of dividends is entitled to mitigate the
effects of double taxation--in economic terms--resulting from the levying on the
company of corporation tax in respect of its profits and the taxation of the same
profits distributed in the form of dividends borne by natural persons who are
shareholders, by way of income tax.
51 The exemption of dividends is, they say, reserved to those shareholders who
receive dividends on shares in companies with their seat in the Netherlands
because only the latter are taxed in the Netherlands on the profits they have
realised. Where the company which distributes the dividends is established in
another Member State, profits are taxed in that Member State with the result that,
in the Netherlands, there is no double taxation to be compensated for.
52 The Dutch Government also submitted at the hearing that the tax levied on
company profits by the tax authorities of a State other than the Netherlands
cannot be offset by granting an exemption in respect of dividends to persons
residing in the Netherlands who are shareholders of such companies since that
would automatically entail a loss of revenue for the Dutch tax authorities in that
they would not receive any tax on the profits of the companies distributing
dividends.
53 Similarly, the UK Government argued that if the Dutch tax authorities were to
grant an exemption for dividends on shares in a company established outside the
Netherlands, such dividends would entirely escape taxation in the Netherlands.
54 The Dutch Government added that to apply the dividend exemption to
taxpayers who are shareholders in companies with their seat in other Member
States would enable such taxpayers to secure a twofold advantage since they
could enjoy tax reliefs both in the Member State in which the dividend was paid
and in the Member State where it was received, namely the Netherlands.
55 Those arguments cannot be upheld.
56 As regards the need to preserve the cohesion of the Dutch tax system,
although the Court has held that the need to ensure the cohesion of a tax system
may justify rules liable to restrict fundamental freedoms, [FN135] that is not the
position here.
FN135 Bachmann and Commission v. Belgium, cited above.
57 In Bachmann and EC Commission v. Belgium, a direct link existed, in the
case of one and the same taxpayer, between the grant of a tax advantage and
the offsetting of that advantage by a fiscal levy, both of which related to the same
tax. In those cases, there was a link between the deductibility of contributions
and the taxation of sums payable by insurers under old-age insurance and life
assurance policies, which it *1434 was necessary to preserve in order to
safeguard the cohesion of the tax system at issue.
58 No such direct link exists in this case between the grant to shareholders
residing in the Netherlands of income tax exemption in respect of dividends
received and taxation of the profits of companies with their seat in another
Member State. They are two separate taxes levied on different taxpayers.
59 As regards the arguments concerning the loss of revenue for the Netherlands
that would result from exemption of dividends received by its residents who are
shareholders of companies with their seat in other Member States, it need merely
be pointed out that reduction in such tax revenue cannot be regarded as an
overriding reason in the public interest which may be relied on to justify a
measure which is in principle contrary to a fundamental freedom. [FN136]
FN136 See, to that effect, in relation to Article 52 of the Treaty, the ICI judgment
cited above, para. [28].
60 Moreover, as regards the UK Government's argument mentioned in
paragraph 53 of this judgment, the income received by a natural person residing
in the Netherlands from shares in companies having their seat in another
Member State does not systematically escape Dutch taxation as a result of
exemption of dividends; that would be the case only if the shareholder subject to
Dutch income tax received from a company established in another Member State
dividends of an amount which, after conversion is necessary, did not exceed the
exempted NLG 1,000 or 2,000, which would place him in the same situation as if
he had received dividends from companies established in the Netherlands.
61 As regards, finally, the argument based on a possible tax advantage for
taxpayers receiving in the Netherlands dividends from companies with their seat
in another Member State, it is clear from settled case law that unfavourable tax
treatment contrary to a fundamental freedom cannot be justified by the existence
of other tax advantages, even supposing that such advantages exist. [FN137]
FN137 See to that effect, in relation to Article 52 of the Treaty, Case 270/83, EC
Commission v. France: [1986] E.C.R. 273; [1987] 1 C.M.L.R. 401, para. [21];
Case C-107/94, Asscher v. Staatssecretaris Van Financiën: [1996] E.C.R. I3089; [1996] 3 C.M.L.R. 61, para. [53]; and Case C-307/97, Compagnie de SaintGobin Zn v. Finanzamt Aachen-Innenstadt: [1999] E.C.R. I-6161; [2001] 3
C.M.L.R. 34, para. [54]; see, in relation to Article 59 of the EC Treaty (now, after
amendment, Article 49 EC), Case C-294/97, Eurowings Luftverkehrs AG v.
Finanzamt Dortmund-Unna: [1999] E.C.R. I-7447; [2001] 3 C.M.L.R. 64, para.
[44].
62 The answer to the first question must therefore be that Article 1(1) of Directive
88/361 precludes a legislative provision of a Member State which, like the
provision at issue in the main proceedings, makes the grant of exemption from
income tax payable on dividends paid to natural persons who are shareholders
subject to the condition that those dividends are paid by a company whose seat
is in that Member State.
*1435 The second question
63 In view of the answer given to the first question, it is unnecessary to answer
the second.
The third question
64 By its third question, the national court seeks essentially to ascertain how the
answer given to the first question might be affected by the fact that the taxpayer
seeking the benefit of such a tax exemption is an ordinary shareholder or an
employee holding shares on which dividends are received under an employees'
savings plan.
65 All the parties which have submitted observations maintain that the fact that a
natural person applying for a tax advantage such as the dividend exemption is an
ordinary shareholder or an employee who has acquired shares on which
dividends are payable under a company employees' savings plan
("werknemersspaarplan") does not affect the answer given to the first two
questions.
66 A national legislative provision of the kind at issue in this case withholds the
exemption of dividends from all taxpayers subject to income tax in the
Netherlands in respect of dividends received from a company established in
another Member State, without distinguishing between taxpayers who are
ordinary shareholders and those who are employees whose shares were
acquired under an employees' savings plan.
67 Since the answer to the first question is that such a provision constitutes a
restriction on the free movement of capital contrary to Community law regardless
of the status of the shareholder, the answer to the third question must be that the
position is not in any way changed by the fact that the taxpayer applying for such
a tax exemption is an ordinary shareholder or an employee who holds shares
giving rise to the payment of dividends under an employees' savings plan.
Costs
68 The costs incurred by the Dutch, French, Italian and UK Governments and by
the Commission, which have submitted observations to the Court, are not
recoverable. Since these proceedings are, for the parties to the main
proceedings, a step in the proceedings pending before the national court, the
decision on costs is a matter for that court.
R1 Order
On those grounds, THE COURT, in answer to the questions referred to it by the
Hoge Raad der Nederlanden by order of 11 February 1998,
HEREBY RULES:
Article 1(1) of Council Directive 88/361 for the implementation of Article 67 of the
Treaty precludes a legislative provision of a *1436 Member State which, like the
one at issue in the main proceedings, makes the grant of an exemption from the
income tax payable on dividends paid to natural persons who are shareholders
subject to the condition that those dividends are paid by a company whose seat
is in that Member State.
The position is not in any way changed by the fact that the taxpayer applying for
such a tax exemption is an ordinary shareholder or an employee who holds
shares giving rise to the payment of dividends under an employees' savings plan.
(c) Sweet & Maxwell Limited
[2002] 1 C.M.L.R. 48
END OF DOCUMENT