© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
G4. Justification of restriction
GENERAL
- Must pursue a legitimate objective and be proportionate
"[69] Such a restriction on the freedom to provide services is warranted only if it pursues a legitimate objective compatible with the FEU Treaty and is justified by overriding reasons in the public interest; if that is the case, it must be suitable for securing the attainment of the objective pursued and must not go beyond what is necessary in order to attain that objective (judgment of 27 October 2022, Instituto do Cinema e do Audiovisual, C‑411/21, EU:C:2022:836, paragraph 24 and the case-law cited)." (Cartrans Preda C-461/21)
"[47] Such a restriction is permissible only if it is justified by overriding reasons of public interest. It is further necessary, in such a case, that its application be appropriate to ensuring the attainment of the objective thus pursued and not go beyond what is necessary to attain it (Case C-250/95 Futura Participations and Singer [1997] ECR I-2471, paragraph 26; Case C-9/02 De Lasteyrie du Saillant [2004] ECR I-2409, paragraph 49; and Marks & Spencer, paragraph 35)." (Cadbury Schweppes C‑196/04)
- For the Member State to demonstrate specifically the existence of a reason relating to the public interest
"[89] In so doing, the Romanian Government does not, however, explain how such considerations may constitute a legitimate objective that is compatible with the FEU Treaty and which responds to overriding reasons in the public interest capable of justifying a restriction such as the one at issue in the present case.
[90] In that regard, it must be borne in mind that it is for a Member State which claims to have a reason justifying a restriction on one of the fundamental freedoms guaranteed by that treaty to demonstrate specifically the existence of a reason relating to the public interest (judgment of 16 December 2021, Prefettura di Massa Carrara, C‑274/20, EU:C:2021:1022, paragraph 38 and the case-law cited)." (Cartrans Preda C-461/21)
- Justifications may be combined (e.g. balanced allocation + preventing avoidance)
"[66] In that context, national legislation which is not specifically designed to exclude from the tax advantage it confers such purely artificial arrangements – devoid of economic reality, created with the aim of escaping the tax normally due on the profits generated by activities carried out on national territory – may nevertheless be regarded as justified by the objective of preventing tax avoidance, taken together with that of preserving the balanced allocation of the power to impose taxes between the Member States (see, to that effect, Oy AA, paragraph 63)." (SGI C-311/08)
SITUATIONS NOT OBJECTIVELY COMPARABLE
- Free movement of capital without prejudice to distinction based on residence where situations are not objectively comparable
"[44] A distinction must therefore be made between different treatment permitted under Article 58(1)(a) EC and arbitrary discrimination prohibited under Article 58(3) EC. It is apparent from settled case-law that, in order for national tax rules such as those at issue in the main proceedings – which, for the purposes of calculating inheritance tax, distinguish as to the amount of the tax-free allowance in respect of immovable property located in the Member State concerned according to whether the deceased or the heir resides in that State or whether they both reside in another Member State – to be 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 justifiable by overriding reasons in the public interest. In order to be justified, moreover, the difference in treatment must not go beyond what is necessary in order to attain the objective of the legislation in question (see Case C-319/02 Manninen [2004] ECR I-7477, paragraph 29; Eckelkamp and Others, paragraphs 58 and 59; Arens-Sikken, paragraphs 52 and 53; and Mattner, paragraph 34)." (Welte C-181/12)
"[29] It is necessary, however, to consider whether such a restriction may be justified in the light of the provisions of the Treaty.
[30] In accordance with Article 73d(1)(a) of the EC Treaty, Article 73b takes effect without prejudice to the right available to Member States to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or the place where their capital is invested.
[31] However, Article 73d(1)(a) of the EC Treaty, which, as a derogation from the fundamental principle of the free movement of capital, must be interpreted strictly, cannot be interpreted as meaning that any tax legislation making a distinction between taxpayers by reference to their place of residence or the Member State in which their capital is invested is automatically compatible with the Treaty. The derogation in Article 73d(1)(a) of the EC Treaty is itself limited by Article 73d(3) of the EC Treaty, which provides that the national provisions referred to in Article 73d(1) "shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 73b" (see Case C-319/02 Manninen [2004] ECR I-7477, paragraph 28).
[32] Unequal treatment permitted under Article 73d(1)(a) of the EC Treaty must therefore be distinguished from arbitrary discrimination or disguised restrictions prohibited under Article 73d(3) of the EC Treaty. According to the case-law, for national tax legislation such as that at issue in the main proceedings, which distinguishes between foundations with unlimited tax liability and those with limited liability, to be 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 coherence of the tax system or effective fiscal supervision (see, to that effect, Case C-35/98 Verkooijen [2000] ECR I-4071, paragraph 43, and Manninen, paragraph 29). In order to be justified, moreover, the difference in treatment between charitable foundations with unlimited tax liability in Germany and foundations of the same kind established in other Member States must not go beyond what is necessary in order to attain the objective of the legislation in question." (Centro di Musicologia Walter Stauffer C-386/04)
- Tax benefit conferred on resident foundations irrespective of whether they play active role in society, therefore non-resident foundations not objectively different
"[37] Firstly, whilst Member States are entitled to require a sufficiently close link between foundations upon which they confer charitable status for the purposes of granting certain tax benefits and the activities pursued by those foundations, it is clear from the order for reference that it is irrelevant, for the purposes of the decision in the case in the main proceedings, whether such a link exists.
[38] Paragraph 52 of the AO provides that a corporation pursues charitable objects where its activities are directed at the promotion of the interests of the general public in a manner other than for profit but does not, however, make a distinction as to whether those activities are carried out in national territory or abroad. The national court states that the promotion of the interests of the general public within the meaning of that provision does not mean that such measures must benefit nationals of the Federal Republic of Germany or its inhabitants." (Centro di Musicologia Walter Stauffer C-386/04)
- Resident and non-resident both subject to inheritance tax in relation to domestic property: situations objectively comparable for purposes of tax allowance
"[49] In that regard, the Court held that, as regards the amount of inheritance tax payable in respect of immovable property in Germany, there is no objective difference justifying the unequal tax treatment of the situation in which neither person resides in that Member State and the situation in which at least one of them resides there. The amount of inheritance tax relating to an immovable property in Germany is calculated pursuant to the ErbStG on the basis both of the value of the property and of the personal link between the deceased and the inheritor. Neither of those criteria depends on the place of residence of the deceased and the inheritor (see, to that effect, Jäger, paragraph 44; Eckelkamp and Others, paragraph 61; and Arens-Sikken, paragraph 55).
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[51] Where, for the purposes of taxing immovable property acquired by inheritance and located in the Member State concerned, national legislation places on the same footing (i) non-resident heirs who have acquired the property from a non-resident deceased and (ii) non-resident or resident heirs who have acquired it from a resident deceased and resident heirs who have acquired it from a non-resident deceased it cannot, without infringing the requirements of European Union law, treat those heirs differently in connection with that tax as regards the application of a tax-free allowance in respect of the immovable property. By treating inheritances of those two classes of persons in the same way except in relation to the amount of the allowance which an heir may receive, the national legislature accepted that there was no objective difference between them as regards the detailed rules and conditions of charging inheritance tax which could justify a difference in treatment (see, by analogy, Eckelkamp and Others, paragraph 63; Arens-Sikken, paragraph 57; and Mattner, paragraph 38)." (Welte C-181/12)
- Member State taxes gifts to both residents and non-residents: objectively comparable
"[36] According to the case-file submitted to the Court, the amount of the tax on gifts of immovable property in Germany is calculated pursuant to the ErbStG on the basis both of the value of the property and of the family relationship, if any, between the donor and the donee. Neither of those criteria depends on the place of residence of the donor or the donee. Consequently, as regards the amount of gift tax payable in respect of immovable property in Germany which is the subject of a gift, there cannot be any objective difference justifying the unequal tax treatment of the situation in which neither person resides in that Member State and that in which at least one of them resides there. Ms Mattner’s situation is therefore comparable to that of any donee who acquires immovable property in Germany by gift from a person resident in Germany with whom there is a family link, and also to that of a donee residing in Germany who makes that acquisition from such a person who is not resident there (see, to that effect, Jäger, paragraph 44; Eckelkamp and Others, paragraph 61; and Arens-Sikken, paragraph 55).
[37] The German legislation in principle regards both the recipient of a gift between non-residents and the recipient of a gift involving at least one resident as taxpayers for the purposes of charging gift tax on gifts of immovable property in Germany. Only with respect to the allowance applied to the taxable value does that legislation, for the purposes of calculating the tax on gifts of immovable property in Germany, apply different treatment to gifts between non-residents and gifts involving a resident. By contrast, the determination of the class and rate of tax, laid down in Paragraphs 15 and 19 of the ErbStG, follows the same rules for both categories of gifts (see, by analogy, Eckelkamp and Others, paragraph 62, and Arens-Sikken, paragraph 56)." (Mattner C-510/08)
- Fact that Member State does not tax non-resident on whole inheritance does not make situations not comparable for purposes of allowance (which does not depend on value inherited)
"[53] However, that fact cannot call into question the foregoing considerations since the amount of the tax-free allowance provided for in the legislation at issue in the main proceedings does not vary at all in relation to the amount of the taxable value of the inheritance but remains the same regardless of that latter amount. As is clear from the documents submitted to the Court, that allowance is automatically granted to each heir simply because they are subject to inheritance tax in Germany, so as to ensure that part of the estate is exempted through the reduction of the total amount of the inheritance. However, just as the status of a taxable person does not in any way depend on the place of residence – the legislation at issue subjecting any acquisition of an immovable property located in Germany to inheritance tax whether the deceased and heir be resident or non-resident – the aim of partial exemption of the estate affects all those subject to inheritance tax in Germany in the same way, whether they be resident or non-resident, since that exemption aims to reduce the total amount of the inheritance.
[54] Consequently, the recipient of an inheritance whose taxable value in Germany is limited, like that of Mr Welte in the case in the main proceedings, to an immovable property located in that Member State could, unlike Mr Welte, rely on the tax-free allowance of EUR 500 000 if he acquired such a property from a person residing in Germany with whom a spousal link existed or if he resided in Germany and acquired that property from such a person who was not residing there.
[55] It follows that, as the amount of the tax-free allowance does not depend on the amount of the taxable value but is granted to the heir in his capacity as a taxable person, the fact that the non-resident heir of a non-resident deceased has limited tax liability does not, for the purposes of that allowance, make the situation of that heir objectively different from that of the non-resident heir of a resident deceased or from that of the resident heir of a resident or non-resident deceased." (Welte C-181/12)
- Foundation gifts to resident and non-resident beneficiaries are comparable: cannot rely on renouncing power to tax non-resident
"[63] As stated by the Commission, having regard to Article 58(1)(a) EC, the making of gifts by Austrian private foundations to resident beneficiaries is a situation objectively comparable to that where the same foundations make gifts to beneficiaries residing in another Member State. In both cases, the gifts are made from the assets of the private foundation or from increases in those assets resulting from their investment.
[64] Furthermore, under the double taxation conventions that it has concluded with the Kingdom of Belgium on the one hand and the Federal Republic of Germany on the other, which, in accordance with the OECD convention model, determine the exclusive right, for each of the contracting States, to tax the beneficiaries of gifts residing in its territory, the Republic of Austria renounced the exercise of its powers of taxation over gifts to persons residing in those two other Member States. It cannot therefore invoke a difference in objective situation between resident private foundations whereby the beneficiaries of gifts that those foundations make are either resident in Austria and taxable there, or resident in one of those other two Member States and not subject to its powers of taxation, in order to subject foundations making gifts to the latter to a specific tax on the ground that those beneficiaries are not subject to its tax jurisdiction." (F.E. Familienprivatstiftung Eisenstadt C-589/13)
- Fact that Member State only imposed subsequent tax charges on resident foundations does not mean gifts to resident/non-resident foundations are not objectively comparable
"[64] Lastly, the objective, put forward by the German Government, of granting an advantage only to resident family foundations, on the ground that only their assets, unlike those of non-resident foundations, are subject to recurring taxation by way of substitute inheritance tax, is necessarily and closely linked to the setting up of domestic family foundations, so that to accept that situations are not comparable solely because a foundation is established in another State, when Article 63(1) TFEU specifically prohibits restrictions on cross-border movements of capital, would deprive that provision of all meaning (see, to that effect, judgments of 26 February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraph 68; of 9 September 2021, Real Vida Seguros, C‑449/20, EU:C:2021:721, paragraph 36; and of 12 October 2023, BA (Inheritance – Public housing policy in the European Union), C‑670/21, EU:C:2023:763, paragraph 64)." (Familienstiftung C-142/24)
NATIONAL CULTURE
- Situations objectively comparable where Member State seeks to tax a resident on the income of a non-resident
"[67] However, as observed by the Advocate General in point 71 of his Opinion, the purpose of the legislation at issue in the main proceedings is, so far as possible, to treat the situation of resident companies which have invested capital in a company established in a third country with a ‘low’ tax rate in the same way as that of resident companies which have invested their capital in another company resident in Germany, with a view, inter alia, to offsetting any tax advantages which the former might obtain from investing their capital in a third country. As soon as a Member State unilaterally taxes a resident company on the income obtained by a company established in a third country, in which that resident company holds shares, the situation of that resident company becomes comparable to that of a resident company which holds shares in another resident company (see, by analogy, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 45, and of 14 December 2006, Denkavit Internationaal and Denkavit France, C‑170/05, EU:C:2006:783, paragraphs 35 and 36)." (X GmbH C-135/17)
- Not satisfied where national measure not directed at charities benefiting the national general public
"[44] Firstly, the Finanzamt considers that the tax privilege enjoyed by national foundations pursuing cultural objects is covered by Article 92(3)(d) of the EC Treaty (now, after amendment, Article 87(3)(d) EC), and Article 128 of the EC Treaty (now, after amendment, Article 151 EC) and, accordingly, that the derogating rules applicable to national foundations pursuing exclusively objects relating to education and training are compatible with Community law.
[45] That argument cannot be upheld. Whilst certain objects connected with the promotion at national level of culture and high-level training may constitute overriding reasons in the general interest (see, to that effect, Case C-198/89 Commission v Greece [1991] ECR I-727, and Case C-153/02 Neri [2003] ECR I-13555, paragraph 46), the fact remains that it does not appear, in the light of the information available to the Court, that the tax exemption scheme at issue pursues such objectives or constitutes aid governed by Articles 92 and 93 of the EC Treaty. It is clear from the order for reference that Paragraph 52 of the AO is not based on the premiss that the activities pursued by charitable foundations must benefit the national general public." (Centro di Musicologia Walter Stauffer C-386/04)
FRAUD PREVENTION
- Need to prevent fraud can justify restrictions on free movement of goods
"[61] As regards, fourthly, Teleos and Others’ argument that the measures adopted by the United Kingdom authorities interfere with the free movement of goods, first, it is clear from the Court’s case-law that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C‑487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I‑5337, paragraph 76, and Kittel and Recolta Recycling , paragraph 54), which can, in certain circumstances, justify restrictions on the free movement of goods." (Teleos C-409/04)
FISCAL SUPERVISION
- No presumption that foundation established in another Member State carries on criminal activity
"[61] Even if, by granting a tax exemption only to charitable foundations that are established in its territory, the authorities of a Member State seek to combat crime, the fact remains that the fact that a foundation is established in another Member State cannot give rise to a general assumption of criminal activity. Moreover, to preclude such foundations from entitlement to a tax exemption when a number of measures are available to monitor their accounts and activities may be considered to be a measure which goes beyond what is necessary to combat crime (see, to that effect, Case C-243/01 Gambelli and Others [2003] ECR I-13031, paragraph 74)." (Centro di Musicologia Walter Stauffer C-386/04)
- Effective fiscal supervision is a potential justification
"[50] In that regard, the Court has already held that the need to guarantee the effectiveness of fiscal supervision constitutes an overriding requirement of general interest capable of justifying a restriction on the exercise of freedom of movement guaranteed by the Treaty (see, inter alia, Case C-101/05 A [2007] ECR I-11531, paragraph 55, and Case C-318/10 SIAT [2012] ECR, paragraph 36)." (Petersen C-544/11)
- Cannot rely on impossibility of seeking co-operation from another Member State to refuse advantage: can request evidence from taxpayer
"[51] However, a Member State cannot rely on the fact that it may be impossible to seek cooperation from another Member State in conducting inquiries or collecting information in order to justify a refusal to grant a tax advantage. There is no reason why the tax authorities concerned should not request from the taxpayer the evidence that they consider they require in order to effect a correct assessment of the taxes and duties concerned and, where appropriate, refuse the exemption applied for if that evidence is not supplied (see Case C-451/05 ELISA [2007] ECR I-8251, paragraph 95).
[52] It cannot be ruled out, as a matter of principle, that the taxpayer may be in a position to provide relevant documentary evidence enabling the tax authorities of the Member State imposing the tax to ascertain, clearly and precisely, whether he satisfies the requirements for receiving the tax advantage in question (see, to that effect, Case C-254/97 Baxter and Others [1999] ECR I-4809, paragraph 20; Case C-39/04 Laboratoires Fournier [2005] ECR I-2057, paragraph 25; ELISA, cited above, paragraph 96; and A, cited above, paragraph 59)." (Petersen C-544/11)
"[25] However, national legislation which absolutely prevents the taxpayer from submitting evidence that expenditure relating to research carried out in other Member States has actually been incurred and satisfies the prescribed requirements cannot be justified in the name of effectiveness of fiscal supervision. The possibility cannot be excluded a priori that the taxpayer is able to provide relevant documentary evidence enabling the tax authorities of the Member State of taxation to ascertain, clearly and precisely, the nature and genuineness of the research expenditure incurred in other Member States (see Baxter and Others, paragraphs 19 and 20)." (Laboratoires Fournier C-39/04)
- In some cases a tax advantage may depend on information from another tax authority
"[55] It is true that the Court has also ruled that, where the legislation of a Member State makes the grant of a tax advantage dependent on the satisfaction of requirements, compliance with which can be verified only by obtaining information from the competent authorities of a third State, it is, in principle, legitimate for that Member State to refuse to grant that advantage if, in particular, because that third State is not under any obligation pursuant to a convention or agreement to provide information, it proves impossible to obtain such information from that State (A, cited above, paragraph 63, and Case C-318/07 Persche [2009] ECR I-359, paragraph 70). The framework for cooperation between the competent authorities of the Member States established by Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15) and Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799 (OJ 2011 L 64, p. 1) does not exist between those authorities and the competent authorities of a third State where that State has not entered into any undertaking of mutual assistance (Case C-48/11 A [2012] ECR, paragraph 35)." (Petersen C-544/11)
EFFECTIVE COLLECTION OF TAX
- Effective collection of tax is a justification
"[71] In that regard, the Court notes that, according to its case-law, the need to ensure the effective collection of tax constitutes an overriding reason of public interest capable of justifying a restriction on the freedom to provide services (see, to that effect, judgments of 3 October 2006, FKP Scorpio Konzertproduktionen, C‑290/04, EU:C:2006:630, paragraph 36, and of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraph 39)." (Cartrans Preda C-461/21)
- Withholding tax is legitimate and appropriate means of ensuring sum does not escape taxation
"[72] Thus, the Court has held that the procedure of retention at source and the liability rules supporting it constitute a legitimate and appropriate means of ensuring the tax treatment of the income of a person established outside the State of taxation and ensuring that the income concerned does not escape taxation in the State of residence and the State where the services are provided (judgments of 3 October 2006, FKP Scorpio Konzertproduktionen, C‑290/04, EU:C:2006:630, paragraph 36, and of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 39).
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[75] It also follows that the imposition, on the recipient of the supply of services, of an administrative burden and liability as a result of the obligation to withhold at source remuneration paid to the non-resident service provider appears to be specific and necessary in order to ensure the effective collection of tax." (Cartrans Preda C-461/21)
- At least where provider only performs services occasionally in Member State
"[73] The tax treatment of the income of a service provider established outside the State of taxation by means of a procedure where tax is withheld at source and the liability rules serving as a guarantee may, inter alia, prove to be legitimate and appropriate where that provider performs only occasional services in that State and where that provider remains only a short period of time (see, to that effect, judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 42)." (Cartrans Preda C-461/21)
- Mutual assistance mechanisms addressing problems collecting tax from taxpayers based in other Member States
"[73] In the third place, the mutual assistance mechanisms existing between the authorities of the Member States are sufficient to enable the Member State in which the dividends are paid to check the accuracy of the evidence put forward by non-resident companies wishing to claim a deferral of taxation of dividends which they have received (see, to that effect, judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 68).
[74] In that connection, Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums (OJ 1977 L 336, p. 15), as amended by Council Directive 2004/106/EC of 16 November 2004 (OJ 2004 L 359, p. 30), repealed and replaced by Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799 (OJ 2011 L 64, p. 1), allows a Member State to apply to the competent authorities of another Member State for all the information required to allow it to ascertain the correct amount of income tax.
[75] Further, Article 4(1) of Council Directive 2008/55/EC of 26 May 2008 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures (OJ 2008 L 150, p. 28), repealed and replaced by Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (OJ 2010 L 84, p. 1), provides that ‘at the request of the applicant authority, the requested authority shall provide any information which would be useful to the applicant authority in the recovery of its claim’. That directive therefore allows the Member State in which dividends are paid to obtain, from the Member State of residence, the information necessary to allow it to recover a tax liability which arose when the dividends were distributed.
[76] Thus, Directive 2008/55 provides the authorities of the Member State in which dividends are paid with a framework of cooperation and assistance that allows them actually to recover a tax liability in the Member State of residence (see, to that effect, judgments of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 78, and of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraphs 70 and 71).
[77] Accordingly, if the advantage associated with the deferral of taxation on dividends distributed were also granted to loss-making non-resident companies, that would have the effect of eliminating any restriction on the free movement of capital, but would not thereby impede the achievement of the aim pursued by the national legislation at issue in the main proceedings.
[78] In those circumstances, justification of the national legislation at issue in the main proceedings in the effective collection of tax cannot be accepted." (Sofina C-575/17)
EFFECTIVE FISCAL SUPERVISION
- Effective fiscal supervision (e.g. of conditions for exemption) is capable of being a justification
"[47] The Court has, on many occasions, held that effectiveness of fiscal supervision constitutes an overriding requirement of general interest capable of justifying a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty (see, inter alia, Case 120/78 Rewe-Zentral ("Cassis de Dijon") [1979] ECR 649, paragraph 8, and Case C-250/95 Futura Participations and Singer [1997] ECR I-2471, paragraph 31).
[48] Thus, before granting a foundation a tax exemption, a Member State is authorised to apply measures enabling it to ascertain in a clear and precise manner whether the foundation meets the conditions imposed by national law in order to be entitled to the exemption and to monitor its effective management, for example, by requiring the submission of annual accounts and an activity report..." (Centro di Musicologia Walter Stauffer C-386/04)
- Residence in another Member State giving rise to administrative difficulties in monitoring not sufficient to justify refusing exemption
"[48] ... Admittedly, where foundations are established in other Member States, it may prove more difficult to carry out the necessary checks. Nevertheless, these are disadvantages of a purely administrative nature which are not sufficient to justify a refusal on the part of the authorities of the State concerned to grant such foundations the same tax exemptions as are granted to foundations of the same kind, which, in principle, have unlimited tax liability in that State (see, to that effect, Case C-334/02 Commission v France [2004] ECR I-2229, paragraph 29)." (Centro di Musicologia Walter Stauffer C-386/04)
- Tax authority may require taxpayer to provide evidence and/or use mutual assistance procedure to obtain information
"[49] There is nothing to prevent the tax authorities concerned from requiring a charitable foundation claiming exemption from tax to provide relevant supporting evidence to enable those authorities to carry out the necessary checks. Further, national legislation which absolutely prevents the taxpayer from submitting such evidence cannot be justified in the name of effectiveness of fiscal supervision (see, to that effect, Laboratoires Fournier, paragraph 25).
[50] Moreover, the tax authorities concerned may, pursuant to Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15), as amended by Council Directive 2004/106/EC of 16 November 2004 (OJ 2004 L 359, p. 30), call upon the authorities of another Member State in order to obtain all the information that may be necessary to effect a correct assessment of a taxpayer's liability to tax, including information as to whether that person may be granted a tax exemption (see, to that effect, Case C-55/98 Vestergaard [1999] ECR I-7641, paragraph 26, and Case C-422/01 Skandia and Ramstedt [2003] ECR I-6817, paragraph 42)." (Centro di Musicologia Walter Stauffer C-386/04)
- No difficulty obtaining information re death etc.
"[63] According to the case-law of the Court, where the legislation of a Member State makes the grant of a tax advantage dependent on satisfying requirements, compliance with which can be verified only by obtaining information from the competent authorities of a third country, it is in principle legitimate for the Member State to refuse to grant that advantage if – in particular, because that third country is not bound under an agreement to provide information – it proves impossible to obtain such information from that country (see A, paragraph 63; Case C-72/09 Établissements Rimbaud [2010] ECR I-10659, paragraph 44; and Case C-48/11 A [2012] ECR I-0000, paragraph 36).
[64] However, as the Advocate General has observed at points 76 and 77 of his Opinion, the information referred to by the German Government, which concerns in particular death certificates and other documents issued by civil registrars in the State where the succession takes place, can be forwarded by the heirs or, if necessary, by the tax authorities of that State as part of the application of a bilateral agreement for the avoidance of double taxation and does not, as a general rule, require a complex assessment.
- Benefit granted in other situations where alleged difficulties arise
"[65] In any event, in accordance with the national legislation, an heir residing in Germany receives the full tax-free allowance when he acquires by succession an immovable property located in that Member State from a person who was residing, at the moment of his death, in a third country.
[66] However, such a succession also requires, like the succession at issue in the main proceedings, the inspection by the competent German authorities of the information concerning a deceased person residing in a third country.
[67] In those circumstances, the German Government cannot claim that the national legislation at issue in the main proceedings, in so far as it deprives the heir of an estate passing between residents of a third country, such as the Swiss Confederation, of the benefit of the full tax-free allowance is necessary to preserve the effectiveness of fiscal supervision." (Welte C-181/12)
BALANCED ALLOCATION OF POWER TO TAX
- Preventing conduct capable of jeopardising right of Member State to tax activities carried on in its territory
"[70] A justification concerning the necessity to preserve a balanced allocation of powers of taxation between Member States may be sanctioned, in particular, where the tax regime at issue is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its tax jurisdiction in relation to activities carried out in its territory (see, to that effect, judgments in Rewe Zentralfinanz, C‑347/04, EU:C:2007:194, paragraph 42; Oy AA, C‑231/05, EU:C:2007:439, paragraph 54; and Aberdeen Property Fininvest Alpha, C‑303/07, EU:C:2009:377, paragraph 66)." (F.E. Familienprivatstiftung Eisenstadt C-589/13)
"[60] First, as regards the balanced allocation between Member States of the power to tax, it should be recalled that such a justification may be accepted, in particular, where the system in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its tax jurisdiction in relation to activities carried out in its territory (see, inter alia, Marks & Spencer, paragraph 46; Case C‑347/04 Rewe Zentralfinanz [2007] ECR I‑2647, paragraph 42; Oy AA, paragraph 54; and Aberdeen Property Fininvest Alpha, paragraph 66).
[61] The Court has recognised that the preservation of the allocation of the power to impose taxes between Member States may make it necessary to apply to the economic activities of companies established in one of those States only the tax rules of that State in respect of both profits and losses (see inter alia, Oy AA, paragraph 54, and Case C‑414/06 Lidl Belgium [2008] ECR I‑3601, paragraph 31).
[62] To give companies the right to elect to have their losses or profits taken into account in the Member State in which they are established or in another Member State could seriously undermine a balanced allocation of the power to impose taxes between the Member States, since the tax base would be increased in one of the States in question, and reduced in the other, by the amount of the losses or profits transferred (see, to that effect, Marks & Spencer, paragraph 46; Oy AA, paragraph 55; and Lidl Belgium, paragraph 32)." (SGI C-311/08)
- Permitting resident company to transfer profits in the form of gratuitous advantages to other territories may well undermine balanced allocation
"[63] In the present case, it must be held that to permit resident companies to transfer their profits in the form of unusual or gratuitous advantages to companies with which they have a relationship of interdependence that are established in other Member States may well undermine the balanced allocation of the power to impose taxes between the Member States. It would be liable to undermine the very system of the allocation of the power to impose taxes between Member States because, according to the choice made by companies having relationships of interdependence, the Member State of the company granting unusual or gratuitous advantages would be forced to renounce its right, in its capacity as the State of residence of that company, to tax its income in favour, possibly, of the Member State in which the recipient company has its establishment (see, to that effect, Oy AA, paragraph 56).
[64] By providing that the resident company is to be taxed in respect of an unusual or gratuitous advantage which it has granted to a company established in another Member State, the legislation at issue in the main proceedings permits the Belgian State to exercise its tax jurisdiction in relation to activities carried out in its territory." (SGI C-311/08)
- Having abandoned power of taxation on gifts to persons residing in countries with double tax convention, cannot rely on balanced allocation of tax
"[71] In the present case, as was stated in paragraph 64 of the present judgment, the issue of the allocation of powers of taxation between the Republic of Austria and the Kingdom of Belgium, on the one hand, and the Federal Republic of Germany, on the other hand, is governed by double taxation conventions concluded with both of those Member States which, in accordance with the OECD convention model, determine the exclusive right, for each of the contracting States, to tax the beneficiaries of gifts residing in its territory. In other words, having abandoned its powers of taxation on gifts to persons residing in those Member States, the Republic of Austria cannot rely on a balanced allocation of powers of taxation in order to levy a specific tax on foundations that make gifts to such persons on the basis that those persons are not subject to its tax jurisdiction. That Member State has therefore freely accepted the allocation of powers of taxation that results from the terms of the double taxation conventions that it has concluded with the Kingdom of Belgium and the Federal Republic of Germany respectively." (F.E. Familienprivatstiftung Eisenstadt C-589/13)
- Preventing the artificial transfer of profits out of a Member State
"[78] When legislation, such as that at issue in the main proceedings, by providing that the income of a company established in a third country with a ‘low’ tax rate is to be incorporated into the tax base of a company with unlimited tax liability in Germany, is such as to offset, in a situation such as that in the main proceedings, the effects of any artificial transfer of income to such a third country, such legislation is, in principle, suitable for ensuring the attainment of the objective which it pursues." (X GmbH C-135/17)
COHERENCE OF TAX SYSTEM
- Requires a direct link between tax benefit and tax charge
"[68]... However, for an argument based on such a justification to succeed, a direct link must be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy (see, to that effect, Case C‑484/93 Svensson and Gustavsson [1995] ECR I-3955, paragraph 18; Manninen, paragraph 42; and Case C-471/04 Keller Holding [2006] ECR I-2107, paragraph 40)." (Test Claimants in Thin Cap C-524/04)
"[20] Although it is true that It is true that in Bachmann (paragraph 28) and Case C-300/90 Commission v Belgium [1992] ECR I‑305, paragraph 21, the Court accepted that the need to safeguard the coherence of the tax system could justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty. Subsequently, however, it has stated that, in Bachmann and Commission v Belgium, there was a direct link, with respect to the taxpayer subject to income tax, between the deductibility of the insurance contributions from taxable income and the later taxation of the sums paid by the insurers under pension and life assurance contracts, and that link had to be maintained in order to preserve the coherence of the tax system concerned (see, inter alia, Case C-484/93 Svensson and Gustavsson [1995] ECR I‑3955, paragraph 18, and Case C-319/02 Manninen [2004] ECR I-0000, paragraph 42). Where there is no such direct link, the argument based on the need to safeguard the coherence of the tax system cannot be relied upon (see, inter alia, Weidert and Paulus, paragraphs 20 and 21).
[21] In a situation such as that in the main proceedings, there is no such direct link between general corporation tax, on the one hand, and a tax credit for part of the research expenditure incurred by a company, on the other." (Laboratoires Fournier C-39/04)
- Direct link between tax advantage and tax liability for same taxpayer
"[53] However, in order for an argument based on such a justification to succeed, a direct link must be established between the grant of the tax advantage concerned and the offsetting of that advantage by a particular tax levy (see, to that effect, Case C-484/93 Svensson and Gustavsson [1995] ECR I-3955, paragraph 18; Case C-107/94 Asscher [1996] ECR I-3089, paragraph 58; Case C-264/96 ICI [1998] ECR I-4695, paragraph 29; Vestergaard, paragraph 24; Case C-436/00 X and Y [2002] ECR I-10829, paragraph 52).
[54] As is shown by paragraphs 21 to 23 of the judgment in Bachmann and paragraphs 14 to 16 of the judgment in Commission v Belgium, those judgments are based on the finding that, in Belgian law, there was a direct link, in relation to the same taxpayer liable to income tax, between the ability to deduct insurance contributions from taxable income and the subsequent taxation of sums paid by the insurers (Manninen, paragraph 42)." (Centro di Musicologia Walter Stauffer C-386/04)
- Not applicable when it is a question of different taxes or different taxpayers
"[83] First, there is no such direct link when it is a question, in particular, of different taxes or the tax treatment of different taxpayers (see, to that effect, judgments in DI. VI. Finanziaria di Diego della Valle & C., C‑380/11, EU:C:2012:552, paragraph 47, and Grünewald, C‑559/13, EU:C:2015:109, paragraph 49). That is the case here since the deduction of the amount corresponding to the gifts made by the private foundation subject to the interim tax and the taxation of the beneficiaries for those gifts necessarily concern different taxpayers.
[84] In addition, as submitted by the Commission, whereas the tax advantage of the beneficiary residing in another Member State consists in a permanent exception from Austrian capital gains tax, for an amount that varies under each double taxation convention, a private foundation suffers only a temporary disadvantage due to the interim tax." (F.E. Familienprivatstiftung Eisenstadt C-589/13)
- Unless (in context of relief for assets previously subject to inheritance tax) previous taxpayer is dead
"[35] Admittedly, the Court has held, in cases not coming within the field of inheritance tax, that there is no such direct link where a case relates, in particular, to different taxes or to the tax treatment of different taxpayers (see, to that effect, judgments of 18 September 2003 in Bosal, C‑168/01, EU:C:2003:479, paragraph 30, and of 24 February 2015 in Grünewald, C‑559/13, EU:C:2015:109, paragraph 49).
[36] However, in a particular situation such as that contemplated in Paragraph 27 of the ErbStG, the condition that the same taxpayer must be involved could not be applied given that the person who paid the inheritance tax at the time of the earlier inheritance is necessarily deceased.
[37] Furthermore, the objective pursued by Paragraph 27 of the ErbStG, as is clear from paragraphs 31 and 32 above, is to reduce to a certain extent the tax burden on an inheritance involving assets transferred between close relatives which had already given rise to a previous imposition, by preventing partially the double taxation in Germany of assets more than once within a short space of time. With regard to that objective, there is, as the Advocate General noted in point 71 of his Opinion, a direct link between the reduction in inheritance tax provided for by that paragraph and the previous imposition of inheritance tax, that tax advantage and that previous imposition relating to the same tax, the same asset, and the close relatives of the same family.
[38] It must be held, consequently, that the need to safeguard the coherence of the tax system may justify the restriction on the movement of capital resulting from national legislation such as that at issue in the main proceedings." (Feilen C-123/15)
- Deduction of annuities by debtor and taxation of those annuities in hands of recipient concerns different taxpayers
"[49] There is no such direct link when it is a question, in particular, of different taxes or the tax treatment of different taxpayers (judgment in DI. VI. Finanziaria di Diego della Valle & C., C‑380/11, EU:C:2012:552, paragraph 47). That is the position in the present case, since the deduction of the annuities by the debtor and the taxation of those annuities in the hands of the recipient necessarily concerns different taxpayers." (Grünewald C-559/13)
- Direct link between reduced tax on gift to resident foundation and only resident foundations being subject to subsequent inheritance tax charges
"[69] In the present case, the referring court states that it follows from the legislative history of Paragraph 15(2) of the ErbStG and of Paragraph 1(1)(4) of the ErbStG that the German legislature intended to establish a link between, on the one hand, the advantage consisting in the application to resident family foundations of a more favourable tax class, a reduction of the taxable amount subject to gift tax by way of an increased allowance and a lower tax rate, and, on the other hand, the substitute inheritance tax provided for in Paragraph 1(1)(4) of the ErbStG, levied at certain intervals, in order to place the transfer of assets through a family foundation on an equal footing with ordinary inheritances. However, since the Federal Republic of Germany does not have tax jurisdiction in relation to foreign family foundations, only resident family foundations may be subject to substitute inheritance tax.
[70] In the light of those considerations, it is apparent that, by providing that only resident family foundations, which are subsequently subject to substitute inheritance tax, may benefit from the preferential tax-class treatment, the configuration of that tax advantage reflects a logical symmetry, as that advantage is offset by a specific tax charge, relating to the same tax and the same taxpayer. That logic would be disturbed if that tax advantage were also to benefit non-resident family foundations which are not subject to substitute inheritance tax in Germany (see, by analogy, judgment of 30 June 2016, Feilen, C‑123/15, EU:C:2016:496, paragraph 33 and the case-law cited).
[71] Furthermore, since substitute inheritance tax is levied at intervals of 30 years as from the date of the first transfer of assets to the resident family foundation, in accordance with Paragraph 9(1)(4) of the ErbStG, it is not uncertain in nature, and that mechanism reflects, first, the objective pursued by the legislation at issue in the main proceedings to place the transfer of assets through family foundations on an equal footing with ordinary inheritances, and, second, the fact that such foundations generally tend to last for several generations." (Familienstiftung C-142/24)
- Direct link established where reduction in inheritance tax for assets previously subject to inheritance tax in Member State
"[33] With regard to those considerations, it is apparent that, by providing that only persons receiving assets by way of an inheritance which has given rise to the imposition of such taxes in Germany can benefit from the reduction in inheritance tax, the configuration of that tax advantage reflects a logical symmetry (see judgments of 1 December 2011 in Commission v Belgium, C‑250/08, EU:C:2011:793, paragraph 73, and in Commission v Hungary, C‑235/09, EU:C:2011:795, paragraph 74). That logic would be disturbed if that tax advantage were also to benefit persons inheriting assets which did not give rise to the imposition of inheritance tax in that Member State.
[34] It follows that, in that inheritance tax exemption scheme, there is a direct link between that tax advantage and the previous imposition." (Feilen C-123/15)
- Exclusion of IHT allowance for non-residents not directly linked to any particular tax charge even though non-resident liability limited to domestic assets
"[59] On this point, it should be recalled that the Court has indeed held that the need to preserve the coherence of a tax system may justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty. However, for such a justification to be accepted, a direct link has to be established between the granting of the tax advantage concerned and the offsetting of that advantage by a particular tax (see Manninen, paragraph 42, and Case C-182/08 Glaxo Wellcome [2009] ECR I-8591, paragraphs 77 and 78).
[60] In the present case, it suffices to state that the tax advantage resulting, in the Member State in which the inherited immovable property is located, from the application of a full allowance against the taxable value in a case where that inheritance involves at least one resident of that State is not offset in that State by any particular tax charge by way of inheritance tax (see, by analogy, Mattner, paragraph 54).
[61] The legislation at issue in the main proceedings cannot therefore be justified by the need to preserve the coherence of the German tax system." (Welte C-181/12)
"[52] In the third place, at the hearing, the German Government referred to the need to preserve the coherence of the German tax system, submitting that it is logical to reserve the tax advantage resulting from the application of the full allowance to the taxable value of a gift to taxpayers who have unlimited tax liability in the Member State in which the property which is the subject of the gift is located, since that system, by taxing the worldwide assets of the taxpayer, is less advantageous overall than the system applicable to taxpayers who have limited tax liability in that State.
[53] On this point, it should be recalled that the Court has indeed held that the need to preserve the coherence of a tax system may justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty. However, for such a justification to be accepted, a direct link has to be established between the granting of the tax advantage concerned and the offsetting of that advantage by a particular tax charge (see Manninen, paragraph 42, and Case C‑182/08 Glaxo Wellcome [2009] ECR I‑0000, paragraphs 77 and 78).
[54] In the present case, it suffices to state that the tax advantage resulting, in the Member State in which the immovable property which is the subject of a gift is located, from the application of a full allowance to the taxable value where that gift involves at least one resident of that State is not offset in that State by any particular tax charge in the context of gift tax." (Mattner C-510/08)
- Failure to show that disadvantage offset by advantage
"[69] As was stated in paragraphs 55 and 56 of this judgment, even if it were to be accepted that a tax advantage granted in the State in which the lending company is resident might be capable of offsetting the charge to tax arising for the borrowing company from the application of the legislation of the State in which it is resident, the Governments which have submitted observations have not shown that, by virtue of the application of the legislation in force in the United Kingdom, coupled with the DTCs concluded by that Member State, any upward adjustment to the taxable profits of the borrowing company to which the re-characterisation of interest paid to a related non-resident company may give rise is offset by the grant of a tax advantage to the latter company in the State in which it is resident." (Test Claimants in Thin Cap C-524/04)
- Cannot rely on possibility that non-resident may receive allowance in another territory
"[41] On this point, the Court has already held, in its case-law on the free movement of capital and inheritance tax, that a national of a Member State cannot be deprived of the possibility of relying on the provisions of the Treaty on the ground that he is profiting from tax advantages which are legally provided for by the rules in force in a Member State other than his State of residence (Case C‑364/01 Barbier [2003] ECR I‑15013, paragraph 71, and Eckelkamp and Others, paragraph 66).
[42] In any event, the Member State in which the immovable property which is the subject of the gift is located cannot, in order to justify a restriction on the free movement of capital arising from its own legislation, rely on the possibility, beyond its control, of the donee benefiting from a similar allowance by another Member State, such as that in which the donor and the donee resided on the date of the gift, which might wholly or partly offset the loss incurred by the donee as a result of the smaller allowance when calculating the gift tax payable in the former Member State (see, by analogy, Eckelkamp and Others, paragraph 68, and Arens‑Sikken, paragraph 65).
[43] A Member State cannot rely on the existence of an advantage granted unilaterally by another Member State – in this case the Member State in which the donor and the donee reside – to escape its obligations under the Treaty, in particular under the Treaty provisions on the free movement of capital (see Eckelkamp and Others, paragraph 69, and Arens-Sikken, paragraph 66)." (Mattner C-510/08)
REDUCTION OF TAX REVENUE
- Need to prevent reduction of tax revenue not by itself a justification
"[52] Rather than seeking to avoid the double taxation of profits arising in the United Kingdom, those provisions reflected the choice made by that Member State to organise its tax system in such a way as to prevent those profits from being untaxed in that State through a system of thin capitalisation of resident subsidiaries by related non-resident companies. As the Advocate General stated at points 55 and 56 of his Opinion, the unilateral nature of the provisions treating certain interest paid to non‑resident companies as a distribution is negated neither by the fact that, in giving effect to such treatment, that Member State did so on the basis of internationally-recognised principles nor even by the fact that, in the case of lending companies that are resident in certain other countries, that State sought to couple the application of its national legislation with DTCs containing clauses designed to prevent or to mitigate the double taxation that might arise from such treatment." (Test Claimants in Thin Cap C-524/04)
"In that respect, it is settled case-law that any advantage resulting from the low taxation to which a subsidiary established in a Member State other than the one in which the parent company was incorporated is subject cannot by itself authorise that Member State to offset that advantage by less favourable tax treatment of the parent company (see, to that effect, Case 270/83 Commission v France [1986] ECR 273, paragraph 21; see also, by analogy, Case C-294/97 Eurowings Luftverkehr [1999] ECR I-7447, paragraph 44, and Case C-422/01 Skandia and Ramstedt [2003] ECR I-6817, paragraph 52). The need to prevent the reduction of tax revenue is not one of the grounds listed in Article 46(1) EC or a matter of overriding general interest which would justify a restriction on a freedom introduced by the Treaty (see, to that effect, Case C-136/00 Danner [2002] ECR I-8147, paragraph 56, and Skandia and Ramstedt, paragraph 53).
"[58] Thirdly, the German Government states that the refusal to grant the tax exemption to foundations with limited liability to tax is justified by the need to protect the basis of tax revenue.
[59] Whilst, for the Federal Republic of Germany, recognition of the right to exemption from corporation tax for non-resident charitable foundations would entail a reduction in its corporation tax receipts, it has been consistently held in the case-law that reduction in tax revenue cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is, in principle, contrary to a fundamental freedom (see, to that effect, Verkooijen, paragraph 59; Case C-136/00 Danner [2002] ECR I-8147, paragraph 56; X and Y, paragraph 50; and Manninen, paragraph 49)." (Centro di Musicologia Walter Stauffer C-386/04)
ABUSE AND AVOIDANCE
- Fact that gift recipient is outside tax net of donor state cannot justify less favourable tax treatment
"[76] In the same way, the Court has held that any advantage resulting from the low taxation to which a subsidiary established in a Member State other than the one in which the parent company was incorporated is subject cannot by itself authorise that Member State to offset that advantage by less favourable tax treatment of the parent company. The need to prevent the reduction of tax revenue is indeed not one of the grounds listed in Article 46(1) EC or a matter of overriding general interest which would justify a restriction on a freedom introduced by the Treaty (see, to that effect, judgment in Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 49).
[77] Such considerations are also relevant in the context of the case in the main proceedings, concerning a difference in tax treatment of foundations according to whether the gifts that they have made lead to their beneficiaries being taxed in Austria." (F.E. Familienprivatstiftung Eisenstadt C-589/13)
- Restriction may be justified where it specifically relates to wholly artificial arrangements aimed at circumventing legislation
"[80] As the Court held in paragraph 37 of its judgment in Lankhorst‑Hohorst, that requirement is not met by national legislation which does not have the specific purpose of preventing wholly artificial arrangements designed to circumvent that legislation, but applies generally to any situation in which the parent company has its seat, for whatever reason, in another Member State." (Test Claimants in Thin Cap C-524/04)
"[51] On the other hand, a national measure restricting freedom of establishment may be justified where it specifically relates to wholly artificial arrangements aimed at circumventing the application of the legislation of the Member State concerned (see to that effect ICI, paragraph 26; Case C-324/00 Lankhorst-Hohorst [2002] ECR I-11779, paragraph 37; De Lasteyrie du Saillant, paragraph 50; and Marks & Spencer, paragraph 57)."
- Freedom of establishment intended to enable Community national to participate in economic life of another Member State on stable and continuing basis
"[53] ...To that end, freedom of establishment is intended to allow a Community national to participate, on a stable and continuing basis, in the economic life of a Member State other than his State of origin and to profit therefrom (Case C-55/94 Gebhard [1995] ECR I-4165, paragraph 25).
[54] Having regard to that objective of integration in the host Member State, the concept of establishment within the meaning of the Treaty provisions on freedom of establishment involves the actual pursuit of an economic activity through a fixed establishment in that State for an indefinite period (see Case C-221/89 Factortame and Others [1991] ECR I-3905, paragraph 20, and Case C-246/89 Commission v United Kingdom [1991] ECR I-4585, paragraph 21). Consequently, it presupposes actual establishment of the company concerned in the host Member State and the pursuit of genuine economic activity there."(Cadbury Schweppes C‑196/04)
- Apportioning profits of subsidiaries to parent may thwart practices having no purpose other than escaping tax normally due
"[59] By providing for the inclusion of the profits of a CFC subject to very favourable tax regime in the tax base of the resident company, the legislation on CFCs makes it possible to thwart practices which have no purpose other than to escape the tax normally due on the profits generated by activities carried on in national territory. As the French, Finnish and Swedish Governments stated, such legislation is therefore suitable to achieve the objective for which it was adopted." (Cadbury Schweppes C‑196/04)
- Existence of main purpose of reducing tax does not establish a wholly artificial arrangement
"[62] If none of those exceptions applies, the taxation provided for by the CFC legislation may not apply if the establishment and the activities of the CFC satisfy the motive test. That requires, essentially, that the resident company show, first, that the considerable reduction in United Kingdom tax resulting from the transactions routed between that company and the CFC was not the main purpose or one of the main purposes of those transactions and, secondly, that the achievement of a reduction in that tax by a diversion of profits within the meaning of that legislation was not the main reason, or one of the main reasons, for incorporating the CFC.
[63] As stated by the applicants in the main proceedings and by the Belgian Government and the Commission, the fact that none of the exceptions provided for by the legislation on CFCs applies and that the intention to obtain tax relief prompted the incorporation of the CFC and the conclusion of the transactions between the latter and the resident company does not suffice to conclude that there is a wholly artificial arrangement intended solely to escape that tax." (Cadbury Schweppes C‑196/04)
- Genuineness of economic activity must be established by objective factors ascertainable by third parties
"[66] That incorporation must correspond with an actual establishment intended to carry on genuine economic activities in the host Member State, as is apparent from the case-law recalled in paragraphs 52 to 54 of this judgment.
[67] As suggested by the United Kingdom Government and the Commission at the hearing, that finding must be based on objective factors which are ascertainable by third parties with regard, in particular, to the extent to which the CFC physically exists in terms of premises, staff and equipment." (Cadbury Schweppes C‑196/04)
- Evidence to be furnished by resident company
"[82] As the Advocate General stated at point 67 of his Opinion, national legislation which provides for a consideration of objective and verifiable elements in order to determine whether a transaction represents a purely artificial arrangement, entered into for tax reasons alone, is to be considered as not going beyond what is necessary to prevent abusive practices where, in the first place, on each occasion on which the existence of such an arrangement cannot be ruled out, the taxpayer is given an opportunity, without being subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for that arrangement." (Test Claimants in Thin Cap C-524/04)
"[71] In the light of the evidence furnished by the resident company, the competent national authorities have the opportunity, for the purposes of obtaining the necessary information on the CFC’s real situation, of resorting to the procedures for collaboration and exchange of information between national tax administrations introduced by legal instruments such as those referred to by Ireland in its written observations, namely Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15) and, in this case, the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains of 2 June 1976." (Cadbury Schweppes C‑196/04)
- Broader concept of abuse for free movement of capital
"[84] Therefore, in the context of the free movement of capital, the concept of ‘wholly artificial arrangement’ cannot necessarily be limited to merely the indications, referred to in paragraphs 67 and 68 of the judgment of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas (C‑196/04, EU:C:2006:544), that the establishment of a company does not reflect economic reality, since the artificial creation of the conditions required in order to escape taxation in a Member State improperly or enjoy a tax advantage in that Member State improperly can take several forms as regards cross-border movements of capital. Indeed, those indications may also amount to evidence of the existence of a wholly artificial arrangement for the purpose of applying the rules on the free movement of capital, in particular when it proves necessary to assess the commercial justification of acquiring shares in a company that does not pursue any economic activities of its own. However, that concept is also capable of covering, in the context of the free movement of capital, any scheme which has as its primary objective or one of its primary objectives the artificial transfer of the profits made by way of activities carried out in the territory of a Member State to third countries with a low tax rate." (X GmbH C-135/17)
- No irrebuttable presumption of evasion or avoidance
"[86] The automatic nature of the legislation at issue in the main proceedings, comparable, in essence, to an irrebuttable presumption of tax evasion or avoidance, cannot be justified solely on the basis of the criteria established by that legislation. Although a low tax rate applicable to the income of a company established in a third country or the ‘passive’ nature of the activities which generated that income, as defined by that legislation, can constitute indications of conduct that might amount to tax evasion or avoidance, they are not, as such, sufficient grounds to find that the acquisition of shares in that company by a taxable person residing in a Member State necessarily constitutes an artificial scheme in all cases." (X GmbH C-135/17)
- Unless, perhaps, situation concerns third country and information to verify compliance with conditions for tax advantage not obtainable
"[89] That said, the legislation at issue in the main proceedings does not concern Member States, but third countries.
[90] It that regard, it must be recalled that the case-law concerning restrictions on the exercise of the freedoms of movement within the European Union cannot be transposed in its entirety to movements of capital between Member States and third countries, since such movements take place in a different legal context (see, inter alia, judgment of 28 October 2010, Établissements Rimbaud, C‑72/09, EU:C:2010:645, paragraph 40 and the case-law cited).
[...]
[94] Since a Member State is not required to accept the information relating to the activities of a company established a third country in which a taxable person of that Member State holds shares, when it is not able to verify, if necessary, the accuracy of that information (see, to that effect, judgment of 10 April 2014, Emerging Markets Series of DFA Investment Trust Company, C‑190/12, EU:C:2014:249, paragraph 85), it is for the referring court to examine, in the present case, whether there are, in particular, treaty obligations between the Federal Republic of Germany and the Swiss Confederation, establishing a legal framework of cooperation and procedures for the exchange of information between the national authorities concerned, which are genuinely such as to empower the German tax authorities to verify, if necessary, the accuracy of the information provided on the company established in Switzerland in order to demonstrate that that taxable person’s shareholding in that company is not the result of an artificial scheme.
[95] To the extent that such a legal framework, governed, inter alia, by treaties, does not exist between the Member State and the third country concerned, it must be held that Article 63(1) TFEU does not preclude the Member State concerned from applying legislation, such as that at issue in the main proceedings, which provides for the incorporation of the income of a company established in a third country into the tax base of a resident taxpayer, without the latter being afforded the opportunity to demonstrate any commercial justification for its shareholding in that company. By contrast, if such a legal framework were found to exist, the taxable person concerned should be given the opportunity to demonstrate, without being subject to undue administrative constraints, any commercial justification that there may have been for its investment in the third country concerned." (X GmbH C-135/17)
Risk of circumvention
- Entitled to make sure tax rules relating to inheritance not circumvented by split gifts, but that risk exists whether or not recipient resident or not
"[49] Moreover, as regards possible future gifts, although the Member State in which immovable property which is the subject of a gift is located is indeed entitled to make sure that the tax rules relating to inheritance are not circumvented by split gifts between the same persons, the risk of circumvention alleged to exist in the present case concerning gifts between persons who are not resident in that Member State exists just as much in the case of gifts involving a resident.
[50] It should be observed here that Paragraph 14 of the ErbStG, which is intended to prevent such split gifts by aggregating, for the purpose of calculating the tax due, the gifts effected during a 10-year period, provides with respect to gifts involving a resident not for the application of an allowance at a lower rate but, at most, for the full-rate allowance laid down for such gifts to apply only once to the taxable value produced by the aggregation of the gifts in question.
[51] It follows that the application of a reduced allowance such as that laid down by the national legislation at issue in the main proceedings where the gift is effected between persons who are not resident in the Member State in which the property which is the subject of the gift is located cannot be regarded as an appropriate means of attaining the objective of that legislation." (Mattner C-510/08)
PROPORTIONALITY
- Correcting avoidance in the form of gratuitous transfers must be limited to the excess over arm's length
"[72] Second, where the consideration of such elements leads to the conclusion that the transaction in question goes beyond what the companies concerned would have agreed under fully competitive conditions, the corrective tax measure must be confined to the part which exceeds what would have been agreed if the companies did not have a relationship of interdependence." (SGI C-311/08)
- Proportionate to limit favourable tax treatment on transfer to foundations to resident foundations who are within subsequent inheritance tax charge
"[78] It will be for the referring court to ascertain, whether the legislation at issue in the main proceedings complies with the principle of proportionality stricto sensu, meaning that the legislation is not disproportionate to the objective pursued. In that regard, first, since the Federal Republic of Germany does not have powers of taxation over non-resident family foundations, to limit the grant of a more favourable tax class to situations where the transfer of assets to a family foundation can give rise to later taxation by way of substitute inheritance tax appears proportionate in the light of that objective (see, to that effect, judgment of 30 June 2016, Feilen, C‑123/15, EU:C:2016:496, paragraph 40 and the case-law cited).
[79] Second, nothing in the documents before the Court indicates that, assessed over time, the application of the legislation at issue in the main proceedings would systematically give rise to a significantly higher tax burden for transfers of assets to a non-resident family foundation, which would, if it were the case, call into question the proportionality of that legislation." (Familienstiftung C-142/24)
- Percentage reduction based on time elapsed since assets subject to previous IHT charge proportionate
"[40] In that regard, it must be held that a reduction in inheritance tax calculated by applying percentages by reference to the period which has elapsed between the two dates on which the liability to tax arose, and made subject to the condition that the asset has already given rise to the imposition of such taxes in Germany in the preceding ten years appears to be appropriate in order to attain the objective pursued in Paragraph 27 of the ErbStG, as described in paragraph 37 above. That reduction is, furthermore, proportionate with regard to that objective since the Federal Republic of Germany did not have the power to tax the previous inheritance. In those circumstances, limiting the benefit of that reduction to situations in which that asset gave rise to taxation in Germany appears proportionate in the light of that objective (see, to that effect, judgment of 1 December 2011 in Commission v Hungary, C‑253/09, EU:C:2011:795, paragraphs 80 and 81)." (Feilen C-123/15)