Joined Cases C‑10/14, C‑14/14 and C‑17/14

J.B.G.T. Miljoen and Others

v

Staatssecretaris van Financiën

(Requests for a preliminary ruling from the

Hoge Raad der Nederlanden)

‛References for a preliminary ruling — Direct taxation — Articles 63 TFEU and 65 TFEU — Free movement of capital — Taxation of dividends from portfolios of shares — Withholding tax — Restriction — Final tax burden — Factors for comparing the tax burdens of resident and non-resident taxpayers — Comparability — Taking into account income tax or corporation tax — Conventions for the avoidance of double taxation — Neutralisation of the restriction by means of a convention’

Summary — Judgment of the Court (Third Chamber), 17 September 2015

1. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Tax burdens of resident and non-resident taxpayers — Criteria for assessment

   (Art. 63 TFEU)

2. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends — National legislation imposing a withholding tax on dividends paid to resident and non-resident taxpayers and making provision for a deduction only for residents — Criteria for assessing the tax burden — Assessment by the national court — Heavier tax burden borne by non-residents than by residents — Not permissible — Justification — Conditions

   (Arts 63 TFEU and 65 TFEU)

3. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends — Refusal to grant only non-residents a deduction of the business expenses which are directly linked to the activity that generated the dividends — Not permissible — Conditions

   (Art. 63 TFEU)

4. Free movement of capital and liberalisation of payments — Restrictions — Prohibition — Exceptions — Restrictive interpretation — Scope

   (Arts 63 TFEU and 65(1) and (3) TFEU)

5. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends — National legislation imposing a withholding tax on dividends paid to resident and non-resident taxpayers and making provision for a deduction only for residents — Criteria for comparing the situation of residents and non-residents in order to prove the existence of discrimination

   (Art. 63 TFEU)

6. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends — National legislation imposing a withholding tax on dividends paid to resident and non-resident taxpayers and making provision for a deduction only for residents — Difference in treatment which might be neutralised by a double taxation convention — Conditions

   (Art. 63 TFEU)

1.  In order to determine whether the capital exempted from tax must be taken into account in order to compare the tax burdens of taxpayers, natural persons, residents and non-residents for the purposes of establishing a possible restriction on the free movement of capital, a tax exemption which is an advantage granted to all resident taxpayers, irrespective of their personal situation, does not constitute an individual advantage connected with the personal situation of the taxpayer. Since such an exemption alters the tax base of the income received by resident taxpayers, it is necessary to take that into account for the purposes of comparing the final tax burdens of resident taxpayers and those of non-resident taxpayers.

   (see para. 53)

2.  Articles 63 TFEU and 65 TFEU must be interpreted as precluding legislation of a Member State which imposes a withholding tax on dividends distributed by a resident company both to resident taxpayers and non-resident taxpayers and provides a mechanism for deducting or reimbursing the tax withheld only for resident taxpayers, while for non-resident taxpayers, both natural persons and companies, the tax withheld is a final tax, in so far as the final tax burden relating to those dividends, borne in that Member State by non-resident taxpayers, is greater than that borne by resident taxpayers, which it is for the referring court to determine. For the purposes of determining those tax burdens, in the case of natural persons, account must be taken of the taxation of residents in relation to all shares held in companies from the Member State which imposes the withholding tax in the calendar year, and of capital which is exempt from tax under national legislation, and in relation to companies, of expenses which are directly linked to the actual payment of the dividends.

   If the existence of a restriction on the movement of capital is established, such a restriction may be justified by the effects of a bilateral convention for the avoidance of double taxation concluded by the Member State of residence and the Member State in which the dividends are paid, provided that the difference in treatment, relating to the taxation of dividends, between taxpayers residing in the latter Member State and those residing in other Member States ceases to exist.

   (see paras 54, 59, 90, operative part)

3.  In order to assess whether the taxation of investments, made by natural or legal persons established in one Member State, in companies established in other Member States is consistent with the principle of the free movement of capital, in relation to expenses such as business expenses which are directly linked to an activity that has generated taxable income in the company’s Member State, residents and non-residents of that State are in a comparable situation, with the result that legislation of that State which denies non-residents, in matters of taxation, the right to deduct such expenses, while, on the other hand, allowing residents to do so, risks operating mainly to the detriment of nationals of other Member States and therefore constitutes indirect discrimination on grounds of nationality.

   In particular, as regards income received in the form of dividends, such a link exists only if those expenses, which may in some circumstances be directly linked to a sum paid in connection with a securities transaction, are directly linked to the actual payment of that income. It follows that only expenses which are directly linked to the actual payment of the dividends must be taken into account for the purposes of comparing the tax burden of companies.

   On the other hand, such a link does not exist where, first, a deduction of the dividend included in the purchase price of the shares aims to establish the actual purchase price of the shares and does not, therefore, concern expenses which are directly linked to the actual payment of the dividends arising from those shares and, secondly, the financing costs concern ownership of the shares per se, and therefore they are also not directly linked to the actual payment of the dividends arising from those shares.

   (see paras 57-61)

4.  Since Article 65(1)(a) TFEU derogates from the fundamental principle of the free movement of capital, it must be interpreted strictly. It cannot therefore be interpreted as meaning that all tax legislation which draws a distinction between taxpayers on the basis of their place of residence or the Member State in which they invest their capital is automatically compatible with the FEU Treaty. The derogation in Article 65(1)(a) TFEU is itself limited by Article 65(3) TFEU, which provides that the national provisions referred to in paragraph 1 of that article are not to constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63 TFEU.

   A distinction must therefore be made between the differences in treatment authorised by Article 65(1)(a) TFEU and discrimination prohibited by Article 65(3) TFEU. Before national tax legislation can be regarded as compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest.

   (see paras 62-64)

5.  As soon as a Member State, either unilaterally or by way of a convention, imposes a charge to tax the income, not only of resident taxpayers, but also of non-resident taxpayers, from dividends which they receive from a resident company, the situation of those non-resident taxpayers becomes comparable to that of the resident taxpayers.

   The exercise alone by a State of its power of taxation, irrespective of any taxation in another Member State, gives rise to a risk of a series of levies of tax or economic double taxation. In such a case, in order for non-resident taxpayers receiving dividends not to be subject to a restriction on the free movement of capital prohibited in principle by Article 63 TFEU, the State in which the company paying the dividend is resident is obliged to ensure that, under the procedures laid down by its national law in order to prevent or mitigate a series of liabilities to tax or economic double taxation, non-resident taxpayers are subject to the same treatment as resident taxpayers.

   In a situation where a Member State has chosen to exercise its power of taxation over dividends paid by resident companies to taxpayers residing in other Member States, non-resident taxpayers in receipt of those dividends find themselves in a situation comparable to that of resident taxpayers as regards the risk of a series of charges to tax on dividends paid by resident companies.

   First, where the restriction alleged does not arise from a difference between the collection arrangements applied to resident taxpayers and those applied to non-resident taxpayers, but stems from an advantage granted to resident taxpayers which does not extend to non-resident taxpayers, and secondly, where the applicable legislation subjects both resident taxpayers and non-resident taxpayers to the same method of collecting the tax on dividends, that is to say withholding the tax, the different treatment of resident taxpayers liable to pay income tax or corporation tax and non-resident taxpayers who are subject to a withholding tax in respect of dividends cannot be justified by a difference in their situations which is relevant to the application of Article 65(1)(a) TFEU.

   Therefore, where a tax on dividends is withheld at source by a Member State on dividends paid by companies established in that Member State, the comparison between the tax treatment of a non-resident taxpayer and that of a resident taxpayer must be made in the light of, on the one hand, the tax on dividends payable by the non-resident taxpayer and, on the other, the income tax or corporation tax payable by the resident taxpayer which includes in its taxable base the income from the shares from which the dividends arise.

   (see paras 67-69, 71-74)

6.  In the absence of any unifying or harmonising measures adopted by the European Union, the Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation, and preservation of that allocation is a legitimate objective recognised by the Court.

   The possibility cannot be excluded that a Member State might succeed in ensuring compliance with its obligations under the Treaty by concluding a convention for the avoidance of double taxation with another Member State. It is necessary for that purpose that application of such a convention should allow the effects of the difference in treatment under national legislation to be compensated for. Thus, the difference in treatment between dividends distributed to companies established in other Member States and those distributed to resident companies does not disappear unless the tax withheld at source under national legislation can be set off against the tax due in the other Member State in the full amount of the difference in treatment arising under the national legislation. In that regard, in order to attain the objective of neutralisation, the application of the method of deduction should enable the tax on dividends levied by the Member State from which the dividends are paid to be deducted in its entirety from the tax due in the Member State of residence of the taxpayer receiving those dividends in such a way that, if those dividends are ultimately taxed more heavily than the dividends paid to taxpayers residing in the Member State from which those dividends are paid, that heavier tax burden may no longer be attributed to that Member State, but to the State of residence of the recipient taxpayer which exercised its power to impose taxes.

   (see paras 76, 78-80)