OPINION OF ADVOCATE GENERAL

TIZZANO

delivered on 10 November 2005 ¹(1)

Case C-292/04

Wienand Meilicke

Heidi Christa Weyde

Marina Stöffler

v

Finanzamt Bonn-Innenstadt

(Reference for a preliminary ruling from the Finanzgericht Köln (Germany))

(Restrictions on the free movement of capital – Income tax – Tax credit on dividends paid by companies established in Germany – Temporal effect of a judgment delivered by the Court – Limits)

1.     By order lodged on 9 July 2004, the Finanzgericht Köln (Cologne Finance Court) referred a question to the Court for a preliminary ruling to determine whether German legislation, under which taxpayers are granted a tax credit only on dividends paid to them by companies established in Germany, is compatible with Articles 56 EC and 58 EC.

I –  Legal framework

A –    The relevant Community provisions

2.     As we know, Article 56(1) EC prohibits ‘all restrictions on the movement of capital between Member States and between Member States and third countries’.

3.     However, Article 58 EC adds, with respect to that prohibition, that:

‘1. [it] shall be without prejudice to the right of Member States:

(a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;

(b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation ... .

…

3. The [abovementioned] measures and procedures shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56.’

B –    The relevant national provisions

4.     Under Paragraph 36(2)(3) of the Einkommensteuergesetz (Income Tax Law; ‘the EStG’), (2) in conjunction with the provisions of Paragraph 20 of that law, taxpayers may set off against income tax payable to the German tax authorities three sevenths of any dividends paid to them by companies established in Germany. No provision is made, however, for that mechanism, known as a tax credit, to apply to dividends paid by companies established in other Member States.

5.     The proportion of tax which companies established in Germany are required to pay on their profits is 30%. Thus the tax credit prevents those profits from being taxed for a second time when they are distributed to shareholders in the form of dividends. (3)

6.     It should be noted that, under Paragraph 36(2)(3) of the EStG, the tax credit on profits distributed by German companies is granted even if the companies have not actually paid the tax due.

7.     I note, lastly, that by a law adopted in 2000 (4) and applicable from the fiscal year 2001, the Federal Republic of Germany abandoned that system in favour of the so-called ‘half income procedure’ (Halbeinkünfteverfahren), under which only half of the dividends received by a shareholder are subject to income tax. This method enables the double taxation of dividends to be avoided, or at least greatly reduced, without recourse to the granting of tax credits. (5)

II –  Facts and procedure

8.     Between 1995 and 1997, Mr Meilicke, a German citizen resident in Germany who had shares in Netherlands and Danish companies, received DEM 16 984.85 by way of dividends paid by those companies.

9.     By letter of 30 October 2000, the heirs of Mr Meilicke who had died in the meantime applied to the competent tax authority (the Finanzamt Bonn-Innenstadt) for a tax credit amounting to three sevenths of the abovementioned figure, arguing that, although the national legislation on the subject relates only to dividends paid by companies established in Germany, the extension of that mechanism to dividends paid by companies established in other Member States is required by Community law as interpreted by the Court in the judgment in Verkooijen. (6)

10.   The tax authority refused that request on the ground that that judgment related only to the Netherlands tax legislation and it had not been established that it was the same as the German legislation.

11.   The heirs of Mr Meilicke then applied to the Finanzgericht Köln which, although it had serious doubts as to whether the national legislation is compatible with the free movement of capital, nevertheless noted that the German legislative and administrative authorities do not consider themselves to be bound by Community case-law that is not directly concerned with national law. It therefore considered it necessary to stay the proceedings and refer the following question to the Court for a preliminary ruling:

‘Is Paragraph 36(2)(3) of the Einkommensteuergesetz (in the version in force during the relevant years), whereby only corporation tax payable by a fully taxable corporation or association amounting to three sevenths of the income within the meaning of Paragraph 20(1)(1) or (2) of the Einkommensteuergesetz is set off against income tax, compatible with Articles 56(1) EC and 58(1)(a) and (3) EC?’

12.   In the proceedings thus instituted, written observations have been submitted by the applicants in the main proceedings, the German Government and the Commission. The same parties, together with the United Kingdom Government, attended the hearing held on 8 September 2005.

III –  Assessment

The compatibility of the contested German legislation

13.   The national court is seeking essentially to ascertain whether the Community rules on the free movement of capital permit the German tax system to restrict the grant of the tax credit to taxpayers who receive dividends from companies established in Germany.

14.   The applicants in the main proceedings and the Commission consider that the answer should be in the negative, while the German and United Kingdom Governments take the opposite view.

15.   For my own part, I believe the answer to the question may be largely determined by the recent judgment in Manninen, (7) a judgment in which the Court ruled on an almost identical question but which the national court could not take into account because it was delivered after the order for reference was lodged.

16.   In that judgment, the Court, ruling on Finnish legislation very similar to the German legislation at issue in the present case, held that by restricting the tax credit to dividends distributed by companies established in Finland that legislation, on the one hand, deterred fully taxable persons in that State from investing their capital in companies established in another Member State (paragraph 22) and, on the other, constituted an obstacle to such companies raising capital in Finland (paragraph 23). It followed that the legislation at issue in that case was to be regarded as incompatible with Community law inasmuch as it ‘constitute[d] a restriction on the free movement of capital which is, in principle, prohibited by Article 56 EC’ (paragraph 24).

17.   On the other hand, the Court did not consider that the conditions which, according to its own case-law, might justify such restrictions were met in that case. As we know, according to that case-law, ‘for national tax legislation … which … makes a distinction between revenue from national dividends and that from foreign dividends to be capable of being regarded as compatible with the Treaty provisions on the free movement of capital, the difference in treatment must [(i)] concern situations which are not objectively comparable or [(ii)] be justified by overriding reasons in the general interest, such as the need to safeguard the coherence of the tax system (Verkooijen, paragraph 43)’ (paragraph 29).

18.   With regard to the first point, the Court noted that the Finnish legislation was designed to prevent double taxation of dividends. Therefore, the situation of someone who invests in ‘national’ companies may differ from that of someone who invests in companies established elsewhere in the Community only if the Member State in which the ‘foreign’ company is established has already avoided the risk of double taxation by, for example, excluding profits distributed by the company in the form of dividends from the basis of assessment for corporation tax. As that was not the case on that occasion, the Court held that that justification did not apply (paragraphs 35 to 37).

19.   With regard to the second point, the Court observed that ‘the cohesion of [the national] tax system is assured as long as the correlation between the tax advantage granted in favour of the shareholder and the tax due by way of corporation tax is maintained. Therefore, … the granting to a shareholder who is fully taxable in Finland and who holds shares in a company established in Sweden of a tax credit calculated by reference to the corporation tax owed by that company in Sweden would not threaten the cohesion of the Finnish tax system’ (paragraph 46, emphasis added).

20.   Turning now to the case at issue in the present proceedings, it seems to me, first, that by restricting the grant of the tax credit to dividends paid by companies established in Germany, the German legislation in question restricts the free movement of capital in the same way as the Finnish legislation examined in Manninen did.

21.   Then, as regards the possible justifications for that restriction of which I have just spoken (see point 17 et seq. above) I note, first, that in the present case, too, the types of dividend which are the subject of the unequal treatment at issue have the same characteristics, that is to say they are ‘objectively comparable’. Indeed, since the Member States in which the companies which have paid dividends to Mr Meilicke are established (Netherlands and Denmark), like Sweden in the Manninen case, do not restrict the basis of assessment for corporation tax to such profits as were not distributed, it follows that shareholders residing in Germany are in a comparable situation, whether they receive dividends from a company established in that State or receive them from a company established in another Member State. That is to say, in both cases, the relevant income of the persons in question is subject first to corporation tax and then, if it is distributed in the form of dividends, to income tax payable by the recipients of the dividends.

22.   Nor do I think a different conclusion can be drawn from the precedent of the judgment in D.,(8) which the United Kingdom cited at the hearing precisely in connection with the criterion of ‘objective comparability’ of the relevant situations. According to the United Kingdom Government, if I have understood it rightly, it follows from that judgment that, for the purposes of extending possible tax advantages, situations may be regarded as comparable only within the parameters of a definite legal framework such as (in that case) a double taxation convention.

23.   I confess that I do not fully understand the reason for citing that precedent or the conclusions that are drawn from it. It seems to me that the situations considered in D. were very different from those in the present case, since it was concerned in particular with the extension of the benefit of wealth-tax allowances to non-residents and the question whether the benefits of a bilateral double taxation convention may be enjoyed by Community citizens who are residents of a State which is not party to that convention.

24.   In any event, even supposing that judgment to be relevant for the purposes of the problem at issue in this case, the fact remains that it relates to a highly specific and particular case and is therefore not capable of general application. In any event, it certainly does not permit the conclusion that, as a general rule, the application of fundamental rules of Community law such as the rules on the free movement of capital may depend upon the existence of bilateral conventions between Member States.

25.   Coming now to the other justification mentioned above, based on the need to safeguard the cohesion of the tax system, I do not consider that the German Government can rely on that argument either in the present case. That cohesion is in fact assured, according to the precepts of the judgment in Manninen, as long as ‘the correlation between the tax advantage granted in favour of the shareholder and the tax due by way of corporation tax is maintained’ (paragraph 46). In the present case, it is assured in particular by the fact that the calculation of the tax credit to be granted to the heirs of Mr Meilicke takes into account the amount that the Danish and Netherlands companies in which the deceased was a shareholder actually paid in Denmark and the Netherlands by way of corporation tax.

26.   Nor on the other hand is it relevant, contrary to the German Government’s contention, that the German legislation at issue in this case, unlike the Finnish legislation, provides that the tax credit on dividends paid by German companies is to be granted whether or not the said companies have in fact paid tax on the profits (see point 6 above).

27.   That feature of the system of granting the tax credit – so the German Government maintains – is explained by the fact that, in the case of companies established in Germany, the tax authorities can easily ascertain whether the tax owed by companies has already been paid and, if not, it is equally easy for them to collect it. As that would not be possible in the case of companies established in other Member States, dividends paid by those companies should not enjoy the benefit of a tax credit.

28.   I note however that the judgment in Manninen requires national authorities to grant a credit corresponding to the tax actually paid by companies in the Member States in which they are established ‘as such tax arises from the general rules on calculating the basis of assessment and from the rate of corporation tax’ in those States. In any event, that judgment emphasises that ‘[p]ossible difficulties in determining the tax actually paid cannot … justify an obstacle to the free movement of capital’ such as that which arises from the national legislation at issue (paragraph 54).

29.   Lastly, I note that, to carry out the necessary investigations, the German authorities can employ the instruments for cooperation between tax authorities provided for in Directive 77/799/EEC, (9) which permit the exchange of any information that may enable them to effect a correct assessment of taxes on income and on capital of natural and legal persons. In fact, as the Court has pointed out, that directive ‘provides for ways of obtaining information comparable to those existing between tax authorities at national level’. (10)

30.   In the light of the foregoing considerations, I therefore propose that the Court reply to the question referred for a preliminary ruling in the terms employed in the judgment in Manninen, that is to say that ‘Articles 56 EC and 58 EC preclude legislation whereby the entitlement of a person fully taxable in one Member State to a tax credit in relation to dividends paid to him by limited companies is excluded where those companies are not established in that State’. (11)

The temporal effect of the Court’s judgment

31.   That being said, a position must still be taken on the request, submitted by the German Government in the alternative, to limit the temporal effect of the final judgment in the present case, should the Court rule – as I have just proposed – that the contested national legislation is incompatible.

32.   In this connection, it should be noted first that according to the settled case-law of the Court, ‘the interpretation the Court gives to a rule of Community law is limited to clarifying and defining the meaning and scope of that rule as it ought to have been understood and applied from the time of its coming into force. … It is only exceptionally that the Court may, in application of the general principle of legal certainty inherent in the Community legal order, be moved to restrict the possibility for any person concerned of relying on a provision it has interpreted with a view to calling in question legal relationships established in good faith’. (12)

33.   From that point of view, the Court explains that the financial consequences which might ensue for a Member State from a preliminary ruling do not in themselves justify limiting the temporal effect of the ruling. (13)

34.   Such a limitation may however be imposed only in exceptional circumstances, if the following conditions are met, that is:

(i) if there is ‘a risk of serious economic repercussions owing in particular to the large number of legal relationships entered into in good faith on the basis of rules considered to be validly in force’. (14) And this also applies in cases where taxes collected by the competent national authorities are being called in question; (15)

(ii) and if ‘both individuals and national authorities [have] been led into adopting practices which [do] not comply with Community legislation by reason of objective, significant uncertainty regarding the implications of Community provisions, to which the conduct of other Member States or the Commission may even have contributed’. (16)

35.   In the present case, the first condition could be said to have been met if the official figures supplied by the German Government are correct. It has estimated – and the estimate has not been challenged – that the refunds to be granted in the event of failure to limit the effect of a ruling of incompatibility would amount to EUR 9 to 13 billion (or 0.41% to 0.59% of the national GDP in 2004). It is true that that figure was reduced at the hearing to EUR 5 billion (or 0.25% of the GDP in 2004) in view of the fact that, as a result of changes in national tax procedures, unpaid tax credits can be claimed only in respect of dividends paid after 1998. Even so, it seems to me that the sums involved are considerable and are in any case such as to entail a ‘risk of serious economic repercussions’.

36.   It appears less obvious that the second of the abovementioned conditions is met. It appears from the documents in the case that the Commission notified the German Government, by letter of 31 October 1995, that the legislation on the tax credit was in breach of Community law. It can therefore be concluded that the condition in question has not been satisfied in the present case, since the objective, significant uncertainty required by the abovementioned case-law was lacking.

37.   I must however point out that that letter of 1995 was not followed by any subsequent action on the part of the Commission. In the observations submitted to the Court, it stated that it had not initiated proceedings for failure to fulfil an obligation since the German legislation on the tax credit had by then been repealed. In fact, however, the reform by which the German legislature introduced a new and different tax system, which did not provide for tax credits, came in only with the abovementioned law of 2000 (see point 7 above). Thus the Commission took no further action for a substantial period of time after its warnings.

38.   However, the Court observed in its judgment in Defrenne II that ‘[t]he fact that, in spite of the warnings given, the Commission did not initiate proceedings … on grounds of failure to fulfil an obligation was likely to consolidate the incorrect impression as to the effects’ of the Community rule which had allegedly been breached. (17)

39.   It could therefore be argued by analogy that, in the present case too, the Commission may have caused objective uncertainty as to whether the national legislation on the tax credit was likely to restrict the free movement of capital.

40.   Especially since, as the Commission itself recognised at the hearing (although it was in fact a widely held view), (18) until the judgment in Verkooijen, the implications of the rules on the free movement of capital for tax arrangements of the kind at issue in the present case were not at all clear. That that uncertainty was real and not feigned appears to be further confirmed by the fact that the German Government immediately took steps to bring all pre-existing legislation into line with that judgment, once it had been delivered.

41.   It therefore seems to me that there is ample reason to hold that the conditions for limiting the temporal effect of a ruling that the German legislation is incompatible are met.

42.   I may also add some more general remarks to the same effect which, in a sense, follow from the criteria laid down in the abovementioned case-law of the Court. It is true that, according to that case-law, a decision to limit the effect of a judgment may be taken only in exceptional circumstances. Consequently, it may also be inferred from that case-law that such a decision must take into account the need not to make the situation of Member States more difficult than is strictly necessary. The primary aim and purpose of the system are to ensure and, if possible, re-establish respect for the law. Where those aims cannot be usefully pursued, there is no reason to bring into play stricter criteria, which at that point would merely express punitive intentions, that is to say the intention to ‘punish’ the ‘offender’ for daring to breach Community law (something of the kind is to be found in the new Article 228 EC, but for completely different purposes and in completely different circumstances). But such objectives, although this is not always evident in practice, are completely foreign to the system whereas it is consistent with the system (and with the abovementioned case-law of the Court) to avoid adverse effects on the Member States where not strictly necessary. It should be noted moreover that those States, being extremely complex and highly articulated structures, generally have serious difficulties in coping with the incessant and not always transparent Community legislation; the efforts they make to comply, successfully in the great majority of cases, are therefore laudable. It is right that, when they fail, the Commission and the Court should not be induced by those difficulties to refrain from pursuing or, worse still, to excuse any breaches that may occur; however, it is not right to fail to take them into account when the aims of the system can be pursued without the need for attaching penalties or in any case without making the already complicated situation of the State more difficult unnecessarily (on the other hand, the same could be said of breaches that are purely formal or at least relatively insignificant).

43.   If, in the light of the foregoing considerations, the Court holds that the conditions for limiting the temporal effect of its judgment are met, it will then remain to be determined when that effect should become operative. Moreover, I should point out that, in view of the particular characteristics of the present case, the task will prove to be harder than was thought.

44.   I note, first, that the German Government has proposed that, in the event of the Court accepting the requested limitation, the effect of the judgment should become operative: (a) on the expiry of a time-limit to be set by the Court itself, to give the Member States time to harmonise their tax systems or to coordinate, by means of international agreements, the charging of corporation tax and tax on dividends in the cases at issue; (b) in the alternative, ‘in future’ without further specification, although at the hearing the idea was canvassed that the effect should become operative on the date of the hearing or the date of publication of the order for reference which gave rise to the present proceedings; (c) in the final alternative, as from 6 June 2000, that is to say the date of the judgment in Verkooijen.

45.   I must rule out from the outset any notion that the first request might be granted. Not because the Court might not, in certain circumstances, set a time-limit for the Member States to allow them to achieve the results indicated by the German Government. As we know, a similar solution was advanced in completely reasonable and convincing terms by Advocate General Jacobs in his Opinion in Banca popolare di Cremona. (19) However, the fact is that in the present case the outcome would be so uncertain and, on the most favourable assumption, so long drawn out as to render that solution scarcely credible, still less practicable.

46.   But apart from that, the request is open to the same objections as the second and subordinate alternative suggested by the German Government, that is that the effect of the judgment in the present case should become operative on the date on which it is delivered (or possibly on the date of the hearing or the date of publication of the order for reference). If it is assumed that in fact the correct interpretation of Community law has already been given in the judgment in Verkooijen, those German requests would, in principle, entail condoning unlawful conduct on the part of a State in a situation that is undoubtedly contrary to Community law and would consequently authorise the unjustified refusal to refund taxes levied in error.

47.   But there is a further objection. It should be noted that, with regard to a limitation on the temporal effect of a judgment, ‘the Court has consistently held [that] such a restriction may be allowed only in the actual judgment ruling upon the interpretation sought’. (20) However, that would not apply in the present case since, as I have pointed out more than once, the interpretation of the Community rules from which it follows that the German legislation at issue in the present case is unlawful is based essentially on the judgment in Verkooijen and a limitation of the temporal effect of that judgment was neither requested nor automatically granted.

48.   It seems to me, therefore, that the only one of the German Government’s requests that is compatible with those principles is the request – made only as a final alternative – that the limit on the effect of the judgment in the present case should become operative as from 6 June 2000, that is to say the date of the judgment in Verkooijen.

49.   It would in effect be a matter of making up for the absence of a ruling on the point in that judgment and of settling the problem once and for all, without however departing essentially from the principle established in the case-law of the Court, since the effects would still arise from the ‘actual judgment ruling upon the interpretation sought’.

50.   One consequence of that solution would be that everyone receiving dividends after that date from companies not established in Germany would be entitled to the tax credit. However, again in accordance with the case-law of the Court, an exception should be made in the case of the rights of those who took action before the judgment in Verkooijen to claim the tax credit or to challenge a decision to refuse it. (21)

51.   That being said, I should nevertheless add that there is good reason to suppose that, on this last point, the question cannot be held to have been entirely and equitably resolved. It is true that the proposed solution, with the substantial proviso mentioned, would have the merit of accurately transposing to the present case the Court’s case-law on limiting the temporal effect of a judgment. However, I am also convinced that, in view of the characteristics of the present case, it will have to be further and more precisely defined.

52.   I note first that, in the terms given, that solution would not be of much practical use. Indeed, as I mentioned earlier, the problem of granting tax credits should no longer arise in the case of dividends maturing after the abovementioned law of 2000 (see point 7 above), whereas it is clear from the present proceedings that it apparently persists precisely in the case of dividends distributed before that law was adopted.

53.   Also, and in my view this is a more important argument, it should be borne in mind that the proposed solution is based on a temporal disjunction between the ‘judgment ruling upon the interpretation sought’ and the judgment determining the limit on the effect of that judgment. If, in fact, for reasons of legal consistency the effect of the interpretation sought were to apply retroactively from the date of the first judgment, the temporal limitation would nevertheless still have to be confirmed by the judgment the Court delivers in the present proceedings.

54.   In that situation, therefore, to set the date of the judgment in Verkooijen as the time by which the persons entitled to a tax credit must assert their rights would, in my view, fail to take due account of that disjunction; and this might, in particular, penalise them by increasing the duty of diligence they are required to show and making that duty, in a sense, even more onerous than the duty incumbent on the Commission.

55.   Therefore, to avoid that result and at the same time ensure that the judgment in the present case is of real use, I think the most reasonable solution would be to make an exception in the case of the rights of those who took action before the judgment in Verkooijen and also of those who showed due diligence at a later date, provided of course that their rights are not time-barred.

56.   It is not entirely clear when that ‘later date’ might be. It is of course natural to think of the date of the judgment concluding the present proceedings; in my view, however, on careful consideration that solution would not be the most consistent with the criteria I mentioned earlier.

57.   According to the information that has emerged in the course of the present proceedings, in the German system taxpayers who have not applied for tax credits in relation to dividends entered in their tax returns may do so, as long as the relevant file is still being examined by the tax authorities and is therefore not deemed to be finally closed. As that phase apparently lasts for seven years on average, it follows that tax credits could still be claimed today in relation to dividends declared in 1998.

58.   As the parties, particularly (but not exclusively) the German Government, have noted, the reports of the initiation of the present proceedings published in specialist journals have caused a widespread revival of interest in the question. So the prospect of a temporal limit on the effect of the judgment in this connection, and above all the possibility of an exception being made for the benefit of taxpayers who took action before the judgment is delivered, has apparently already resulted in a substantial increase and may yet result in a further increase in applications for reimbursement from the many taxpayers whose rights, as I have just pointed out, are not time-barred.

59.   However, such developments are likely to increase the ‘risk of serious economic repercussions’ which was the reason why I proposed a limit on the effect of the judgment in this case. In the light of the foregoing remarks, if the final date for filing applications for reimbursement were to be the date of the judgment in the present case, hardly any applications would be barred, either from those who received dividends after the judgment in Verkooijen or from those who received them before that date, that is to say whether the application was submitted before that judgment or arrived on the eve of the judgment in the present case. In short, it would come to a general reimbursement and the amounts paid out by the State would reach the levels that had been feared, depriving the proposed limitation of any useful effect.

60.   So, what solution can be suggested in this situation that will remain within the ambit of the principles and limits defined earlier and hold the balance between the conflicting interests? It seems to me that the only reasonable answer to that question is to set the limit on applications for reimbursement with reference to the degree of diligence shown by the persons concerned after the judgment in Verkooijen.

61.   On that criterion, the benefits conferred by the judgment in the present case should not, in my view, be extended to persons who for years have made no move to claim the actual tax credit or to challenge the decision to refuse it and who now, attracted by the promise of the judgment in the present case, are suddenly prompted to take their long dormant claims off the shelf and dust them down.

62.   If the Court agrees with this analysis, it seems to me that the date to be taken as a reference point should be, as concluded in the course of the hearing, the date on which the order for reference which gave rise to the present proceedings was published in the Official Journal of the European Union, (22) that is to say 11 September 2004. This is because it can reasonably be supposed that that is the date on which the possibility of a refund first received adequate publicity and attracted the attention even of the less diligent claimants.

63.   So, seeking to draw together the threads of the foregoing conclusions, I feel I may finally propose that the Court rule that the contested German legislation is incompatible with effect from 6 June 2000, the date on which the judgment in Verkooijen was delivered, and that it cannot be relied upon to obtain tax credits relating to dividends received before that judgment, except in the case of the rights of those who took action to claim the tax credit or to challenge a decision to refuse it before that judgment was delivered and up to 11 September 2004, the date on which the order for reference which gave rise to the present proceedings was published in the Official Journal of the European Union, provided that their rights are not time-barred under the national law.

IV –  Conclusion

64.   In the light of the foregoing considerations, I propose that the Court give the following answer to the question referred by the Finanzgericht Köln for a preliminary ruling:

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

(2)      The legislation is incompatible with effect from 6 June 2000, the date on which the judgment in Case C-35/98 Verkooijen was delivered. It cannot be relied upon to obtain tax credits relating to dividends received before that judgment, except in the case of the rights of those who took action to claim the tax credit or to challenge a decision to refuse it before that judgment was delivered and up to 11 September 2004, the date on which the order for reference which gave rise to the present proceedings was published in the Official Journal of the European Union, provided that their rights are not time-barred under the national law.

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1 – Original language: Italian.

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2 – The last time the law in question was published in full was in BGBl. I 1990, p. 1898. At the material time, it had been amended by Paragraph 1 of the Gesetz zur Verbesserung der steuerlichen Bedingungen zur Sicherung des Wirtschaftsstandorts Deutschland im Europäischen Binnenmarkt (Law on the improvement of tax conditions to secure Germany’s economic position in the European internal market, Standortssicherungsgesetz – StandOG) (BGBl. I 1993, p. 1569) and by Paragraph 1 of the Jahressteuergesetz 1996 (Annual Tax Law 1996, JStG 1996) (BGBl. I 1995, p. 1250).

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3 – Supposing, for example, that a company makes a gross profit of EUR 100 on each share, it has to pay EUR 30 in profits tax on each share. If the remaining EUR 70 is distributed as dividends, the shareholders will be granted a tax credit amounting to three sevenths of EUR 70, that is to say EUR 30, a figure corresponding exactly to the amount already paid by the company.

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4 – Gesetz zur Senkung der Steuersätze und zur Reform der Unternehmensbesteuerung (Law on the reduction of tax rates and the reform of corporation tax, Steuersenkungsgesetz – StSenkG) of 23 October 2000 (BGBl. I 2000, p. 1433).

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5 – In a communication to the Council, the European Parliament and the European Economic and Social Committee of 19 December 2003 – Dividend taxation of individuals in the internal market (COM(2003) 810 final), the Commission explained that this method could achieve the same result as the [tax credit] system for high-income taxpayers, while it would be possible to exempt more than half of the dividend for lower-income taxpayers (point 2.2.2).

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6 – Case C-35/98 [2000] ECR I-4071.

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7 – Case C-319/02 [2004] ECR I-7477.

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8 – Case C-376/03 [2005] ECR I‑5821.

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9 – Council directive 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).

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10 – Case C-279/93 Schumacker [1995] ECR I-225, paragraph 45.

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11 – See the operative part of the judgment in Manninen.

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12 – See, most recently, Case C-209/03 Bidar [2005] ECR I‑2119, paragraphs 66 and 67. See also the Opinion of Advocate General Jacobs in Case C-475/03 Banca popolare di Cremona [2006] ECR I-0000, point 75.

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13 – Bidar, paragraph 68, and Joined Cases C-367/93 to C‑377/93 Roders and Others [1995] ECR I-2229, paragraph 48, Case C-137/94 Richardson [1995] ECR I-3407, paragraph 37, Joined Cases C-197/94 and C-252/94 Bautiaa and Société française maritime [1996] ECR I‑505, paragraph 55, and Case C‑184/99 Grzelczyk [2001] ECR I-6193, paragraph 52.

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14 –      See Bidar, paragraph 69.

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15 –      See, for example, Case C-437/97 EKW and Wein & Co. [2000] ECR I-1157, paragraph 59.

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16 –      See Bidar, paragraph 69 (emphasis added). See also the Opinion of Advocate General Jacobs in Banca popolare di Cremona, point 75.

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17 – Case 43/75 Defrenne(‘Defrenne II’) [1976] ECR 455, paragraphs 71 to 75. See also, to the same effect, Case C-163/90 Legros and Others [1992] ECR I-4625, paragraph 32, and EKW and Wein & Co., paragraph 58.

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18 – See, for example, the Opinion of Advocate General Kokott in Manninen, point 36.

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19 – Opinion, point 85 et seq.

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20 – Case 24/86 Blaizot [1988] ECR 379, paragraph 28; Legros and Others, paragraph 30; and EKW and Wein & Co., paragraph 57. See also, to the same effect, Case C-262/88 Barber [1990] ECR I-1889, paragraph 41.

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21 – See, to that effect, Case C-228/92 Roquette Frères [1994] ECR I‑1445, paragraphs 26 to 29, and Case C‑212/94 FMC and Others [1996] ECR I-389, paragraph 58.

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22 – OJ 2004 C 228, p. 27.