1.

Together with Union citizenship the fundamental freedoms appear to provide a comprehensive protective screen for Union citizens’ cross-border activities. The present cases, however, reveal a possible gap, namely the cross-border lending of an item free of charge, in this case of passenger cars.

2.

Where this situation can be subsumed under one of the fundamental freedoms, including the freedom of movement of Union citizens, European Union law limits possible tax charges for using a car in the host State. ( 2 ) However, the Netherlands considers that no fundamental freedom is applicable. It taxes the use in its territory of a vehicle borrowed abroad as an initial registration and demands around half the value of the car concerned by way of registration tax.

3.

The European law framework is formed by the principles of freedom of movement for Union citizens, Article 21 TFEU, and of the free movement of capital, Article 63 TFEU.

4.

In examining free movement of capital, reference must be made to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty. ( 3 ) Annex I thereto contains a nomenclature of capital movements which includes under heading XI personal capital movements. It refers inter alia to the following transactions:

…

5.

However, the third paragraph of the introduction to this nomenclature states that it is not definitive:

‘This Nomenclature is not an exhaustive list for the notion of capital movements - whence a heading XIII — F. “Other capital movements — Miscellaneous”. It should not therefore be interpreted as restricting the scope of the principle of full liberalisation of capital movements as referred to in Article 1 of the Directive.’

6.

The Hoge Raad sets out the Netherlands legal situation under the Wet op de belasting van personenauto’s en motorrijwielen (Law on the taxation of cars and motorcycles) 1992 (‘the Law’), as follows:

7.

In the Netherlands a vehicle tax is levied on cars and motorcycles (Article 1(1) of the Law) under the designation ‘belasting van personenauto’s en motorrijwielen’ (tax on cars and motorcycles). The vehicle tax is levied on the basis of registration of passenger vehicles and motorcycles in the Netherlands register of vehicle registration numbers and on the basis of the commencement of use on the public highway in the Netherlands of a car or motorcycle — whether not registered in the Netherlands or at all — which is actually at the disposal of a natural person resident or a legal person established in the Netherlands.

8.

Subject to the reductions and surcharges referred to in Article 9(1) of the Law, the tax chargeable in respect of a car amounts to 45.2% of the net list price, which means that the list price is reduced by the amount of value added tax included. ‘List price’ means the price indicated to resellers by the manufacturer or importer in the Netherlands which, in its view, should be charged when the goods are sold to the final customer. For new (unused) cars, the list price is that which applied at the beginning of the day on which a registration number was allocated to the vehicle; for used cars, the list price is that which applied when the car was first used in or outside the Netherlands. The latter applies also where the tax is due on the basis of commencement of use on the public highway of a car that is not registered in the Netherlands.

9.

When the tax is charged on used cars, account is taken of the length of time for which the vehicle has been used (Article 10 of the Law). Depending on when the vehicle was first used, the amount of tax is reduced by a certain percentage.

10.

Mrs van Putten and Mr Mook have Netherlands nationality and Mrs Frank is German. They were all living in the Netherlands when officials of the tax authority established that they were using a vehicle on the public highway in the Netherlands which had a Belgian or German rather than a Netherlands registration number.

11.

The vehicle in which Mrs van Putten was found was the property of her father who was resident in Belgium. When she was checked on 28 March 2005 she was briefly using the vehicle in the Netherlands for private purposes. She was subsequently required to pay taxes in the amount of EUR 5 955.

12.

Mr Mook used a vehicle which was the property of a family member resident in Germany. On the day on which he was checked, 19 August 1999, he was fetching the vehicle from Germany and briefly used the vehicle in the Netherlands and Germany for private purposes. His tax amounted to NLG 4 097, that is to say EUR 1 859.

13.

The vehicle which Mrs Frank was using was the property of her friend who was resident in Germany and was driven by him while he was staying with her in the Netherlands. At the time of the check on 18 January 2005 Mrs Frank was briefly using the vehicle in the Netherlands for private purposes. Tax of EUR 6 709 was imposed on her.

14.

In order to establish whether this taxation is lawful, the Hoge Raad asks whether the situations in the three cases are subject to European Union law:

In Case C-578/10:

In the light of Article 18 EC (now Article 21 TFEU), does Community law govern a situation in which a Member State levies a tax on the first use on the road network in its territory of a vehicle which is registered in another Member State, has been borrowed from a resident of that other Member State and has been driven by a resident of the first Member State in the territory of that Member State?

In Case C-579/10:

In the light of Article 18 EC (now Article 21 TFEU), does Community law govern a situation in which a Member State levies a tax on the first use on the road network in its territory of a vehicle which is registered in another Member State, has been borrowed from a resident of that other Member State and has been driven for private purposes by a resident of the first Member State between those two Member States?

In Case C-580/10:

In the light of Article 18 EC (now Article 21 TFEU), does Community law govern a situation in which a Member State levies a tax on the first use on the road network in its territory of a vehicle which is registered in another Member State, has been borrowed from a resident of that other Member State and has been driven for private purposes in the territory of the first Member State by a person who is a resident of that Member State but a national of the other Member State?

15.

By order of 1 February 2011, the President of the Court joined the three cases. The Kingdom of the Netherlands, the Republic of Finland and the European Commission submitted written observations. There was no oral procedure.

16.

The taxation of the motor vehicles at issue has not been harmonised and differs considerably from one Member State to another. Member States are therefore free to exercise their powers of taxation in that area, provided they do so in compliance with European Union law. ( 4 )

17.

In that regard, the reference for a preliminary ruling refers solely to the compatibility of the taxation with freedom of movement for Union citizens. However, since other fundamental freedoms take priority over this rule, ( 5 ) I will first examine the freedom to provide services and the free movement of capital.

18.

The cross-border lending of a motor vehicle could constitute a service within the meaning of Article 57 TFEU. Under that article, services are to be considered to be ‘services’ where they are normally provided for consideration.

19.

If, in the abstract, the mere fact that the vehicle is provided for use is decisive, it could be considered to be a service because it is normally supplied for consideration, for example as a rental car ( 6 ) or through leasing. ( 7 )

20.

If, on the other hand, the specific legal form of the provision is decisive, it does not constitute a supply of a service for consideration. In the present cases the vehicles were made available precisely on loan without any consideration.

21.

When classifying activities for the application of the freedom to provide services, the Court takes into account, in cases of doubt, the specific circumstances of the service concerned. Where that service is not commercial in nature, it rejects the application of this freedom. For example, it does not apply the principle of such freedom to attendance of State schools financed by public funds but does to attendance of schools financed mainly by private funds. ( 8 )

22.

Similarly, account must be taken of the specific circumstances in the case of the provision of motor vehicles too. Therefore, the freedom to provide services is not applicable to the loans without any consideration in the present cases. ( 9 )

23.

At first sight applicability of the principle of free movement of capital under Article 63 TFEU does not seem likely either. However, there are transactions which, by their nature, are similar to loans without consideration and fall within the scope of this freedom, namely the bequeathing and gifting of assets.

24.

With regard to Article 63 TFEU, it is settled case-law that, in the absence of a definition in the treaties of ‘movement of capital’ within the meaning of Article 63 TFEU, the nomenclature which constitutes Annex I to Directive 88/361 retains an indicative value, it being understood that, according to the third paragraph of the introduction to that annex, the nomenclature which it contains is not exhaustive as regards the notion of movements of capital. ( 10 )

25.

In that regard, the Court has already held that inheritances and gifts, which fall under heading XI of Annex I to Directive 88/361, entitled ‘Personal Capital Movements’, constitute movements of capital within the meaning of Article 63 TFEU, except in cases where their constituent elements are confined within a single Member State. ( 11 )

26.

The necessary cross-border element is obvious in this case: the vehicles are lent by persons who are resident in another Member State to persons who are resident in the Netherlands and use the vehicles there.

27.

However, the decisive factor is whether or not this loan can be regarded as a capital movement.

28.

As regards the deductibility for tax purposes of a sum reflecting the value of gifts to third persons resident in another Member State, the Court has ruled that it does not matter, in order to determine whether the national legislation in question is covered by the Treaty provisions on the movement of capital, whether the underlying gifts were made in money or in kind. ( 12 )

29.

The provision of a vehicle without any consideration does not differ substantially from a transfer in the form of a gift made in kind. Although the item concerned must be returned, it can be used temporarily without charge. As in the case of a gift, the recipient receives the benefit of use definitively. It can have quite a considerable economic value which can even be established very accurately by making a comparison with the costs of a corresponding rental car.

30.

It is true that the judgment on gifts made in kind ( 13 ) did not concern measures disadvantaging the recipient of the gift but rather analysis of such measures for tax purposes in relation to the giver. However, as regards the free movement of capital it is irrelevant whether the restrictions affect the provider or the recipient of the service. For example, most inheritance cases concern taxation of the heir. ( 14 )

31.

Therefore, the cross-border loan of a vehicle free of charge constitutes a capital movement within the meaning of Article 63 TFEU.

32.

However, the typical definitions of a restriction on the movement of capital in relation to transactions without consideration are irrelevant in the present cases. The taxation of the use of vehicles by residents cannot discourage non-residents from making investments in a Member State or from maintaining such investments, ( 15 ) and the value of an inheritance is not reduced. ( 16 )

33.

However, the taxation is liable to deter the recipient of the loaned vehicle from accepting and using the benefit. The tax can be several times greater than the value of the use. This obstacle to acceptance of a cross-border service without consideration restricts the free movement of capital. ( 17 )

34.

Furthermore, from the point of view of the recipient of the loan cross-border loans are at a disadvantage in comparison with internal loans, to say the least. Since in the case of internal lending the registration tax on the vehicle has already been paid, the recipient does not have to worry about being liable to tax. ( 18 ) The Hoge Raad does not ask to what extent this discrimination is justified; moreover, the subsequent comments on justification also apply in this regard. ( 19 )

35.

Therefore, the answer to the questions referred for a preliminary ruling should be that a tax which a Member State levies where a person resident in its territory drives on its road network for private purposes a vehicle which is registered in another Member State and has been borrowed from a resident of that other Member State restricts the free movement of capital under Article 63 TFEU.

36.

In the event that the Court of Justice does not concur with my view on the application of the free movement of capital, I will consider in the alternative whether the principle of freedom of movement for Union citizens is applicable.

37.

Under Article 20 TFEU, everyone who is a national of a Member State is a citizen of the Union. The three parties concerned are consequently citizens of the Union. As the Court has ruled on several occasions, citizenship of the Union is destined to be the fundamental status of nationals of the Member States. ( 20 )

38.

Article 21(1) TFEU provides that every citizen of the Union has the right to move and reside freely within the territory of the Member States. In the present cases the application of this provision raises two problems which overlap with one another. First, the referring court asks whether purely internal situations are covered. Secondly, it is unclear whether taxation of the use of borrowed vehicles registered abroad restricts the right to move and reside freely within the territory of the Member States.

39.

Citizenship of the Union is not intended to extend the material scope of the Treaty to internal situations which have no link with Union law. ( 21 )

40.

However, contrary to the view of the Netherlands, I consider it obvious that the present cases do not concern purely internal situations. The Netherlands taxation concerns only foreign vehicles as it is based on the fact that the motor vehicles used are not registered in the Netherlands. Therefore, in practice it applies to the cross-border lending of vehicles without consideration to persons resident in the Netherlands. By contrast, this tax would not be levied in the case of internal loans without consideration since in that case the vehicles would be registered in the Netherlands. ( 22 )

41.

However, it is unclear whether the freedom of movement of Union citizens is restricted.

42.

On the basis of the wording of Article 21(1) TFEU the Hoge Raad ( 23 ) takes the view that the taxation encroaches on the sphere of protection afforded by that provision: the freedom to move freely in the territory of the Netherlands is restricted by the taxation of vehicle use. Those concerned can use the vehicles to move only if they pay the tax.

43.

This argument is supported by a judgment in which the Court concluded that there is a restriction where a Belgian region passes legislation which makes it less attractive for citizens of other Belgian regions to take up residence at certain locations in Belgium. ( 24 ) The scope of the freedom of movement for Union citizens was restricted solely by the exclusion of purely internal situations, that is to say of Belgians who had never exercised their freedom of movement. ( 25 )

44.

However, in the present cases I consider it sensible to examine in detail this case-law — which poses certain problems ( 26 ) — since there are sufficient connections with free movement across borders.

45.

The freedom to cross the borders of the Member States is unquestionably protected by the fundamental freedom established by Article 21 TFEU. The opportunities offered by the TFEU in relation to freedom of movement cannot be fully effective if a Union citizen can be deterred from availing himself of them by obstacles penalising the fact that he has used them. ( 27 ) Therefore, Article 21 TFEU precludes measures which could, without justification, prevent Union citizens from moving to other Member States, or have a deterrent effect, or make less attractive the exercise of this freedom. ( 28 )

46.

The present cases involve restrictions of cross-border freedom of movement since where vehicles borrowed abroad free of charge are used internally a tax in the amount of half the vehicle’s value is levied. This taxation on the occasional use of a vehicle borrowed abroad is tantamount to a prohibition on such use. At approximately half the value of the vehicle, the tax corresponds to several times the economic value of the use.

47.

In this respect it matters little whether, in a particular individual case, Union citizens themselves have crossed the borders between the Member States in connection with the loan of the vehicle and whether these border crossings become less attractive as a result of the taxation. Rather, it is sufficient that the tax in question restricts the cross-border relationships of the Union citizens concerned.

48.

The lending of vehicles — and also other items — free of charge is a reflection of the relationships between the parties concerned, whether as relatives or friends. ( 29 )

49.

Where these relationships span the borders of the Member States, they are generally based on the fact that persons have previously crossed these borders. As the Commission correctly argues, the fundamental freedom laid down in Article 21 TFEU is intended precisely to protect the non-commercial cross-border activities of Union citizens and thus in particular cross-border social relationships.

50.

Consequently, a Member State which levies a tax on the cross-border lending of motor vehicles free of charge interferes with the exercise of freedom of movement. Therefore, this taxation is a restriction of the fundamental freedom laid down in Article 21 TFEU.

51.

In the event that the Court finds that there is no restriction on the free movement of capital, the answer to the questions referred for a preliminary ruling should therefore be that a tax which a Member State levies where a person resident in its territory drives on its road network for private purposes a car which is registered in another Member State and has been borrowed from a resident of that other Member State restricts the free movement of Union citizens under Article 21(1) TFEU.

52.

Although Finland dealt with the justification of a possible restriction, the Hoge Raad raised no questions about it. Nor did Advocaat-Generaal van Hilten propose any similar questions, but merely set out briefly his uncertainty as to the possibility of a justification. ( 30 )

53.

Therefore, I would merely like to add the following observations:

54.

The Court has consistently ruled that a Member State may levy a registration tax on a vehicle made available to a person residing in that State by a company established in another Member State when that vehicle is intended to be used essentially in the first Member State on a permanent basis or is in fact used in that way. ( 31 ) If no permanent use or similar intended purpose can be established, firstly, any taxation requires ‘another’ justification, ( 32 ) and, secondly, it may be levied only in proportion to the duration of the use in the Member State concerned. ( 33 )

55.

Since the Netherlands legislation is purportedly aimed at combating tax avoidance, it should be noted that the Court has already ruled that the fact that an employer established in another Member State makes available to an employee resident in the relevant Member State a vehicle for business purposes, or indeed for business and private purposes, cannot form the basis for a general presumption of tax avoidance or tax evasion. Such a presumption cannot therefore justify a fiscal measure which prejudices the enjoyment of a fundamental freedom guaranteed by the treaties. ( 34 )

56.

Therefore, there are many factors in support of the presumption that the lending of a vehicle from another Member State without any charge may not be taken as grounds for assuming tax avoidance.

57.

On the other hand, it is not impossible, in view of the risk of tax avoidance, to monitor appropriately the lending of vehicles from other Member States free of charge and to impose effective penalties for the circumvention of monitoring measures. However, since the reference for a preliminary ruling contains no indication of the relevant legislation, there is no need to examine further the requirements placed on such a system.

58.

I therefore propose that the Court answer the question referred for preliminary ruling as follows:

A tax which a Member State levies where a person resident in its territory drives on its road network for private purposes a car which is registered in another Member State and has been borrowed from a resident of that other Member State restricts the free movement of capital under Article 63 TFEU.