ECJ Tax Cases 1981-2007 Index

Directive 90/434, on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States, must be interpreted as meaning that the common rules which it lays down, which cover different tax advantages, apply without distinction to all mergers, divisions, transfers of assets or exchanges of shares, irrespective of the reasons, whether financial, commercial or simply fiscal, for those operations.

It follows that Article 2(d) of the directive, which defines a merger by exchange of shares, does not require the acquiring company, within the meaning of Article 2(h), to carry on business itself or there to be a permanent merger, from the financial and economic point of view, of the business of two companies into a single unit. Similarly, the fact that the same natural person who was the sole shareholder and director of the acquired companies becomes the sole shareholder and director of the acquiring company does not prevent the operation in question from being treated as a merger by exchange of shares.

Article 11 of Directive 90/434 is to be interpreted as meaning that, in determining whether the planned operation has as its principal objective or as one of its principal objectives tax evasion or tax avoidance, the competent national authorities must carry out a general examination of the operation in each particular case. Such an examination must be open to judicial review.

Under Article 11(1)(a) of the directive, the Member States may stipulate that the fact that the planned operation is not carried out for valid commercial reasons constitutes a presumption of tax evasion or tax avoidance. It is for the Member States, observing the principle of proportionality, to determine the internal procedures necessary for this purpose.

However, the laying down of a general rule automatically excluding certain categories of operations from the tax advantage, whether or not there is actually tax evasion or tax avoidance, on the basis of criteria such as the acquiring company carrying on business itself, a permanent merger, from the financial and economic point of view, of the business of two companies into a single unit, or the fact that the same natural person who was the sole shareholder and director of the acquired companies becomes the sole shareholder and director of the acquiring company, would go further than is necessary for preventing such tax evasion or avoidance and would undermine the aim pursued by Directive 90/434, which is in fact to introduce tax rules which are neutral from the point of view of competition and to prevent the operations in question from being hampered by restrictions, disadvantages or distortions arising in particular from the Member States’ tax provisions.

`Valid commercial reasons’, within the meaning of Article 11 of Directive 90/434, must be interpreted as involving more than the attainment of a purely fiscal advantage such as horizontal off-setting of losses.

Article 52 of the Treaty (now, after amendment, Article 43 EC) precludes legislation of a Member State under which a company incorporated under national law, having its seat in that Member State, may, for the purposes of corporation tax, deduct a loss incurred the previous year from the taxable profit for the current year only on the condition that that loss was not capable of being set off against the profit made during that same previous year by one of its permanent establishments situated in another Member State, to the extent that a loss thus set off cannot be deducted from taxable income in either of the Member States concerned, whereas it would be deductible if the establishments of that company were situated exclusively in the Member State in which it has its seat. Such legislation establishes a differentiated tax treatment as between companies incorporated under national law having establishments only on national territory and those having establishments in another Member State.

The Court has jurisdiction under Article 234 EC to interpret the provisions of a directive even though they do not directly govern the situation at issue in the main proceedings but the national legislature has decided, when transposing the provisions of the directive into national law, to treat purely internal situations in the same way as those governed by the directive and has therefore aligned the provisions governing purely internal situations with Community law.

Where, in regulating purely internal situations, domestic legislation adopts the same solutions as those adopted in Community law in order, particularly, to avoid the appearance of discrimination against foreign nationals or any distortion of competition, it is clearly in the Community interest that, in order to forestall future differences of interpretation, provisions or concepts taken from Community law should be interpreted uniformly, irrespective of the circumstances in which they are to apply.

Article 2(c) and (i) of Directive 90/434 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States must be interpreted as meaning that there is no transfer of assets, in the form of a transfer of a branch of activity, within the meaning of that directive where the terms of a transaction are such that the proceeds of a significant loan contracted by the transferring company remain with that company and the obligations arising from the loan are transferred to the company receiving the transfer. For a transfer of assets to be covered by the directive, it is necessary that the assets and liabilities relating to a branch of activity should be transferred in their entirety.

It is immaterial in this regard that the transferring company retains a small number of shares in a third company, as that fact is not such as to exclude a transfer of a branch of activity unrelated to those shares.
The question whether a transfer of assets involves an independent business within the meaning of Article 2(i) of Directive 90/434, that is to say, an entity capable of functioning by its own means, must be assessed primarily from a functional point of view – the assets transferred must be able to operate as an independent undertaking without needing to have recourse, for that purpose, to additional investments or transfers of assets – and only secondarily from a financial point of view, this being a matter to be left to the assessment of the national court in view of the special circumstances of each case. That will, more particularly, be the case where a credit facility necessary for the future cash-flow requirements of the company receiving the transfer must be granted to it by a financial institution in return for security provided in the form of shares representing the capital of that company.

Articles 73b and 73d(1) and (3) of the EC Treaty (now, respectively, Articles 56 EC and 58(1) and (3) EC) preclude legislation which allows only the recipients of revenue from capital of Austrian origin to choose between a tax with discharging effect and ordinary income tax with the application of a rate reduced by half, while providing that revenue from capital originating in another Member State must be subject to ordinary income tax without any reduction in the rate.

Refusal to grant the recipients of revenue from capital originating in another Member State the tax advantages granted to recipients of revenue from capital of Austrian origin cannot be justified by the fact that revenue from companies established in another Member State is subject to low taxation in that State.

A distinction must therefore be made between unequal treatment which is permitted under Article 73d(1) of the Treaty and arbitrary discrimination which is prohibited by Article 73(d)(3). In that respect, the case-law shows that, for national tax legislation like that at issue, which makes a distinction between revenue from capital paid by companies established in the territory of the Member State concerned and that originating in another Member State, to be capable of being regarded as compatible with the Treaty provisions on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by overriding reasons in the general interest, such as the need to safeguard the cohesion of the tax system, the fight against tax avoidance and the effectiveness of fiscal supervision (Verkooijen , paragraph 43; Case C-436/00 X and Y [2002] ECR I-10829, paragraphs 49 and 72; Commission v France , paragraph 27). In order to be justified, moreover, the difference in treatment between different categories of revenue from capital must not go beyond what is necessary in order to attain the objective of the legislation.

As the Court has already held, in relation to direct taxes, the situations of residents and of non-residents are generally not comparable, because the income received in the territory of a Member State by a non-resident is in most cases only a part of his total income, which is concentrated at his place of residence, and because a non-resident’s personal ability to pay tax, determined by reference to his aggregate income and his personal and family circumstances, is easier to assess at the place where his personal and financial interests are centred, which in general is the place where he has his usual abode. Article 59 of the EC Treaty (now, after amendment, Article 49 EC) and Article 60 of the EC Treaty (now Article 50 EC) preclude a national provision such as that at issue in the main proceedings which, as a general rule, takes into account gross income when taxing non-residents, without deducting business expenses, whereas residents are taxed on their net income, after deduction of those expenses.

1. Articles 43 EC and 56 EC must be interpreted as meaning that, where a Member State has a system for preventing or mitigating the imposition of a series of charges to tax or economic double taxation as regards dividends paid to residents by resident companies, it must treat dividends paid to residents by non-resident companies in the same way.

Articles 43 EC and 56 EC do not preclude legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, when that State imposes corporation tax on dividends which a resident company receives from a nonresident company in which the resident company holds at least 10% of the voting rights, while at the same time granting a tax credit in the latter case for the tax actually paid by the company making the distribution in the Member State in which it is resident, provided that the rate of tax applied to foreign-sourced dividends is no higher than the rate of tax applied to nationally-sourced dividends and that the tax credit is at least equal to the amount paid in the Member State of the company making the distribution, up to the limit of the amount of the tax charged in the Member State of the company receiving the distribution.

Article 56 EC precludes legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, where that State levies corporation tax on dividends which a resident company receives from a non-resident company in which it holds less than 10% of the voting rights, without granting the company receiving the dividends a tax credit for the tax actually paid by the company making the distribution in the State in which the latter is resident.

2. Articles 43 EC and 56 EC preclude legislation of a Member State which allows a resident company receiving dividends from another resident company to deduct from the amount which the former company is liable to pay by way of advance corporation tax the amount of that tax paid by the latter company, whereas no such deduction is permitted in the case of a resident company receiving dividends from a nonresident company as regards the corresponding tax on distributed profits paid by the latter company in the State in which it is resident.

3. Articles 43 EC and 56 EC do not preclude legislation of a Member State which provides that any relief for tax paid abroad made available to a resident company which has received foreign-sourced dividends is to reduce the amount of corporation tax against which that company may offset advance corporation tax.
Article 43 EC precludes legislation of a Member State which allows a resident company to surrender to resident subsidiaries the amount of advance corporation tax paid which cannot be offset against the liability of that company to corporation tax for the current accounting period or previous or subsequent accounting periods, so that those subsidiaries may offset it against their liability to corporation tax, but does not allow a resident company to surrender such an amount to non-resident subsidiaries where the latter are taxable in that Member State on the profits which they made there.

4. Articles 43 EC and 56 EC preclude legislation of a Member State which, while exempting from advance corporation tax resident companies paying dividends to their shareholders which have their origin in nationally-sourced dividends received by them, allows resident companies distributing dividends to their shareholders which have their origin in foreign-sourced dividends received by them to elect to be taxed under a regime which permits them to recover the advance corporation tax paid but, first, obliges those companies to pay that advance corporation tax and subsequently to claim repayment and, secondly, does not provide a tax credit for their shareholders, whereas those shareholders would have received such a tax credit in the case of a distribution made by a resident company which had its origin in nationally-sourced dividends.

5. Article 57(1) EC is to be interpreted as meaning that where, before 31 December 1993, a Member State has adopted legislation which contains restrictions on capital movements to or from non-member countries which are prohibited by Article 56 EC and, after that date, adopts measures which, while also constituting a restriction on such movements, are essentially identical to the previous legislation or do no more than restrict or abolish an obstacle to the exercise of the Community rights and freedoms arising under that previous legislation, Article 56 EC does not preclude the application of those measures to non-member countries when they apply to capital movements involving direct investment, including investment in real estate, establishment, the provision of financial services or the admission of securities to capital markets. Holdings in a company which are not acquired with a view to the establishment or maintenance of lasting and direct economic links between the shareholder and that company and do not allow the shareholder to participate effectively in the management of that company or in its control cannot, in this connection, be regarded as direct investments.

6. In the absence of Community legislation, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, including the classification of claims brought by injured parties before the national courts and tribunals. Those courts and tribunals are, however, obliged to ensure that individuals should have an effective legal remedy enabling them to obtain reimbursement of the tax unlawfully levied on them and the amounts paid to that Member State or withheld by it directly against that tax. As regards other loss or damage which a person may have sustained by reason of a breach of Community law for which a Member State is liable, the latter is under a duty to make reparation for the loss or damage caused to individuals in the conditions set out in paragraph 51 of the judgment in Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, but that does not preclude the State from being liable under less restrictive conditions, where national law so provides.

There is a withholding tax, within the meaning of Article 5(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – which provides that profits distributed by a subsidiary to its parent company holding a minimum of 25% of the capital of the subsidiary are to be exempt from withholding tax – where national legislation provides that, in the event of distribution of profits by a subsidiary (a public limited company or equivalent company) to its parent company, in order to determine the taxable income of the subsidiary its total net profits, including income which has been subject to special taxation entailing extinction of tax liability and non-taxable income, must be reincorporated into the basic taxable amount, when income falling within those two categories would not be taxable on the basis of the national legislation if they remained with the subsidiary and were not distributed to the parent company. That is so because the chargeable event for taxation of that kind is the payment of dividends and the amount of tax is directly related to the size of the distribution.

Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, interpreted in the light of Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes a national provision which, when determining the tax on the profits of a parent company established in one Member State, makes the deductibility of costs in connection with that company’s holding in the capital of a subsidiary established in another Member State subject to the condition that such costs be indirectly instrumental in making profits which are taxable in the Member State where the parent company is established.

The ECJ rejected appeal for ruling by reasoned order based on Article 104, paragraph 3 of the Rules of procedure of the Court of Justice. Article 104, paragraph 3 of the Rules of procedure of the Court of Justice lays down that where a question referred to the ECJ for a preliminary ruling is identical to a question on which the ECJ has already ruled, or where the answer to such a question may be clearly deduced from existing case-law, the ECJ may give its decision by reasoned order, citing in particular a previous judgment relating to that question or the relevant case law.

It is clear from the second paragraph of Article 52 of the Treaty that freedom of establishment includes the right to set up and manage undertakings, in particular companies or firms, in a Member State by a national of another Member State. So, a national of a Member State who has a holding in the capital of a company established in another Member State which gives him definite influence over the company’s decisions and allows him to determine its activities is exercising his right of establishment.

Article 52 of the Treaty (now, after amendment, Article 43 EC) precludes a Member State’s tax legislation, which, in circumstances where a holding in the capital of a company confers on the shareholder a definite influence over the company’s decisions and allows him to determine its activities,

– allows nationals of Member States resident on its territory an exemption, in whole or in part, from wealth tax in respect of the assets invested in shares in the company,

– but makes that exemption subject to the condition that the holding be held in a company established in the Member State concerned, thus denying it to holders of shares in companies established in other Member States.

Such legislation provides for a difference in treatment between taxpayers by adopting as its criterion the seat of the companies of which those taxpayers are shareholders and cannot be justified by the need to preserve the coherence of the tax system.

1. Freedom of establishment, which Article 43 EC grants to Community nationals and which includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected, entails, in accordance with Article 48 EC, for companies or firms 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, the right to exercise their activity in the Member State concerned through a subsidiary, a branch or an agency.

2. The legislation on CFCs contains a number of exceptions where taxation of the resident company on the profits of CFCs does not apply. Some of those exceptions exempt the resident company in situations in which the existence of a wholly artificial arrangement solely for tax purposes appears to be excluded. Thus, the distribution by a CFC of almost the whole of its profits to a resident company reflects the absence of an intention by the latter to escape United Kingdom income tax. The performance by the CFC of trading activities excludes, for its part, the existence of an artificial arrangement which has no real economic link with the host Member State.

3. Articles 43 EC and 48 EC must be interpreted as precluding the inclusion in the tax base of a resident company established in a Member State of profits made by a controlled foreign company in another Member State, where those profits are subject in that State to a lower level of taxation than that applicable in the first State, unless such inclusion relates only to wholly artificial arrangements intended to escape the national tax normally payable. Accordingly, such a tax measure must not be applied where it is proven, on the basis of objective factors which are ascertainable by third parties, that despite the existence of tax motives that controlled company is actually established in the host Member State and carries on genuine economic activities there.

It is contrary to Articles 52 and 58 of the Treaty for a Member State to refuse to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office but in which it conducts no business where the branch is intended to enable the company in question to carry on its entire business in the State in which that branch is to be created, while avoiding the need to form a company there, thus evading application of the rules governing the formation of companies which, in that State, are more restrictive as regards the paying up of a minimum share capital. Given that the right to form a company in accordance with the law of a Member State and to set up branches in other Member States is inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty, the fact that a national of a Member State who wishes to set up a company chooses to form it in the Member State whose rules of company law seem to him the least restrictive and to set up branches in other Member States cannot, in itself, constitute an abuse of the right of establishment.

That interpretation does not, however, prevent the authorities of the Member State concerned from adopting any appropriate measure for preventing or penalising fraud, either in relation to the company itself, if need be in cooperation with the Member State in which it was formed, or in relation to its members, where it has been established that they are in fact attempting, by means of the formation of a company, to evade their obligations towards private or public creditors established in the territory of the Member State concerned.

Article 52 of the EC Treaty (now, after amendment, Article 43 EC) and Article 58 of the EC Treaty (now Article 48 EC) preclude a national law such as the one in dispute in the main proceedings which, in the case of a branch of a company having its seat in another Member State, lays down a tax rate on the profits of that branch which is higher than that on the profits of a subsidiary of such a company where that subsidiary distributes its profits in full to its parent company.

It is for the national court to determine the tax rate which must be applied to the profits made by a branch, such as the one in dispute in the main proceedings, by reference to the overall tax rate which would have been applicable if the profits of a subsidiary had been distributed to its parent company.

France relies on the need to ensure payment of taxes and effective fiscal supervision. It is true that the Court has repeatedly held that the prevention of tax avoidance and the need for effective fiscal supervision may be relied upon to justify restrictions on the exercise of fundamental freedoms guaranteed by the Treaty. However, a general presumption of tax avoidance or fraud is not sufficient to justify a fiscal measure which compromises the objectives of the Treaty.

The prohibition by a Member State of the acquisition by persons residing in its territory of securities of loans issued abroad constitutes a restriction of the free movement of capital, prohibited by Article 73b(1) of the Treaty (now Article 56(1) EC). Such a measure, taken by the State in its capacity as public authority, cannot be justified on the ground of the need to preserve fiscal coherence, where there is no direct link between any fiscal advantage and a corresponding disadvantage which ought to be preserved in order to ensure that coherence. Moreover, such a measure cannot be justified, under Article 73d(1)(b) of the Treaty (now Article 58(1)(b) EC), on the ground of the need to prevent tax evasion and ensure the effectiveness of fiscal supervision, since a general presumption of tax evasion or tax fraud cannot justify a fiscal measure which consists in an outright prohibition on the exercise of a fundamental freedom guaranteed by Article 73b of the Treaty.

Article 52 of the Treaty (now, after amendment, Article 43 EC) and Article 58 thereof (now Article 48 EC) preclude the exclusion of a permanent establishment in Germany of a company limited by shares having its seat in another Member State from enjoyment, on the same conditions as those applicable to companies limited by shares having their seat in Germany, of tax concessions taking the form of:

– an exemption from corporation tax for dividends received from companies established in non-member countries (corporation tax relief for international groups), provided for by a treaty for the avoidance of double taxation concluded with a non-member country,

– the crediting, against German corporation tax, of the corporation tax levied in a State other than the Federal Republic of Germany on the profits of a subsidiary established there, provided for by German legislation, and

– an exemption from capital tax for shareholdings in companies established in non-member countries (capital tax relief for international groups), also provided for by German legislation.

The refusal to grant those tax concessions – which primarily affects non-resident companies and is based on the criterion of the company’s corporate seat in determining the applicable tax rules – makes it less attractive for such companies to have intercorporate holdings through branches in the Member State concerned, which thus restricts the freedom to choose the most appropriate legal form for the pursuit of activities in another Member State, which the second sentence of the first paragraph of Article 52 of the Treaty expressly confers on economic operators. In view of the fact that, as regards liability to tax on dividend receipts in Germany from shares in foreign subsidiaries and sub-subsidiaries and on the holding of those shares, companies not resident in Germany having a permanent establishment there and companies resident in Germany are in objectively comparable situations, the difference in treatment to which branches of non-resident companies are subject in comparison with resident companies must be regarded as constituting an infringement of Articles 52 and 58 of the Treaty.

As regards, specifically, the refusal to grant to permanent establishments of non-resident companies the international group relief provided for by a bilateral agreement, concluded in order to prevent double taxation, finds no justification in the fact that the Member States are at liberty, in the framework of such agreements, to determine the connecting factors for the purposes of allocating powers of taxation as between themselves. As far as the exercise of the power of taxation so allocated is concerned, the Member States nevertheless may not disregard Community rules, under which the national treatment principle requires a Member State which is party to the agreement to grant to permanent establishments of non-resident companies the advantages provided for thereunder on the same conditions as those which apply to resident companies.

Both resident and non-resident taxable persons are placed in a comparable situation as regards the complexity of national tax law. Thus, the right to deduct, which seeks to compensate for expenses incurred in obtaining tax advice and is granted to taxable persons who are resident, must also be available to non-resident taxable persons who are faced with the same complexity of the national tax system.

Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes national legislation which does not allow a person with restricted tax liability to deduct from his taxable income, as special expenditure, the costs incurred by him in obtaining tax advice for the purpose of preparing his tax return, in the same way as a person with unrestricted tax liability.

Articles 56 EC and 58 EC do not preclude legislation under which a Member State denies non-resident taxpayers who hold the major part of their wealth in the State where they are resident entitlement to the allowances which it grants to resident taxpayers

Articles 56 EC and 58 EC do not preclude a rule laid down by a bilateral convention for the avoidance of double taxation such as the rule at issue in the main proceedings from not being extended, in a situation and in circumstances such as those in the main proceedings, to nationals of a Member State which is not party to that convention.

1. Article 43 EC and Article 48 EC preclude national legislation which, in imposing a liability to tax on dividends paid to a non-resident parent company and allowing resident parent companies almost full exemption from such tax, constitutes a discriminatory restriction on freedom of establishment.

2. Article 43 EC and Article 48 EC preclude national legislation which imposes, only as regards non-resident parent companies, a withholding tax on dividends paid by resident subsidiaries, even if a tax convention between the Member State in question and another Member State, authorising that withholding tax, provides for the tax due in that other State to be set off against the tax charged in accordance with the disputed system, whereas a parent company is unable to set off tax in that other Member State, in the manner provided for by that convention.

By authorizing Member States to grant exemption from withholding tax upon distribution of profits by a subsidiary to its parent company holding at least 25% of the subsidiary’s capital, provided for by Article 5(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, only in so far as the parent company maintains that minimum holding for a period which Member States are free to lay down but which cannot exceed two years, Article 3(2) of Directive 90/435 introduces an option to derogate from the obligation to grant the exemption which, as such, must be strictly interpreted. It cannot therefore be interpreted as authorizing a Member State to make that exemption subject to the condition that, at the moment when the profits are distributed, the parent company should have had the required holding in the capital of its subsidiary for a period at least equal to that which the Member State has laid down pursuant to the option which it is recognized as having.

It is for Member States to draw up rules for ensuring compliance with this minimum period, in accordance with the procedures laid down in their domestic law. On no view are those States obliged under the directive to grant the advantage immediately on the basis of a unilateral undertaking by the parent company to observe the minimum holding period.

That being so, Community law does not require a Member State which, when transposing that directive into its national law, stipulated that the minimum holding period set pursuant to Article 3(2) must be completed at the time when the profits that are the subject of the tax advantage afforded by Article 5 are distributed, to compensate the parent company for damage which it may have incurred by reason of the error thus made.

The conditions required for a breach of Community law by a Member State, on the occasion of the legislative activity involving a margin of discretion consisting in the transposition of a directive, to give rise to an obligation on that Member State to compensate individuals for damage which they have incurred are not satisfied in this case. There is, in any event, no sufficiently serious breach of Community law if it appears, inter alia, that the Member State’s interpretation of the directive corresponds to that of almost all the other Member States which have exercised the option to derogate.

Article 5(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States clearly and unambiguously provides that a parent company holding a minimum of 25% of the capital of its subsidiary is to be exempt from withholding tax.

While it is true that Article 3(2) of the directive gives Member States the option of derogating from that principle where the parent company does not maintain its holding in the subsidiary for a minimum period and gives those States latitude as regards both the duration of that period, which may not exceed two years, and the administrative procedures applicable, this does not make it impossible to determine minimum rights on the basis of the provisions of principle contained in Article 5 of the directive. It follows that, where a Member State has exercised the option provided for in Article 3(2) of the directive, parent companies may, provided that they comply with the obligation to maintain their holding for the period set by that Member State, rely directly on the rights conferred by Article 5(1) and (3) of that directive before national courts.

Individuals injured by a breach of Community law attributable to a Member State are recognized as having a right to reparation when three conditions are met: the rule infringed must be intended to confer rights on individuals; the breach must be sufficiently serious; and there must be a direct causal link between the breach of the obligation resting on the State and the damage suffered by the injured parties. Those conditions apply where a Member State incorrectly transposes a Community directive into national law. In this regard, a breach is sufficiently serious if a Community institution or a Member State, in the exercise of its rule-making powers, manifestly and gravely disregards the limits on those powers. One of the factors that may be taken into consideration is the clarity and precision of the rule breached.

The first paragraph of Article 12 EC and Article 18(1) EC must be interpreted as not precluding a taxpayer resident in Germany from being unable, under national legislation such as that at issue in the main proceedings, to deduct from his taxable income in that Member State the maintenance paid to his former spouse resident in another Member State in which the maintenance is not taxable, where he would be entitled to do so if his former spouse were resident in Germany.

When a Member State concludes a bilateral international convention with a non-member country, the fundamental principle of equal treatment requires that Member State to grant nationals of other Member States the same advantages as those which its own nationals enjoy under that convention unless it can provide objective justification for refusing to do so. When giving effect to commitments assumed under international agreements, be it an agreement between Member States or an agreement between a Member State and one or more non-member countries, Member States are required, subject to the provisions of Article 307 EC, to comply with the obligations that Community law imposes on them. The fact that non-member countries, for their part, are not obliged to comply with any Community-law obligation is of no relevance in this respect.

The competent social security authorities of one Member State are required, pursuant to their Community obligations under Article 39 EC, to take account, for purposes of the acquisition of rights to old-age benefits, of periods of insurance completed in a non-member country by a national of a second Member State in circumstances where, under identical conditions of contribution, those competent authorities will take such periods into account where they have been completed by nationals of the first Member State pursuant to a bilateral international convention concluded between that Member State and the non-member country.

Article 56 EC must be interpreted as precluding national legislation, such as that in dispute in the main proceedings, which subjects capital gains resulting from the transfer of immovable property situated in a Member State, in this case Portugal, where that transfer is made by a resident of another Member State, to a tax burden greater than that which would be applicable for the same type of transaction to capital gains realised by a resident of the State in which that immovable property is situated.

1. The tax on the commercial value of immovable property owned in France by legal persons is a tax which is similar in nature to those taxes referred to in Article 1(3) of Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation, as amended by Council Directive 92/12/EEC of 25 February 1992, which is levied on elements of capital within the meaning of Article 1(2) of that directive.

2. Directive 77/799, as amended by Directive 92/12, and in particular Article 8(1) thereof, does not preclude two Member States from binding themselves by means of an international convention, with the intention of avoiding double taxation and establishing rules for reciprocal administrative assistance in the area of taxes on income and capital, which excludes from its scope, in respect of one Member State, one category of taxpayers subject to a tax covered by that directive, if the competent authority of the Member State which should furnish information is prevented by its laws or administrative practices from collecting or using such information for that State’s own purposes, this being a matter which it is for the national court to verify.

3. Article 73b of the EC Treaty (now Article 56 EC) must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which exempts companies established in France from the tax on the commercial value of immovable property owned in France by legal persons, when, in respect of companies established in another Member State, it makes that exemption subject either to the existence of a convention on administrative assistance between the French Republic and that State for the purposes of combating tax avoidance and tax evasion or to the existence of a requirement in a treaty containing a clause prohibiting discrimination on grounds of nationality to the effect that those companies cannot be more heavily taxed than companies established in France, and which does not allow the company established in another Member State to supply evidence to establish the identity of the natural persons who are its shareholders.

Article 59 of the Treaty (now, after amendment, Article 49 EC) precludes national legislation governing trade tax (on the capital and earnings of industrial and commercial establishments) under which the taxable amount is to include part of the rental payments for the use of fixed business assets owned by another person, as well as the value of those assets, in so far as that tax is not already payable on such rentals or assets by the lessor.

National legislation which reserves a fiscal advantage – consisting in the lack of any obligation to make that `add-back’ to the taxable amount – to the majority of undertakings which lease assets from lessors established in that State whilst depriving those leasing from lessors established in another Member State of such an advantage gives rise to a difference of treatment based on the place of establishment of the provider of services. Such a difference of treatment cannot be justified either by grounds linked to the need for coherency of taxation or by the fact that the lessor established in another Member State is there subject to lower taxation.

Any Community national who, irrespective of his place of residence and his nationality, has exercised the right to freedom of movement for workers and who has been employed in another Member State falls within the scope of the aforesaid provisions.
The fact that national rules concern the financing of social security does not exclude the application of Treaty rules, including those relating to freedom of movement for workers.

While, in the absence of harmonisation at Community level, it is for the legislation of each Member State to determine the conditions governing the right or duty to be insured with a social security scheme, Member States must nevertheless comply with Community law when exercising that power.

Article 48 of the EC Treaty (now, after amendment, Article 39 EC) precludes rules such as those at issue in the main proceedings – irrespective of whether or not they are laid down in a convention for the avoidance of double taxation – whereby a taxpayer forfeits, in the calculation of the income tax payable by him in his State of residence, part of the tax-free amount of that income and of his personal tax advantages because, during the year in question, he also received income in another Member State which was taxed in that State without his personal and family circumstances being taken into account.

Community law contains no specific requirement with regard to the way in which the State of residence must take into account the personal and family circumstances of a worker who, during a particular tax year, received income in that State and in another Member State, except that the conditions governing the way in which the State of residence takes those circumstances into account must not constitute discrimination, either direct or indirect, on grounds of nationality, or an obstacle to the exercise of a fundamental freedom guaranteed by the EC Treaty.

The Member States are of course free, in the absence of unifying or harmonising measures adopted in the Community, to alter, by way of bilateral or multilateral agreements for the avoidance of double taxation, that correlation between the total income of residents and residents’ general personal and family circumstances to be taken into account by the State of residence. The State of residence can therefore be released by way of an international agreement from its obligation to take into account in full the personal and family situation of taxpayers residing in its territory who work partially abroad.

However, the mechanisms used to eliminate double taxation or the national tax systems which have the effect of eliminating or alleviating double taxation must permit the taxpayers in the States concerned to be certain that, as the end result, all their personal and family circumstances will be duly taken into account, irrespective of how those Member States have allocated that obligation amongst themselves, in order not to give rise to inequality of treatment which is incompatible with the Treaty provisions on the freedom of movement for workers and in no way results from the disparities between the national tax laws.

On a sound construction of Article 12(1)(e) of Directive 69/335 concerning indirect taxes on the raising of capital, in order for charges levied on registration of public and private limited companies and on their capital being increased to be by way of fees or dues, their amount must be calculated solely on the basis of the cost of the formalities in question. It may, however, also cover the costs of minor services performed without charge. In calculating their amount, a Member State is entitled to take account of all the costs related to the effecting of registration, including the proportion of the overheads which may be attributed thereto. Furthermore, a Member State may impose flat-rate charges and fix their amount for an indefinite period, provided that it checks at regular intervals that they continue not to exceed the average cost of the registrations at issue. It follows that charges with no upper limit which increase directly in proportion to the nominal value of the capital raised cannot amount to duties paid by way of fees or dues within the meaning of Article 12(1)(e) of the directive, since the amount of such charges will generally bear no relation to the costs actually incurred by the authority on the registration formalities.

Community law precludes actions for the recovery of charges levied in breach of Directive 69/335 from being dismissed on the ground that those charges were imposed as a result of an excusable error by the authorities of the Member State inasmuch as they were levied over a long period without either those authorities or the persons liable to them having been aware that they were unlawful. While the recovery of sums levied in breach of Community law may, in the absence of Community rules governing the matter, be sought only under the substantive and procedural conditions laid down by the national law of the Member States, those conditions must nevertheless be no less favourable than those governing similar domestic claims nor render virtually impossible or excessively difficult the exercise of rights conferred by Community law. The application of a general principle of national law under which the courts of a Member State should dismiss claims for the recovery of charges levied over a long period in breach of Community law without either the authorities of that State or the persons liable to pay the charges having been aware that they were unlawful, would make it excessively difficult to obtain recovery of charges which are contrary to Community law and, moreover, would have the effect of encouraging infringements of Community law which have been committed over a long period.

A tax concession in favour of taxpayers who sell certain financial assets and can offset the resulting profit when they acquire other financial assets confers on them an advantage which, as a general measure applicable without distinction to all economically active persons, does not constitute aid to those taxpayers within the meaning of Article 92(1) of the Treaty (now, after amendment, Article 87(1) EC).

The freedom of establishment which Article 52 of the Treaty (now, after amendment, Article 43 EC) grants to nationals of the Member States and which entails the right for them to take up and pursue activities as self-employed persons under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected includes, pursuant to Article 58 of the Treaty (now Article 48 EC), the right of companies or firms 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 the Member States concerned through a subsidiary, branch or agency. As far as companies or firms are concerned, their registered office serves to determine, like nationality for natural persons, their connection to a Member State’s legal order.

Moreover, the rules regarding equal treatment prohibit not only overt discrimination by reason of nationality or, in the case of a company, its registered office, but all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result. It is true that discrimination can arise only through the application of different rules to comparable situations or the application of the same rule to different situations and that, in relation to direct taxes, the situations of residents and non-residents are not, as a rule, comparable.

It follows that if a Member State grants, even indirectly, a tax advantage to undertakings having their registered office on its territory, refusing to allow the undertakings having their registered office in another Member State to benefit from that advantage, the difference in treatment between the two categories will in principle be prohibited by the Treaty, provided that there is no objective difference in situation.

The reasoning required by Article 190 of the Treaty (now Article 253 EC) must show clearly and unequivocally the reasoning of the Community authority which adopted the contested measure so as to enable the persons concerned to ascertain the reasons for the measure in order to defend their rights and to enable the Court to exercise its power of review. However, the reasoning is not required to go into every relevant point of fact and law, inasmuch as the question whether a statement of reasons satisfies the requirements of Article 190 of the Treaty must be assessed with reference not only to its wording but also to its context and the whole body of legal rules governing the matter in question.

Although direct taxation does not as such fall within the purview of the Community, the powers retained by the Member States must nevertheless be exercised consistently with Community law.

Accordingly, Article 48 of the Treaty must be interpreted as being capable of limiting the right of a Member State to lay down conditions concerning the liability to taxation of a national of another Member State and the manner in which tax is to be levied on the income received by him within its territory, since that article does not allow a Member State, as regards the collection of direct taxes, to treat a national of another Member State employed in the territory of the first State in the exercise of his right of freedom of movement less favourably than one of its own nationals in the same situation.

Although Article 48 of the Treaty does not in principle preclude the application of rules of a Member State under which a non-resident working as an employed person in that Member State is taxed more heavily on his income than a resident in the same employment, the position is different in a case where the non-resident receives no significant income in the State of his residence and obtains the major part of his taxable income from an activity performed in the State of employment, with the result that the State of his residence is not in a position to grant him the benefits resulting from the taking into account of his personal and family circumstances. There is no objective difference between the situations of such a non-resident and a resident engaged in comparable employment such as to justify different treatment as regards the taking into account for taxation purposes of the taxpayer’s personal and family circumstances.

It follows that Article 48 of the Treaty must be interpreted as precluding the application of rules of a Member State under which a worker who is a national of, and resides in, another Member State and is employed in the first State is taxed more heavily than a worker who resides in the first State and performs the same work there when the national of the second State obtains his income entirely or almost exclusively from the work performed in the first State and does not receive in the second State sufficient income to be subject to taxation there in a manner enabling his personal and family circumstances to be taken into account.

The argument that the grant of the tax allowance to a non-resident would undermine the cohesion of the tax system, because there is in Member State tax law a direct link between the taking into account of personal and family circumstances and the right to tax fully and progressively residents’ worldwide income, cannot be upheld. In a situation such as that in the main proceedings, the State of residence cannot take account of the taxpayer’s personal and family circumstances because there is no liability for tax there.

The distinction between residents and non-residents at issue in the main proceedings is thus in no way justified by the need to ensure the cohesion of the applicable tax system (see, regarding a similar situation, Schumacker , paragraph 42).

Furthermore, the grant in the present case of the same tax allowance as that laid down for persons resident in Sweden throughout the tax year would not give Mr Wallentin an unjustified fiscal benefit since he has no taxable income in his Member State of residence which could confer entitlement to a similar allowance in that State.

Article 48(2) of the Treaty (now, after amendment, Article 39(2) EC) is to be interpreted as not precluding the application of national legislation under which resident married couples are granted tax benefits while, in the case of non-resident couples, such benefits are subject to the condition that at least 90% of total income be subject to tax in that Member State, failing which, if that percentage is not reached, income from foreign sources and not subject to tax in that State must not exceed a certain ceiling, the possibility being thus maintained for account to be taken of the couple’s personal and family circumstances in the State of residence.

The fact that a Member State does not grant to a non-resident certain tax benefits which it grants to a resident is not, as a rule, discriminatory since, as regards direct taxation, those two categories of taxpayer are not in a comparable situation. Specifically, a non-resident married couple – one of whom works in the State of taxation in question and who may, owing to the existence of a sufficient tax base in the State of residence, have personal and family circumstances taken into account by its tax authorities – is not in a situation comparable to that of a resident married couple, even if one of the spouses works in another Member State

Article 52 of the Treaty does not preclude a Member State from making the carrying forward of previous losses, requested by a taxpayer which has a branch in its territory but is not resident there, subject to the condition that the losses must be economically linked to the income earned in that State, provided that resident taxpayers do not receive more favourable treatment.

Article 52 of the Treaty precludes a Member State from making the carrying forward of previous losses, requested by a taxpayer which has a branch in its territory but is not resident there, subject to the condition that, in the year in which he incurred those losses, he must have kept and held in that Member State accounts relating to his activities carried on there which comply with its relevant national rules.

Such a condition may constitute a restriction, within the meaning of Article 52 of the Treaty, on the freedom of establishment of companies or firms which wish to establish a branch in a Member State different from that in which they have their seat, in that it requires them to keep and to hold, at the place where the branch is established and in addition to their own accounts which must comply with the tax accounting rules applicable in the Member State in which they have their seat, separate accounts for the branch’s activities, complying with the tax accounting rules applicable in the State in which the branch is established.

Although that condition may be justified by a pressing reason of public interest, namely the effectiveness of fiscal supervision, it is not essential, in this regard, that the means by which the non-resident taxpayer is allowed to demonstrate the amount of the losses he seeks to carry forward be limited to those provided for by the national legislation concerned. However, a Member State may, for that pressing reason of public interest, require the non-resident taxpayer to demonstrate clearly and precisely that the amount of the losses which he claims to have incurred corresponds, under its domestic rules governing the calculation of income and losses which were applicable in the financial year concerned, to the amount of the losses actually incurred by the taxpayer in that State.

A rule laid down by a Member State which allows its residents to deduct from their taxable income business profits which they allocate to form a pension reserve but denies that benefit to Community nationals liable to pay tax who, although resident in another Member State, receive all or almost all of their income in the first State, cannot be justified by the fact that the periodic pension payments subsequently drawn out of the pension reserve by the non-resident taxpayer are not taxed in the first State but in the State of residence ° with which the first State has concluded a double-taxation convention ° even if, under the tax system in force in the first State, a strict correspondence between the deductibility of the amounts added to the pension reserve and the liability to tax of the amounts drawn out of it cannot be achieved by generalizing the benefit. Such discrimination is therefore contrary to Article 52 of the Treaty.

Articles 52 and 58 of the Treaty preclude the law of a Member State from restricting exemption from the tax on transactions relating to immovable property, which is normally payable in connection with a reorganization within a group of companies only to cases where the company liable for tax acquires immovable property from a company constituted under national law, and refusing to grant such relief where the transferor is a company constituted under the law of another Member State.

The fact that the sale of immovable property gives rise to the payment of tax increases the cost of the transaction to the purchaser, and is passed on in the price likely to be obtained by the vendor. Where the latter is a company established in another Member State which transfers property forming part of the capital used in connection with its permanent establishment in the territory of the Member State where such legislation applies, it will be in a less favourable position than if it had operated in the latter State by creating a subsidiary there which would have fulfilled the conditions giving right to exemption.

Although the difference in treatment has only an indirect effect on the position of companies constituted under the law of other Member States, it constitutes discrimination on grounds of nationality which is prohibited by Article 52 of the Treaty because a company exercising the right given to it by Article 58 of the Treaty to carry on business in another Member State through the intermediary of a branch or agency is at a disadvantage compared with companies constituted in accordance with the law of that Member State.

Such discrimination cannot be justified by the difficulties encountered by the national authorities in checking equivalence between the forms in which national companies may be constituted and those of other Member States, since the information necessary for that purpose can be obtained with a view to imposing the tax in question by means of the system provided for by Directive 77/799 concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation.

Legislation of a Member State which makes the deductibility of sickness and invalidity insurance contributions or pension and life assurance contributions conditional on those contributions being paid in that State is contrary to Articles 48 and 59 of the Treaty. However, that condition may be justified by the need to safeguard the cohesion of the applicable tax system.

That need may exist, for example, where the tax system of a Member State is such that the deductibility of the contributions is offset by the taxation of payments made by insurers pursuant to the contracts, and vice versa, and where it would be impossible to ensure that the deductions were offset by subsequent taxation of payments because payments arising from the deductible contributions were made by a foreign insurer established in another country where there would be no certainty of subjecting them to tax.

Such legislation is not incompatible with Articles 67 and 106 of the Treaty.

1. The Court finds in this regard, that the concept of ‘cash payment’ within the meaning of Article 2(d) of Directive 90/434 covers monetary payments having the characteristics of genuine consideration for the acquisition, namely payments agreed upon in a binding manner in addition to the allotment of securities representing the share capital of the acquiring company, irrespective of any reasons underlying the acquisition.

2. The Court notes, as a preliminary point, that Article 8(1) of Directive 90/434 provides that an allotment of securities accruing from an exchange of shares to shareholders of the acquired company may not be taxed.

3. In circumstances such as those in the main proceedings, a dividend, such as that paid, is not to be included in the calculation of the ‘cash payment’ provided for in Article 2(d) of Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States and that, accordingly, an exchange of shares such as that in issue constitutes an ‘exchange of shares’ within the meaning of Article 2(d) of that directive.

In the absence of any foreign element such as to enable the Treaty rules on freedom of establishment to be applied, in particular the principle of non-discrimination, Article 52 of the Treaty must be interpreted as not precluding a Member State from imposing on its nationals who, on the basis of professional qualifications and experience acquired in that State, carry on their professional activities within its territory and who earn all or almost all of their income there or possess all or almost all of their assets there a heavier tax burden if they do not reside in that State than if they do.

On its proper construction, Article 10 of Directive 69/335 concerning indirect taxes on the raising of capital, which sets out the other indirect taxes having the same characteristics as capital duty and the levying of which is prohibited, does not preclude the levying, as against insolvent capital companies lacking own revenue or whose annual revenue does not exceed a certain amount, of a minimum tax payable for each quarter in respect of which those companies have unlimited liability to corporation tax, in so far as such a tax does not have the same characteristics as the taxes prohibited by the provision in question.

Such a minimum tax on capital companies, which follows directly from the fact that a capital company has unlimited liability to corporation tax and constitutes an advance on the amount actually owing by way of corporation tax in respect of a given tax period, does not presuppose any transaction involving the movement of capital or assets whether in the form of transfer or increase and therefore does not correspond to any of the taxable transactions mentioned in Article 4 of the directive and to which Article 10(a) and (b) of the directive refers. Nor does it come under Article 10(c) inasmuch as it has no formal connection with the registration of companies subject to it, as registration of a company in the companies’ register is not conditional on payment of that tax and non-payment thereof does not entail the company’s removal from that register, and inasmuch as it is not connected to the completion of formalities required before the commencement of business, to which such a company may be subject by reason of its legal form.

The principle of freedom of establishment laid down by Article 52 of the EC Treaty (now, after amendment, Article 43 EC) must be interpreted as precluding a Member State from establishing, in order to prevent a risk of tax avoidance, a mechanism for taxing as yet unrealised increases in value such as that laid down by Article 167a of the French Code Général des Impôts, where a taxpayer transfers his tax residence outside that State.

A taxpayer wishing to transfer his tax residence outside French territory, in exercise of the right guaranteed to him by Article 52 of the Treaty, is subjected to disadvantageous treatment in comparison with a person who maintains his residence in France. That taxpayer becomes liable, simply by reason of such a transfer, to tax on income which has not yet been realised and which he therefore does not have, whereas, if he remained in France, increases in value would become taxable only when, and to the extent that, they were actually realised. That difference in treatment concerning the taxation of increases in value, which is capable of having considerable repercussions on the assets of a taxpayer wishing to transfer his tax residence outside France, is likely to discourage a taxpayer from carrying out such a transfer.

The transfer of a physical person’s tax residence outside the territory of a Member State does not, in itself, imply tax avoidance. Tax evasion or tax fraud cannot be inferred generally from the fact that the tax residence of a physical person has been transferred to another Member State and cannot justify a fiscal measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty.

In the context of the preliminary ruling procedure under Article 177, it is solely for the national courts before which proceedings are pending, and which must assume responsibility for the judgment to be given, to determine in the light of the particular circumstances of each case both the need for a preliminary ruling to enable them to give judgment and the relevance of the questions which they submit to the Court. A request for a preliminary ruling from a national court may be rejected only if it is manifest that the interpretation of Community law or the examination of the validity of a rule of Community law sought by that court bears no relation to the true facts or the subject-matter of the main proceedings.

Article 52 of the Treaty precludes legislation of a Member State which, in the case of companies established in that State belonging to a consortium through which they control a holding company, by means of which they exercise their right to freedom of establishment in order to set up subsidiaries in other Member States, makes a particular form of tax relief subject to the requirement that the holding company’s business consist wholly or mainly in the holding of shares in subsidiaries that are established in the Member State concerned.

Such legislation, which makes a tax advantage in the form of consortium relief available solely to companies which control, wholly or mainly, subsidiaries whose seat is in the national territory, applies the test of the subsidiaries’ seat to establish differential tax treatment of consortium companies established in that Member State and is not justified in terms of a need to ensure the cohesion of the national tax system arising from the fact that the revenue lost through the granting of tax relief on losses incurred by resident subsidiaries cannot be offset by taxing the profits of non-resident subsidiaries, since there is no direct link between the consortium relief granted for losses incurred by a resident subsidiary and the taxation of profits made by non-resident subsidiaries.

When deciding an issue concerning a situation which lies outside the scope of Community law, the national court is not required, under Community law, either to interpret its legislation in a way conforming with Community law or to disapply that legislation. Where a particular provision must be disapplied in a situation covered by Community law, but that same provision could remain applicable to a situation not so covered, it is for the competent body of the State concerned to remove that legal uncertainty in so far as it might affect rights deriving from Community rules.

The Court considered that such inequality of treatment constitutes a restriction on the freedom of establishment of nationals of the Member State concerned (and, moreover, on that of nationals of other Member States resident in that Member State), who have a holding in the capital of a company established in another Member State, provided that that holding gives them definite influence over the company’s decisions and allows them to determine its activities. It was for the referring court to ascertain whether that condition was fulfilled in the case in the main proceedings.

Although direct taxation does not as such fall within the purview of the Community, the powers retained by the Member States must nevertheless be exercised consistently with Community law.

As regards freedom to provide services, Article 59 of the Treaty precludes the application of legislation in a Member State which provides for different tax regimes for capital life assurance policies, depending on whether they are taken out with companies established in that Member State or with companies established elsewhere, where that legislation contains a number of elements liable to dissuade individuals from taking out capital life assurance with companies established in other Member States and liable to dissuade those insurance companies from offering their services on the market in that Member State.

Article 52 of the EC Treaty (now, after amendment, Article 43 EC) and Article 31 of the Agreement on the European Economic Area of 2 May 1992 must be interpreted as precluding legislation of a Member State which excludes the possibility of deducting for tax purposes financing costs incurred by a parent company subject to unlimited tax liability in that State in order to acquire holdings in a subsidiary where those costs relate to dividends which are exempt from tax because they are derived from an indirect subsidiary established in another Member State or in a State which is party to the Agreement, whereas such costs may be deducted where they relate to dividends paid by an indirect subsidiary established in the same Member State as that of the place of the registered office of the parent company and which, in reality, also benefit from a tax exemption.

Article 73b(1) of the EC Treaty (now Article 56(1) EC) does not preclude legislation of a Member State, such as Belgian tax legislation, which, in the context of tax on income, makes dividends from shares in companies established in the territory of that State and dividends from shares in companies established in another Member State subject to the same uniform rate of taxation, without providing for the possibility of setting off tax levied by deduction at source in that other Member State.

Article 48(2 ) of the Treaty precludes a Member State from providing in its tax legislation that sums deducted by way of tax from the salaries and wages of employed persons who are nationals of a Member State and are resident taxpayers for only part of the year because they take up residence in the country or leave it during the course of the tax year are to remain the property of the Treasury and are not repayable.

The German law, which denied a deduction for part of the interest on the loan on the basis that the company was “thinly capitalised”, was discriminatory because the interest would have been tax deductible in full had the loan been between two German companies. Such a difference in treatment between resident subsidiary companies according to the seat of their parent company constitutes an obstacle to the freedom of establishment which is, in principle, prohibited by Article 43 EC. The tax measure in question in the main proceedings makes it less attractive for companies established in other Member States to exercise freedom of establishment and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the State which adopts that measure.

A national measure in accordance with which the loan interest paid by a resident capital company to a non-resident shareholder who has a substantial holding in the capital of that company is, under certain conditions, regarded as a covert distribution of profits, taxable in the hands of the resident borrowing company, primarily affects freedom of establishment within the meaning of Article 43 EC et seq. Those provisions cannot be relied on in a situation involving a company in a non-member country.

1. Articles 56 EC and 58 EC must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which provides that a payment in respect of a share repurchase to a non-resident shareholder in connection with a reduction in share capital is taxed as a dividend without there being a right to deduct the cost of acquisition of those shares, whereas the same payment made to a resident shareholder is taxed as a capital gain with a right to deduct the cost of acquisition.

2. Articles 56 EC and 58 EC must be interpreted as precluding national legislation which derives from a double taxation agreement, such as the Agreement between the Government of the French Republic and the Government of the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of Tax Evasion in respect of Taxes on Income and Wealth, signed on 27 November 1990, which fixes a lower ceiling on the taxation of dividends for non-resident shareholders than for resident shareholders, and, by interpreting that agreement in the light of the commentaries of the Organisation for Economic Cooperation and Development on its applicable model convention, permits the nominal value of such shares to be deducted from the share repurchase payment, except where, under such national legislation, non-resident shareholders are not treated less favourably than resident shareholders. It is for the national court to determine whether that is the case in the specific circumstances of the main proceedings.

Union citizenship is destined to be the fundamental status of nationals of the Member States, enabling those who find themselves in the same situation to enjoy within the scope ratione materiae of the Treaty the same treatment in law irrespective of their nationality, subject to such exceptions as are expressly provided for. The situations falling within the scope of Community law include those involving the exercise of the fundamental freedoms guaranteed by the Treaty, in particular those involving the freedom to move and reside within the territory of the Member States, as conferred by Article 8a of the Treaty (now, after amendment, Article 18 EC).

In that a citizen of the Union must be granted in all Member States the same treatment in law as that accorded to the nationals of those Member States who find themselves in the same situation, it would be incompatible with the right of freedom of movement were a citizen, in the Member State of which he is a national, to receive treatment less favourable than he would enjoy if he had not availed himself of the opportunities offered by the Treaty in relation to freedom of movement.

Those opportunities could not be fully effective if a national of a Member State could be deterred from availing himself of them by obstacles raised on his return to his country of origin by legislation penalising the fact that he has used them.

Community law precludes a Member State from refusing to grant the tide over allowance to one of its nationals, a student seeking her first employment, on the sole ground that that student completed her secondary education in another Member State.

Legislation of a Member State which links the grant of tide over allowances to the condition of having obtained the required diploma in its territory places at a disadvantage certain of its nationals simply because they have exercised their freedom to move in order to pursue education in another Member State.

Such inequality of treatment is contrary to the principles which underpin the status of citizen of the Union, that is, the guarantee of the same treatment in law in the exercise of the citizen’s freedom to move.

The condition at issue could be justified only if it were based on objective considerations independent of the nationality of the persons concerned and were proportionate to the legitimate aim of the national provisions. In that regard, although it is legitimate for the national legislature, in the context of tide over allowances designed to facilitate for young people the transition from education to the employment market, to wish to ensure that there is a real link between the applicant for that allowance and the geographic employment market concerned, a single condition concerning the place where the diploma of completion of secondary education was obtained is nevertheless too general and exclusive in nature and goes beyond what is necessary to attain the objective pursued.

The fact that the State does not tax the profits of the non-resident subsidiaries of a parent company established on its territory does not in itself justify restricting group relief to losses incurred by resident companies.

As Community law now stands, Articles 43 EC and 48 EC do not preclude provisions of a Member State which generally prevent a resident parent company from deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State although they allow it to deduct losses incurred by a resident subsidiary. However, it is contrary to Articles 43 EC and 48 EC to prevent the resident parent company from doing so where the non-resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods and where there are no possibilities for those losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.

It is also important, in that context, to make clear that Member States are free to adopt or to maintain in force rules having the specific purpose of precluding from a tax benefit wholly artificial arrangements whose purpose is to circumvent or escape national tax law

It is contrary to Article 52 of the Treaty (now, after amendment, Article 43 EC) for the tax legislation of a Member State to afford subsidiary companies resident in that Member State the possibility of benefiting from a taxation regime (group income election) allowing them to pay dividends to their parent company without having to pay advance corporation tax where their parent company is also resident in that Member State but to deny them that possibility where their parent company has its seat in another Member State.

Where a subsidiary resident in one Member State has been obliged to pay advance corporation tax in respect of dividends paid to its parent company having its seat in another Member State even though, in similar circumstances, the subsidiaries of parent companies resident in the first Member State were entitled to opt for a taxation regime that allowed them to avoid that obligation, Article 52 of the Treaty (now, after amendment, Article 43 EC) requires that resident subsidiaries and their non-resident parent companies should have an effective legal remedy in order to obtain reimbursement or reparation of the financial loss which they have sustained and from which the authorities of the Member State concerned have benefited as a result of the advance payment of tax by the subsidiaries.

The mere fact that the sole object of such an action is the payment of interest equivalent to the financial loss suffered as a result of the loss of use of the sums paid prematurely does not constitute a ground for dismissing such an action, for the award of interest represents the reimbursement of that which was improperly paid and would appear to be essential in restoring the equal treatment guaranteed by Article 52 of the Treaty.

While, in the absence of Community rules, it is for the domestic legal system of the Member State concerned to lay down the detailed procedural rules governing actions for repayment of taxes levied in breach of Community law or for reparation of loss caused by breach of Community law, including ancillary questions such as the payment of interest, those rules must not render practically impossible or excessively difficult the exercise of rights conferred by Community law.

Actions brought by individuals before the courts of a Member State for repayment of national taxes levied in breach of Community law or for reparation of the loss caused in breach of Community law are subject to national rules of procedure which may, in particular, require applicants to act with reasonable diligence in order to avoid loss or damage or to limit its extent.

It is, however, contrary to Community law for a national court to refuse or reduce a claim brought before it by a subsidiary resident in that Member State and its non-resident parent company for reimbursement or reparation of the financial loss which they have suffered as a consequence of the advance payment of corporation tax by the subsidiary, on the sole ground that they did not apply to the tax authorities in order to benefit from the taxation regime which would have exempted the subsidiary from making payments in advance and that they therefore did not make use of the legal remedies available to them to challenge the refusals of the tax authorities, by invoking the primacy and direct effect of the provisions of Community law, where upon any view national law denied resident subsidiaries and their non-resident parent companies the benefit of that taxation regime.

Article 5(4) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, in so far as it limits to 15% and 10% the amount of the withholding tax on profits distributed by subsidiaries established in Portugal to their parent companies in other Member States, must be interpreted as meaning that that derogation relates not only to corporation tax but also to any taxation, of whatever nature or however described, which takes the form of a withholding tax on dividends distributed by such subsidiaries.

The objective of the Directive, which is to encourage cooperation between companies in several Member States, would be undermined if the Member States were permitted deliberately to deprive companies in other Member States of the benefit of the Directive by subjecting them to taxes having the same effect as a tax on income, even if the name given to the latter places them in another category, such as that of a tax on assets.

The inability to take advantage of the Double Tax Convention cannot be regarded as disadvantageous to persons investing in companies established in Luxembourg. In that regard, the forgoing by the Grand Duchy of Luxembourg under that Convention of part of the tax on dividends, which the Luxembourg Government relies on to justify the relief in question, provides no benefit to the taxpayer concerned. The latter must account for the amount of that tax to the Belgian tax authorities in the form of a deduction at source. The Convention only precludes the amount of the dividends received by the taxpayer being taxed twice, but it does not provide for such an amount to be exempt from tax.

Article 220 is not intended to lay down a legal rule directly applicable as such, but merely defines a number of matters on which the Member States are to enter into negotiations with each other `so far as is necessary’. Its second indent merely indicates the abolition of double taxation within the Community as an objective of any such negotiations.

Thus, although the abolition of double taxation within the Community is included among the objectives of the Treaty, it is clear from the wording of that provision that it cannot itself confer on individuals any rights on which they might be able to rely before their national courts. Consequently, the second indent of Article 220 of the Treaty does not have direct effect.

On a proper construction, Article 48 of the Treaty does not preclude the application of provisions such as those in Articles 13(5)(a), 14(1) and 16 of the Convention signed in Paris on 21 July 1959 between the French Republic and the Federal Republic of Germany for the avoidance of double taxation, as amended by the protocols signed in Bonn on 9 June 1969 and 28 September 1989, under which the tax regime applicable to frontier workers differs depending on whether they work in the private sector or the public sector and, where they work in the public sector, on whether or not they have only the nationality of the State of the authority employing them, and the regime applicable to teachers differs depending on whether their residence in the State in which they are teaching is for a short period or not.

The differentiation embodied in such provisions cannot – even though it relates, as regards public-service remuneration, to nationality – be regarded as constituting discrimination prohibited under Article 48 of the Treaty. It flows, in the absence of any unifying or harmonising measures adopted in the Community context under, in particular, the second indent of Article 220 of the Treaty, from the contracting parties’ competence to define the criteria for allocating their powers of taxation as between themselves, with a view to eliminating double taxation.

On a proper construction, Article 48 of the Treaty does not preclude the application of a tax credit mechanism such as that provided for in Article 20(2)(a)(cc) of the Convention between the French Republic and the Federal Republic of Germany for the avoidance of double taxation.

The object of such a provision is simply to prevent the same income from being taxed in each of the two States party to the convention. It is not to ensure that the tax to which the taxpayer is subject in one State is no higher than that to which he or she would be subject in the other. It is not disputed that any unfavourable consequences entailed in certain cases by the tax credit mechanism set up by the bilateral convention, as implemented in the context of the tax system of the State of residence, are the result in the first place of the differences between the tax scales of the Member States concerned, and, in the absence of any Community legislation in the field, the determination of those scales is a matter for the Member States.

A Community national, such as the applicant in the main proceedings, who has been living in one Member State since the transfer of his residence and who holds all the shares of companies established in another Member State, may rely on Article 43 EC.

Article 43 EC must be interpreted as precluding a Member State from establishing a system for taxing increases in value in the case of a taxpayer’s transferring his residence outside that Member State, such as the system at issue in the main proceedings, which makes the granting of deferment of the payment of that tax conditional on the provision of guarantees and does not take full account of reductions in value capable of arising after the transfer of residence by the person concerned and which were not taken into account by the host Member State.

An obstacle arising from a requirement, in breach of Community law, that a guarantee be constituted cannot be raised with retroactive effect merely by releasing that guarantee. The form of the document on the basis of which the guarantee was released is immaterial to that assessment. Where a Member State makes provision for the payment of interest on arrears where a guarantee demanded in breach of national law is released, such interest is also due in the case of an infringement of Community law. Moreover, it is for the national court to assess, in accordance with the guidelines provided by the Court of Justice and in compliance with the principles of equivalence and effectiveness, whether the Member State is liable on account of the damage caused by the obligation to constitute such a guarantee.

In so far as taxation such as the 5% charge envisaged by the double taxation convention at issue in the main proceedings is imposed on the dividends paid by a subsidiary resident in the United Kingdom to its parent company resident in another Member State, it amounts to a withholding tax on profits which a subsidiary distributes to its parent company within the meaning of Article 5(1) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. On the other hand, such taxation does not amount to a withholding tax prohibited by Article 5(1) of the Directive in so far as it is imposed on the tax credit to which that distribution of dividends confers entitlement in the United Kingdom.

Article 7(2) of Directive 90/435 is to be interpreted as allowing taxation such as the 5% charge envisaged by the double taxation convention at issue in the main proceedings even though that charge, in so far as it applies to dividends paid by the subsidiary to its parent company, amounts to a withholding tax within the meaning of Article 5(1) of the Directive.

A national of a Member State pursuing an activity as a self-employed person in another Member State, in which he resides, may rely on Article 52 of the Treaty as against his State of origin, on whose territory he pursues another activity as a self-employed person, if, by virtue of pursuing an economic activity in a Member State other than his State of origin, he is, with regard to the latter, in a situation which may be regarded as equivalent to that of any other person relying as against the host Member State on the rights and liberties guaranteed by the Treaty.

Article 52 of the Treaty is to be interpreted as precluding one Member State from applying to a national of a Member State who pursues an activity as a self-employed person within its territory and at the same time pursues another activity as a self-employed person in another Member State, in which he resides, a higher rate of income tax than that applicable to residents pursuing the same activity where there is no objective difference between the situation of such taxpayers and that of taxpayers who are resident or treated as such to justify that difference in treatment. That is the case, inter alia, when the fact that a taxpayer is a non-resident does not enable him to escape the application of the rule of progressivity and both categories of taxpayer are therefore in comparable situations with regard to that rule.

Nor may a Member State take account, by means of a higher rate of income tax, of the fact that, by virtue of the provisions concerning the determination of the applicable legislation contained in Regulation No 1408/71 on the application of social security schemes to employed persons, to self-employed persons and to members of their families moving within the Community, the taxpayer is not obliged to pay contributions to its national social insurance scheme. The fact that, also by virtue of Regulation No 1408/71, the taxpayer is insured under the social security scheme of the State in which he resides is irrelevant in that regard.

Articles 56 EC and 58 EC preclude legislation whereby the entitlement of a person fully taxable in one Member State to a tax credit in relation to dividends paid to him by limited companies is excluded where those companies are not established in that State.

The principle of territoriality cannot justify different treatment of dividends distributed by companies established in Finland and those paid by companies established in other Member States, if the categories of dividends concerned by that difference in treatment share the same objective situation.

In those circumstances, the calculation of a tax credit granted to a shareholder fully taxable in one Member State, who has received dividends from a company established in other Member State, must take account of the tax actually paid by the company established in that other Member State, as such tax arises from the general rules on calculating the basis of assessment and from the rate of corporation tax in that latter Member State. Possible difficulties in determining the tax actually paid cannot, in any event, justify an obstacle to the free movement of capital such as that which arises from the legislation at issue in the main proceedings.

Article 48 of the Treaty (now, after amendment, Article 39 EC) precludes legislation by a Member State under which a natural person residing and carrying on a self-employed business in that Member State may, for the purposes of personal taxation, deduct from his taxable profit for one year a loss incurred the previous year only on the condition that that loss was not capable of being set off against remuneration received from employment in another Member State during that same previous year, when the loss, although set off, cannot be deducted from taxable income in either of the Member States concerned, whereas it would be deductible if that person had been both self-employed and employed exclusively in the Member State in which he is resident. Such legislation establishes differentiated tax treatment as between taxpayers who exercise all their activities exclusively on national territory and those who are self-employed in that Member State and employed in another Member State.

1. It is true that, in accordance with that principle, the Member State in which a parent company is established may tax resident companies on the whole of their worldwide profits but may tax non-resident subsidiaries solely on the profits from their activities in that State (see, to that effect, Marks & Spencer, paragraph 39). However, such a principle does not in itself justify the Member State of residence of the parent company refusing to grant an advantage to that company on the ground that it does not tax the profits of its non-resident subsidiaries (see, to that effect, Marks & Spencer, paragraph 40). The purpose of that principle is to establish, in the application of Community law, the need to take into account the limits on the Member States’ powers of taxation. As regards the main proceedings, were the advantage claimed by Rewe to be granted, that would not result in a competing tax jurisdiction becoming involved. It concerns German-resident parent companies which are subject, in that respect, to unlimited liability to tax in that State. Accordingly, the legislation at issue in the main proceedings cannot be considered as an implementation of the principle of territoriality.

2. In circumstances such as those of the main proceedings, in which a parent company holds shares in a non-resident subsidiary which give it a definite influence over the decisions of that foreign subsidiary and allow it to determine its activities, Article 52 of the EC Treaty (now, after amendment, Article 43 EC) and Article 58 of the EC Treaty (now Article 48 EC) preclude legislation of a Member State which restricts the right of a parent company which is resident in that State to deduct for tax purposes losses incurred by that company in respect of write-downs to the book value of its shareholdings in subsidiaries established in other Member States.

Articles 52 and 58 of the EC Treaty are to be interpreted as precluding tax legislation of a Member State which, in the case of companies having their seat in another Member State and carrying on business in the first Member State through a permanent establishment situated there, excludes the possibility, accorded only to companies having their seat in the first Member State, of benefiting from a lower rate of tax on profits, when there is no objective difference in the situation between those two categories of companies which could justify such a difference in treatment.

The member states, which in the present state of community law are entitled to tax any emoluments derived by members of the European parliament from the exercise of their mandates, must observe the limits placed upon them in particular by article 5 of the EEC treaty, the obligation under which provision includes the duty not to take measures which are likely to interfere with the internal functioning of the institutions of the community and by the first paragraph of article 8 of the protocol on the privileges and immunities of the European communities, the effect of which is to prohibit member states from imposing inter alia by their practices in matters of taxation, administrative restrictions on the free movement of members of the parliament.
The national authorities are thus bound to respect the decision taken by the parliament to refund travel and subsistence expenses to its members on a lump-sum basis, a decision which falls within the scope of measures of internal organization whose adoption is a matter for the parliament. However, in so far as the lump sum fixed for the allowances is excessive and in reality constitutes in part disguised remuneration and not reimbursement of expenses, the member states are entitled to charge such remuneration to national income tax.

Consequently community law prohibits the imposition of national tax on lump-sum payments made by the European parliament to its members from community funds by way of reimbursement of travel and subsistence expenses, unless it can be shown in accordance with community law that such lump-such reimbursement constitutes in part remuneration.

Articles 73b(1) and 73d(1)(b) and (3) of the Treaty (now Articles 56(1) EC and 58(1)(b) and (3) EC) are to be interpreted as not precluding the levying of duty, under the legislation of a Member State, on loan agreements, including those entered into in another Member State, payable by all natural and legal persons resident in that State who enter into such a contract, irrespective of the nationality of the contracting parties or of the place where the loan is contracted.

Although, in depriving residents of a Member State of the possibility of benefiting from the absence of taxation which may be associated with loans obtained outside the national territory, such legislation is likely to deter them from obtaining loans from persons established in other Member States and therefore constitutes a restriction on the movement of capital, it is intended to ensure equality of tax treatment of borrowers by preventing taxable persons from evading the requirements of domestic tax legislation and is therefore essential in order to prevent infringements of national tax law and regulations.

Articles 73b(1) and 73d(1)(b) of the Treaty (now Articles 56(1) EC and 58(1)(b) EC) preclude legislation of a Member State which provides that, where a natural or legal person resident in that State concludes outside the national territory a loan agreement which is not set down in a written instrument and not recorded by an entry in the borrower’s books and accounts, he is liable to pay stamp duty, whereas, in the case of a loan entered into in that Member State such duty is not payable even if the agreement is not set down in a written instrument.

Such legislation, which discriminates according to the place where the loan is contracted, is likely to deter residents from contracting loans with persons established in other Member States and therefore constitutes a restriction on the movement of capital. It cannot be justified by the need to ensure equal tax treatment of residents, since the discrimination entailed as between residents runs counter to that objective; nor can it be justified in terms of the objective of preventing fraud by borrowers who are resident in that State.

In circumstances such as those of the main proceedings, Article 4(2)(b) of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985, read in conjunction with Article 2(1) thereof and the sixth recital in its preamble, precludes a Member State from levying duty on a (subsidiary) capital company in respect of a contribution paid by its parent company (the grandparent company) to its subsidiary (a sub-subsidiary).

Article 59 of the Treaty (now, after amendment, Article 49 EC) precludes a Member State from having rules which, for the purposes of determining taxable income, are based on the presumption that professional training courses held in ordinary tourist resorts located in other Member States involve such a significant tourism element that the costs of taking part in those courses cannot be treated as deductible operating costs, whereas there is no such presumption in the case of professional training courses held in ordinary tourist resorts located within the territory of that Member State.

Such rules, which make it more difficult to deduct costs relating to participation in professional training courses organised abroad than to deduct costs relating to such courses organised in the national territory involve a difference in treatment, based on the place where the service is provided, which cannot be justified by the need to preserve fiscal cohesion or by the need for effective fiscal supervision.

Articles 52 of the EC Treaty (now, after amendment, Article 43 EC) and 58 thereof (now Article 48 EC) preclude national legislation under which undertakings established in that State and exploiting proprietary medicinal products there are charged a special levy on pre-tax turnover derived from certain of those proprietary medicinal products during the last tax year before enactment of that legislation and are allowed to deduct from the amount payable only expenditure, incurred during the same tax year, on research carried out in the levying State, when such legislation applies to Community undertakings operating in that State through a secondary place of business.

The tax allowance in question seems likely to work more particularly to the detriment of undertakings of that kind, since, in most cases, those are the undertakings which will have developed their research activities outside the territory of the levying State. It thus leads to unequal treatment which cannot be justified by reference to the general interest – in the name of effectiveness of fiscal supervision, for instance – where that national legislation wholly prevents the taxpayer from submitting evidence that expenditure relating to research carried out in other Member States has actually been incurred.

Article 1(1) of Directive 88/361 for the implementation of Article 67 of the Treaty precludes a legislative provision of a Member State which 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.

Such a provision has the effect of dissuading Community nationals residing in the Member State concerned from investing their capital in companies which have their seat in another Member State and also has a restrictive effect as regards such companies in that it constitutes an obstacle to the raising of capital in the Member State concerned; the restriction cannot be justified by any overriding reason in the general interest such as the need to preserve the cohesion of the tax system.

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.

1. Articles 43 EC and 56 EC do not prevent a Member State, on a distribution of dividends by a company resident in that State, from granting companies receiving those dividends which are also resident in that State a tax credit equal to the fraction of the corporation tax paid on the distributed profits by the company making the distribution, when it does not grant such a tax credit to companies receiving such dividends which are resident in another Member State and are not subject to tax on dividends in the first State.

2. Articles 43 EC and 56 EC do not preclude a situation in which a Member State does not extend the entitlement to a tax credit provided for in a double taxation convention concluded with another Member State for companies resident in the second State which receive dividends from a company resident in the first State to companies resident in a third Member State with which it has concluded a double taxation convention which does not provide for such an entitlement for companies resident in that third State.

1. Article 43 EC precludes legislation of a Member State which restricts the ability of a resident company to deduct, for tax purposes, interest on loan finance granted by a direct or indirect parent company which is resident in another Member State or by a company which is resident in another Member State and is controlled by such a parent company, without imposing that restriction on a resident company which has been granted loan finance by a company which is also resident, unless, first, that legislation provides for a consideration of objective and verifiable elements which make it possible to identify the existence of a purely artificial arrangement, entered into for tax reasons alone, to be established and allows taxpayers to produce, if appropriate and without being subject to undue administrative constraints, evidence as to the commercial justification for the transaction in question and, secondly, where it is established that such an arrangement exists, such legislation treats that interest as a distribution only in so far as it exceeds what would have been agreed upon at arm’s length.

2. Article 43 EC has no bearing on legislation of a Member State, such as the legislation referred to in Question 1, where that legislation applies to a situation in which a resident company is granted a loan by a company which is resident in another Member State or in a non-member country and which does not itself control the borrowing company and where each of those companies is controlled, directly or indirectly, by a common parent company which is resident in a non-member country.

3. In the absence of Community legislation, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, including the classification of claims brought by injured parties before national courts and tribunals. Those courts and tribunals are, however, obliged to ensure that individuals have an effective legal remedy enabling them to obtain reimbursement of the tax unlawfully levied on them and the amounts paid to that Member State or withheld by it directly against that tax. As regards other loss or damage which a person may have sustained by reason of a breach of Community law for which a Member State is liable, the latter is under a duty to make reparation for the loss or damage caused to individuals under the conditions set out in paragraph 51 of the judgment in Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, but that does not preclude the State from being liable under less restrictive conditions, where national law so provides. Where it is established that the legislation of a Member State constitutes an obstacle to freedom of establishment prohibited by Article 43 EC, the national court may, in order to establish the recoverable losses, determine whether the injured parties have shown reasonable diligence in order to avoid those losses or to limit their extent and whether, in particular, they availed themselves in time of all legal remedies available to them. However, in order to prevent the exercise of the rights which Article 43 EC confers on individuals from being rendered impossible or excessively difficult, the national court may determine whether the application of that legislation, coupled, where appropriate, with the relevant provisions of double taxation conventions, would, in any event, have led to the failure of the claims brought by the claimants in the main proceedings before the tax authorities of the Member State concerned.

The Treaty regards the differences in national legislation concerning the connecting factor required of companies incorporated there under and the question whether – and if so how – the registered office or real head office of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment but must be dealt with by future legislation or conventions, which have not yet been adopted or concluded. Therefore, in the present state of Community law, Articles 52 and 58 of the Treaty, properly construed, confer no right on a company incorporated under the legislation of a Member State and having its registered office there to transfer its central management and control to another Member State.

The title and provisions of Council Directive 73/148 of 21 May 1973 on the abolition of restrictions on movement and residence within the Community for nationals of Member States with regard to establishment and the provision of services refer solely to the movement and residence of natural persons, and the provisions of the directive cannot, by their nature, be applied by analogy to legal persons. Therefore, Directive 73/148, properly construed, confers no right on a company to transfer its central management and control to another Member State.

Articles 52 and 58 of the Treaty prevent the legislation of a Member State from granting repayment supplement on overpaid tax to companies which are resident for tax purposes in that State whilst refusing the supplement to companies resident for tax purposes in another Member State. The fact that the latter would not have been exempt from tax if they had been resident in that State is of no relevance in that regard.

Although it applies independently of a company’s seat and therefore of the factor connecting it with the legal system of a particular State, the use of the criterion of fiscal residence within national territory for the purpose of granting repayment supplement on overpaid tax is liable to work more particularly to the disadvantage of companies having their seat in other Member States since it is most often those companies which are resident for tax purposes outside the territory of the Member State in question.

Where a company formed in accordance with the law of a Member State (`A’) in which it has its registered office is deemed, under the law of another Member State (`B’), to have moved its actual centre of administration to Member State B, Articles 43 EC and 48 EC preclude Member State B from denying the company legal capacity and, consequently, the capacity to bring legal proceedings before its national courts for the purpose of enforcing rights under a contract with a company established in Member State B.

Where a company formed in accordance with the law of a Member State (`A’) in which it has its registered office exercises its freedom of establishment in another Member State (`B’), Articles 43 EC and 48 EC require Member State B to recognise the legal capacity and, consequently, the capacity to be a party to legal proceedings which the company enjoys under the law of its State of incorporation (`A’).

Finally, any restriction resulting from the application of the company seat principle can be justified on fiscal grounds. The incorporation principle, to a greater extent than the company seat principle, enables companies to be created which have two places of residence and which are, as a result, subject to taxation without limits in at least two Member States. There is a risk that such companies might claim and be granted tax advantages simultaneously in several Member States. By way of example, the German Government mentions the cross-border offsetting of losses against profits between undertakings within the same group.

Article 73b of the EC Treaty (now Article 56 EC) is to be interpreted as meaning that it does not preclude legislation of a Member State, such as that in question in the main proceedings, by which the estate of a national of that Member State who dies within 10 years of ceasing to reside in that Member State is to be taxed as if that national had continued to reside in that State, while enjoying relief in respect of inheritance taxes levied by other States.

Article 4(1)(a) of Directive 77/799 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, which obliges the competent authority of a Member State without prior request to forward to the competent authority of any other Member State the information which may enable a correct assessment of, in particular, taxes on income and on capital to be effected where it has grounds for supposing that there may be a loss of tax in that other Member State, must be interpreted as meaning that it is not necessary for the loss of tax referred to therein to be covered by an express measure on the part of the competent authority of the latter Member State.

The various language versions of a provision of Community law must be uniformly interpreted, and thus, in the case of divergence between those versions, the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms part.

The expression a loss of tax in Article 4(1)(a) of Directive 77/799 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, a provision which obliges the competent authority of a Member State without prior request to forward to the competent authority of any other Member State the information which may enable a correct assessment of, in particular, taxes on income and on capital to be effected where it has grounds for supposing that there may be a loss of tax in that other Member State, refers to an unjustified saving in tax in the latter Member State.

In order to determine whether a body making a reference is a court or tribunal for the purposes of Article 234 EC, which is a question governed by Community law alone, it is necessary to take account of a number of factors, such as whether the body is established by law, whether it is permanent, whether its jurisdiction is compulsory, whether its procedure is inter partes, whether it applies rules of law and whether it is independent. The criterion of independence is not fulfilled by an appeal chamber of a regional finance authority (appellate tax authority) in Austria which is competent to hear appeals against decisions of the tax authorities.
The expression court or tribunal within the meaning of Article 234 EC can mean only an authority acting as a third party in relation to the authority which adopted the contested decision, and it is impossible to regard an authority such as the appeal chamber as a third party, since there is an organisational and functional link between it and the regional finance authority which adopts the decisions contested before it.

Articles 56 EC and 58 EC are to be interpreted as precluding tax legislation under which, on a distribution of dividends by a capital company, a shareholder who is fully taxable in a Member State is entitled to a tax credit, calculated by reference to the corporation tax rate on the distributed profits, if the dividend-paying company is established in that same Member State but not if it is established in another Member State.

Where a Member State grants certain tax relief in respect of intra-group transfers made between two public limited companies established in that Member State and the second of those companies is wholly owned by the first, either directly or together with

– one or more subsidiaries which are themselves established in that Member State and which it owns entirely, or

– one or more subsidiaries which it owns entirely and which have their seats in another Member State with which the first Member State has concluded an agreement for the prevention of double taxation which contains a non-discrimination clause,

Article 52 of the Treaty (now, after amendment, Article 43 EC), Article 53 of the Treaty (repealed by the Treaty of Amsterdam), Article 54 of the Treaty (now, after amendment, Article 44 EC), Article 55 of the Treaty (now Article 45 EC), Articles 56 and 57 of the Treaty (now, after amendment, Articles 46 EC and 47 EC) and Article 58 of the Treaty (now Article 48 EC) preclude that tax relief from being refused in respect of transfers made between two public limited companies established in that Member State, where the second of those companies is wholly owned by the first together with several subsidiaries which it owns entirely and which have their seat in various other Member States with which the first Member State has concluded agreements for the prevention of double taxation which contain a non-discrimination clause.
Such legislation entails a difference of treatment between various types of intra-group transfers on the basis of the criterion of the subsidiaries’ seat.

Articles 43 EC and 48 EC preclude a national provision such as that at issue in the main proceedings, which excludes the transferor at undervalue of shares in companies from the benefit of deferral of tax due on capital gains made on those shares where the transfer is to a foreign legal person in which the transferor directly or indirectly has a holding – provided that that holding gives him definite influence over the decisions of that foreign legal person and allows him to determine its activities – or to a Swedish limited company which is a branch of such a foreign legal person.

Articles 56 EC and 58 EC preclude a national provision such as that at issue in the main proceedings, which excludes the transferor at undervalue of shares in companies from the benefit of deferral of tax due on capital gains made on those shares where the transfer is to a foreign legal person in which the transferor directly or indirectly has a holding which is not such as to give him definite influence over the decisions of that foreign legal person or allow him to determine its activities.

A restriction on freedom of establishment, such as the national provision at issue, can be justified only if that provision pursues a legitimate aim compatible with the Treaty and is justified by pressing reasons of public interest. Even if that were so, it would still have to be of such a nature as to ensure achievement of the aim in question and not go beyond what was necessary for that.

In the present case, insofar as the Kingdom of Sweden has concluded double-taxation conventions with other Member States, there is no fiscal coherence in relation to any one taxpayer in establishing a strict correlation between the deferral of capital gains tax and the final taxation of the gain. Coherence is at another level, namely, the reciprocity of the rules applicable in the Contracting States in terms of the convention on the basis of connecting factors for the purposes of apportioning competence in tax matters. This the Member States remain free to determine in the absence of Community measures, as here (see, inter alia, Case C-80/94 Wielockx [1995] ECR I-2493, paragraph 24, and Saint Gobain ZN, cited above, paragraph 57).

The Advocate General upheld that the Netherlands must extend the relief for economic double taxation, i.e. the dividend withholding tax exemption, to EU cross border situations.

Incompatibility of anti-avoidance provision aimed at preventing taxpayers from circumventing the German controlled foreign company (‘CFC’) regime by establishing a permanent establishment (‘PE’) in a low tax jurisdiction.

The notion of ‘effective centre of management’ in Article 2(1), read in the light of the prohibition of abuse of Community law, does not apply to situations that were created artificially for the sole purpose of obtaining a tax advantage. It is for the national court to verify, on the basis of objective evidence, whether action constituting an abusive practice has taken place in the case before it. [OJC 212]