© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
G2. The freedoms
GENERAL
- Cannot rely on freedoms in cases of fraud or abuse
"[122] It must be stated at the outset that these questions are based on the premiss that the inapplicability of that system of exemption arises from the finding that there is fraud or abuse, within the meaning of Article 1(2) of Directive 90/435. However, in such a situation, a company resident in a Member State cannot, in the light of the case-law recalled in paragraph 70 above, claim the benefit of the freedoms enshrined in the FEU Treaty in order to call into question the national legislation governing the taxation of dividends paid to a company resident in another Member State." (T Danmark C-116/16)
Which freedom
- Legislation targeted only at situations within groups of companies tested only against freedom of establishment
"[33] Legislation such as the legislation at issue in the main proceedings, which is targeted only at relations within a group of companies, primarily affects freedom of establishment and should, accordingly, be considered in the light of Article 43 EC (see, to that effect, Cadbury Schweppes and Cadbury Schweppes Overseas, paragraph 32, and Case C-446/04 Test Claimants in the FII Group Litigation [2006] ECR I‑0000, paragraph 118).
[34] If, as submitted by the claimants in the main proceedings, it were to be accepted that that legislation has restrictive effects on the freedom to provide services and the free movement of capital, such effects must be seen as an unavoidable consequence of any restriction on freedom of establishment and do not justify an independent examination of that legislation in the light of Articles 49 EC and 56 EC (see, to that effect, Case C-36/02 Omega [2004] ECR I‑9609, paragraph 27; Cadbury Schweppes and Cadbury Schweppes Overseas, paragraph 33; and Case C-452/04 Fidium Finanz [2006] ECR I-0000, paragraphs 48 and 49).
[35] The questions referred should therefore be answered in the light of Article 43 EC alone." (Test Claimants in Thin Cap C-524/04)
- Establishment has no application to a situation where there is no controlling shareholding
"[98] Article 43 EC has accordingly no bearing on the application of national legislation such as the legislation at issue in the main proceedings to a situation in which a resident company is granted a loan by a company which is resident in another Member State and which does not itself have a controlling shareholding in the borrowing company and where each of those companies is directly or indirectly controlled by a common parent company which is resident, for its part, in a non‑member country." (Test Claimants in Thin Cap C-524/04)
- Aspect relating to the transfer of assets between generations is decisive in relation to setting up a foundation, therefore free movement of capital
"[43] However, it is apparent from the request for a preliminary ruling that the aspect of that transaction relating to the transfer of assets between generations – treated here as a gift inter vivos – is decisive, the setting up of a foundation merely being a means to achieve that end.
[44] The legislation at issue in the main proceedings, therefore, is liable predominantly to affect the free movement of capital. Any restrictions on freedom of establishment resulting from that legislation are an inevitable consequence of the restriction on the free movement of capital and do not, therefore, justify an independent examination of that legislation in the light of Article 31 of the EEA Agreement (see, to that effect, judgment of 7 April 2022, Veronsaajien oikeudenvalvontayksikkö (Exemption of contractual investment funds), C‑342/20, EU:C:2022:276, paragraph 47 and the case-law cited)." (Familienstiftung C-142/24)
FREE MOVEMENT OF GOODS
- Traders should not be in a less favourable position than before the abolition of frontier checks
"[62] Secondly, it is also important to ensure, as the Commission correctly submits, that the position of economic operators should not be less favourable than it was prior to the abolition of frontier checks between the Member States, because such a result would run counter to the purposes of the internal market which is intended to facilitate trade between them." (Teleos C-409/04)
- Requirements of proof of movement must comply with free movement of goods
"[63] Since it is no longer possible for taxable persons to rely on documents issued by the customs authorities, evidence of intra-Community supplies and acquisitions must be provided by other means. Whilst it is true that the regime governing intra-Community trade has become more open to fraud, the fact remains that the requirements for proof established by the Member States must comply with the fundamental freedoms established by the EC Treaty, such as, in particular, the free movement of goods." (Teleos C-409/04)
- No obligations giving rise to formalities connected with the crossing of frontiers
"[64] In that regard, it is also important to point out that, under Article 22(8) of the Sixth Directive, the Member States may impose the obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers." (Teleos C-409/04)
FREEDOM OF SERVICES
- Service defined broadly: anything for remuneration
"[54] In the first place, the Court notes that, under Article 57 TFEU, activities are to be classified as ‘services’ where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons (see, to that effect, judgment of 9 July 2020, RL (Directive combating late payment), C‑199/19, EU:C:2020:548, paragraph 31).
[55] If follows that the FEU Treaty defines the concept of ‘service’ broadly, so as to include any supply which is not covered by the other fundamental freedoms, in order to ensure that all economic activity falls within the scope of the fundamental freedoms (see, to that effect, judgment of 9 July 2020, RL (Directive combating late payment), C‑199/19, EU:C:2020:548, paragraph 32 and the case-law cited)." (Cartrans Preda C-461/21)
- Both provider and recipient of services may have rights re freedom
"[67] However, the Court has held that the provider and the recipient of the services are two distinct legal entities, each with its own interests and each entitled to claim the benefit of the freedom to provide services if their rights are infringed (judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 27)." (Cartrans Preda C-461/21)
FREE MOVEMENT OF WORKERS
- Characterised by subordination and the payment of remuneration for services rendered
"[32] It follows that legislation which is intended to tax an employee who provides services for and under the direction of an employer in return for remuneration, and who is therefore engaged in an employment relationship which is characterised by subordination and the payment of remuneration in return for services rendered, such as – subject to the findings of the referring court – the legislation at issue in the main proceedings, falls within the scope of those provisions of the Treaty which relate to freedom of movement for workers." (Petersen C-544/11)
- Effects on the establishment of employers as the unavoidable consequence of restriction on movement of workers: free movement of workers applies
"[33] Assuming that such legislation has restrictive effects on the freedom of employers established in another Member State to provide services, such as those evoked by the referring court or by the applicants in the main proceedings, which result in preferential treatment for employers established in Germany over those established in another Member State concerning the recruitment of qualified staff who can be seconded to development aid projects in another State, such effects would be the unavoidable consequence of any restriction on freedom of movement for workers and thus do not justify an independent examination in the light of Article 56 TFEU." (Petersen C-544/11)
- Freedom both ensures foreign workers are treated the same as nationals and prevent state obstructing nationals from working in another Member State
"[36] Even if, according to their wording, the rules on freedom of movement for workers are intended, in particular, to secure the benefit of national treatment in the host State, they also preclude the State of origin from obstructing the freedom of one of its nationals to accept and pursue employment in another Member State (see, to that effect, Terhoeve, paragraphs 27 to 29, and de Groot, paragraph 79).
[37] By analogy, the rules on freedom of movement for workers also preclude the Member State of residence of a taxable European Union national from obstructing the freedom of that national to accept and pursue employment in another Member State, even in a situation where that Member State is that resident’s Member State of nationality." (Petersen C-544/11)
- Applies where employee works in a third state for employer located in another Member State
"[39] In that regard, it must be stated that the Court has already had occasion to point out that, where a case concerns a national of a Member State who is an employee of a company established in another Member State, in principle such a case comes within the scope of the provisions of European Union law on the free movement of workers (see, to that effect, Case 237/83 Prodest [1984] ECR 3153, paragraph 5).
...
[41] Provisions of European Union law may apply to professional activities pursued outside the territory of the European Union as long as the employment relationship retains a sufficiently close link with the European Union (see, to that effect, inter alia, Prodest, cited above, paragraph 6; Case 9/88 Lopes da Veiga [1989] ECR 2989, paragraph 15; and Case C-60/93 Aldewereld [1994] ECR I-2991, paragraph 14). That principle must be deemed to extend also to cases in which there is a sufficiently close link between the employment relationship, on the one hand, and the law of a Member State and thus the relevant rules of European Union law, on the other (Case C-214/94 Boukhalfa [1996] ECR I-2253, paragraph 15)." (Petersen C-544/11)
FREEDOM OF ESTABLISHMENT
- Right of EU nationals to pursue self-employment and set up undertakings in other Member States
"[36] 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 European Community, the right to exercise their activity in the Member State concerned through a subsidiary, branch or agency (see, inter alia, Case C-307/97 Saint‑Gobain ZN [1999] ECR I-6161, paragraph 35; Marks & Spencer, paragraph 30; and Cadbury Schweppes and Cadbury Schweppes Overseas, paragraph 41).
[37] In the case of companies, their registered office for the purposes of Article 48 EC serves, in the same way as nationality in the case of individuals, as the connecting factor with the legal system of a State..." (Test Claimants in Thin Cap C-524/04)
FREE MOVEMENT OF CAPITAL
- List in Directive 88/361 is indicative of what amounts to capital movement but not exhaustive
"[22] The Treaty does not define the notions of "capital movements" or "payments". However, it is established case-law that, in as much as Article 73b of the EC Treaty substantially reproduces the contents of Article 1 of Directive 88/361, and even though that directive was adopted on the basis of Articles 69 and 70(1) of the EEC Treaty (Articles 67 to 73 of the EEC Treaty having been replaced by Articles 73b to 73g of the EC Treaty, now Articles 56 EC to 60 EC), the nomenclature in respect of "movements of capital" annexed to Directive 88/361 still has the same indicative value, for the purposes of defining the notion of capital movements, as it did before the entry into force of those provisions, subject to the qualification, contained in the introduction to the nomenclature, that the list set out therein is not exhaustive (see, inter alia, Case C-222/97 Trummer and Mayer [1999] ECR I-1661, paragraph 21, Joined Cases C-515/99, C-519/99 to C-524/99 and C-526/99 to C-540/99 Reisch and Others [2002] ECR I-2157, paragraph 30, and Van Hilten-van der Heijden, paragraph 39)." (Centro di Musicologia Walter Stauffer C-386/04)
- Investment in real estate (including both ownership and administration of such property)
"[23] It is not disputed that the foundation, whose seat is in Italy, has commercial property in Munich which it lets. Among the capital movements listed in Annex I to Directive 88/361, under heading II entitled "Investments in real estate", are investments in real estate on national territory by non-residents.
[24] It follows that free movement of capital covers both the ownership and administration of such property and it is not therefore necessary to consider whether the foundation acts as a provider of services." (Centro di Musicologia Walter Stauffer C-386/04)
- Inheritance
"[20] In that regard, it is apparent from settled case-law that inheritances, namely the transfer to one or more persons of assets left by a deceased person and falling under heading XI of Annex I to Directive 88/361, entitled ‘Personal capital movements’, constitute movements of capital within the meaning of Article 56 EC, except in cases where their constituent elements are confined within a single Member State (see, inter alia, Case C-364/01 Barbier [2003] ECR I-15013, paragraph 58; van Hilten-van der Heijden, paragraphs 40 to 42; and Case C-31/11 Scheunemann [2012] ECR I-0000, paragraph 22)." (Welte C-181/12)
- Gifts and endowments
"[19]...Gifts and endowments appear under heading XI, ‘Personal capital movements’, of Annex I to Directive 88/361 (Case C‑318/07 Persche [2009] ECR I‑359, paragraph 24).
[20] Like the tax charged on inheritances, which consist in the transfer to one or more persons of assets left by a deceased person and likewise fall under that heading of Annex I to the directive (see, inter alia, Case C‑256/06 Jäger [2008] ECR I‑123, paragraph 25; Eckelkamp and Others, paragraph 39; Arens-Sikken, paragraph 30; Block, paragraph 20; and Case C‑35/08 Busley and Cibrian Fernandez [2009] ECR I‑0000, paragraph 18), the tax treatment of gifts, whether they are gifts of money, immovable property or movable property, therefore comes under the Treaty provisions on the movement of capital, except where their constituent elements are confined within a single Member State (see, to that effect, Persche, paragraph 27)." (Mattner C-510/08)
- Transfer to family foundation
"[39] The Court has already held that the tax treatment of gifts, whether they are gifts of money, immovable property or movable property, falls under the provisions of the TFEU on the movement of capital, except where their constituent elements are confined within a single Member State (judgment of 17 September 2015, F.E. Familienprivatstiftung Eisenstadt, C‑589/13, EU:C:2015:612, paragraph 37 and the case-law cited).
[40] Furthermore, it is apparent from the request for a preliminary ruling that the tax treatment of the transfer of assets to a family foundation must be assessed by taking into account the substitute inheritance tax, set out in Paragraph 1(1)(4) of the ErbStG, which resident foundations have to pay at certain intervals and which is intended to place resident foundations on an equal footing with ordinary inheritances." (Familienstiftung C-142/24)
- Distributions/gifts by foundations
"[38] The case in the main proceedings does not directly relate to the tax treatment of gifts in the sense of a difference in treatment between gifts made to resident recipients and gifts made to recipients resident in another Member State. It concerns the tax treatment of resident private foundations which differs according to whether the gifts that it makes are made to recipients residing in Austria or recipients residing in another Member State.
[39] In the case in the main proceedings, in 2001 and 2002, the private foundation made gifts, in particular, to two recipients residing in a Member State other than the Republic of Austria. Those gifts involved payments being made without any consideration being given by the recipients. As the Commission correctly states, both the initial contribution of the assets to the foundation on its being set up by the founder as well as the subsequent payments made from those assets to the recipients fall within the concept of ‘movement of capital’ within the meaning of Article 56(1) EC." (F.E. Familienprivatstiftung Eisenstadt C-589/13)
PURELY INTERNAL SITUATION
- Inheritance/gift relating to property situated in another Member State is not purely domestic situation
"[21] A situation in which a person resident in Switzerland at the time of his death leaves to another person also resident in Switzerland a group of assets including an immovable property situated in Germany which is the subject of an inheritance tax assessment in Germany cannot be regarded as a purely domestic situation. Consequently, the inheritance at issue in the main proceedings constitutes a transaction which is a movement of capital within the meaning of Article 56(1) EC." (Welte C-181/12)
"[21] A situation in which a person resident in the Netherlands makes a gift to another person also resident in the Netherlands of land in Germany cannot be regarded as a purely domestic situation." (Mattner C-510/08)
STANDSTILL
- Restrictions on free movement of capital to/from third countries involving direct investment existing on 31 December 1993
"[28] It should be remembered that, under that provision, Article 56 EC is to be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment – including in real estate – establishment, the provision of financial services or the admission of securities to capital markets." (Welte C-181/12)
- Investment in real estate may or may not constitute direct investment (does not include inheriting family home)
"[33] It is apparent from the very title of heading II of Annex I to Directive 88/361 that the ‘investments in real estate’ referred to in that heading do not include the direct investments referred to in heading I of that Annex.
[34] In those circumstances it must be held that, as pointed out by the Advocate General at point 55 of his Opinion, Article 57(1) EC, in referring to ‘direct investment – including in real estate’, concerns only investments in real estate that constitute direct investments coming under heading I of Annex I to Directive 88/361.
[35] By contrast, investments in real estate of a ‘patrimonial’ nature, such as that at issue in the main proceedings concerning the house of the parents of the deceased, made for private purposes unconnected with the carrying out of an economic activity do not fall within the scope of Article 57(1) EC." (Welte C-181/12)
CONSEQUENCES
- Interpret domestic law motive test to be limited to wholly artificial arrangements
"[72] In this case, it is for the national court to determine whether, as maintained by the United Kingdom Government, the motive test, as defined by the legislation on CFCs, lends itself to an interpretation which enables the taxation provided for by that legislation to be restricted to wholly artificial arrangements or whether, on the contrary, the criteria on which that test is based mean that, where none of the exceptions laid down by that legislation applies and the intention to obtain a reduction in United Kingdom tax is central to the reasons for incorporating the CFC, the resident parent company comes within the scope of application of that legislation, despite the absence of objective evidence such as to indicate the existence of an arrangement of that nature." (Cadbury Schweppes C‑196/04)