1.

In the present case, the Court of Justice is once again asked to address the issue of whether national legislation providing for the taxation of non-resident service providers by means of the imposition of a withholding tax on the remuneration paid by the resident recipient of the services is compatible with the provisions of EU law on the freedom to provide services.

2.

The present case arises in the context of a dispute between a Romanian company, SC Cartrans Preda SRL (‘Cartrans Preda’) and the Romanian tax authorities concerning an assessment notice sent by them to that company. Under the assessment notice, the Romanian authorities ordered Cartrans Preda to pay, first, an additional amount by way of value added tax (VAT) relating to services for the transport of goods intended for import into Romania and, second, an amount withheld at source as a form of tax on income received by non-resident persons. According to the Romanian authorities, Cartrans Preda should have withheld that amount from the remuneration it paid to a Danish company with which it had concluded a contract relating to the recovery of VAT and excise duties in several Member States.

3.

In accordance with the Court’s request, this Opinion will be confined to an analysis of the questions referred by the referring court concerning the second aspect of the assessment notice challenged by Cartrans Preda, which raises issues relating to the freedom to provide services.

4.

Article 7(1) of Decretul No 389 privind ratificarea Convenției de evitare a dublei impuneri dintre România și Danemarca (Decree No 389 ratifying the Convention for the avoidance of double taxation between Romania and Denmark; ‘the double taxation convention’) provides:

‘Profits earned by an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. …’

5.

Article 12(1) to (3) of the double taxation convention provides:

‘1.   Commission arising in a Contracting State and paid to a resident of another Contracting State may be taxed in that other State.

2.   However, such commission may be taxed in the Contracting State in which it arises, in accordance with the law of that State; nevertheless the tax so determined shall not exceed 4% of the amount of the commission.

3.   The term ‘commission’ as used in this article refers to a payment made to an intermediary, a general commission agent or any other person treated as such an intermediary or agent under the tax laws of the Contracting State in which such payment arises.’

6.

In Romanian tax law, the concept of ‘commission’ is defined as ‘any payment in cash or in kind made to an intermediary, general commission agent or any person treated as an intermediary or general commission agent, for intermediation services performed in connection with a commercial operation’. ( 2 )

7.

Furthermore, under Romanian tax law, non-resident persons who receive taxable income originating in Romania are required to pay tax in accordance with Romanian law and are considered to be taxable persons. ( 3 ) In addition, under that law, commission paid by a resident is included in taxable income originating in Romania, whether received in Romania or abroad. ( 4 )

8.

The provisions of Romanian tax law concerning withholding tax on taxable income originating in Romania earned by non-resident persons provide that the tax payable by those persons on such income is to be calculated, withheld, declared and paid to the state budget by the person paying the income. With regard, in particular, to commission paid by a resident to a non-resident person, the tax due is to be calculated by applying the rate of 16% on gross income. ( 5 )

9.

Cartrans Preda, the applicant before the referring court, is an operator of road freight transport services based in Romania.

10.

Following an inspection carried out by the Romanian tax authorities between 18 November 2019 and 7 February 2020 at Cartrans Preda, the authorities issued a tax assessment requiring the applicant to pay the sum of 1529 Romanian lei (RON) by way of additional VAT and the sum of RON 79478 by way of tax on income received by non-resident persons.

11.

With regard to this second aspect of the assessment notice, which is relevant to the matters considered in this Opinion, it appears from the file that Cartrans Preda concluded a contract with a Danish company, FDE Holding A/S, by which it assigned to the latter the right to claim, on its behalf, the refund of VAT relating to intra-Community acquisitions of goods, specifically fuel purchased by Cartrans Preda in a number of EU Member States. Under that contract, FDE Holding, acting in its capacity as the legal representative of Cartrans Preda, carried out all the requisite formalities for the refund of VAT. The remuneration for those services was calculated as a percentage of the amount of VAT refunded in each country.

12.

It is clear from the order for reference that, according to the Romanian tax authorities, that remuneration received by FDE Holding constitutes ‘commission’. According to those authorities, Cartrans Preda failed to withhold tax on income earned by non-resident persons on that ‘commission’, instead applying the rate of 4% provided for in Article 12(2) of the double taxation convention between Romania and Denmark to the gross income.

13.

Cartrans Preda appealed to the referring court against the assessment notice issued in its name. As regards the taxation of income received by non-resident persons, Cartrans Preda submits, before that court, that such income does not constitute ‘commission’. It argues that it is, instead, consideration for the provision of services, which, under Article 7(1) of the double taxation convention, is taxable only in Denmark. In that regard, it submits that FDE Holding has certified that it had paid the tax due in Denmark on the remuneration received for the services at issue, including those originating in Romania.

14.

Cartrans Preda also claims that when it concluded a contract – equivalent in all respects to its contract with the Danish company – for the recovery of VAT with a Romanian operator, the Romanian tax authorities did not consider it necessary for the company to withhold tax on the income corresponding to the consideration for the services provided.

15.

Cartrans Preda argues that foreign VAT recovery services give rise to an obligation for Romanian residents to pay withholding tax only when the service is contracted with a resident of a different Member State. That results in a difference in treatment constituting a restriction on the freedom to provide services within the European Union, in breach of Articles 56 and 57 TFEU.

16.

On the basis of those considerations, the referring court has doubts as to whether, in particular, the classification of services provided by the non-resident legal person FDE Holding adopted by the Romanian tax authorities and the levying of a tax on the income received by it are compatible with EU law. Those doubts could lead to the annulment of the assessment notice.

17.

In that context, the Tribunalul Prahova (Regional Court, Prahova, Romania) decided to stay the proceedings and to refer six questions to the Court of Justice for a preliminary ruling, of which the third, fourth, fifth and sixth questions, which are analysed in this Opinion, concern a possible infringement of the provisions of EU law on the freedom to provide services and are as follows:

‘…

18.

As already noted in point 3 above, in accordance with the Court’s request, this Opinion analyses the questions referred for a preliminary ruling concerning the interpretation of the provisions of EU law relating to the provisions on the freedom to provide services, specifically Articles 56 and 57 TFEU.

19.

In its third question, the referring court asks whether Article 57 TFEU is to be interpreted as meaning that a service, such as that at issue in the main proceedings, consisting in the recovery of VAT and excise duties on behalf of an undertaking from the tax authorities of more than one Member State constitutes a supply of services within the meaning of that article and thus falls within the scope of the freedom to provide services within the European Union laid down in Article 56 TFEU.

20.

In that regard, it should first be recalled that, under Article 57 TFEU, services are to be considered to be ‘services’ where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons. The second paragraph of that article sets out, by way of example, various activities which are covered by the concept of ‘services’, which include activities of a commercial character. ( 6 )

21.

It follows that the FEU Treaty defines the concept of ‘service’ broadly, so as to include any supply which is not covered by the other fundamental freedoms, in order to ensure that all economic activity falls within the scope of the fundamental freedoms. ( 7 )

22.

It follows, in my view, from the broad definition of the concept of ‘service’ in Article 57 TFEU, as interpreted by the Court in the case-law cited in the two preceding points, that a contract for consideration under which the principal service consists in the recovery of VAT and excise duties from the tax authorities of more than one Member State, such as that concluded between Cartrans Preda and FDE Holding, involves the provision of a ‘service’, within the meaning of Article 57 TFEU.

23.

The referring court’s doubts appear to stem from the fact that the sums paid by Cartrans Preda to FDE Holding under that contract were classified by the Romanian tax authorities as ‘commission’ within the meaning of Article 12(3) of the double taxation convention concluded between Romania and Denmark.

24.

However, that circumstance is not in any way capable of altering the conclusion that the main service provided under the contract concluded between Cartrans Preda and FDE Holding constitutes a ‘service’ within the meaning of Article 57 TFEU.

25.

Indeed, Article 57 TFEU states that ‘services’ within the meaning of the Treaties are services ‘normally provided for remuneration’. In that regard, the Court has ruled that the essential characteristic of remuneration lies in the fact that it constitutes consideration for the service in question, ( 8 ) which is normally agreed upon between the provider and the recipient of the service, and has accepted a rather broad interpretation of the concept of ‘remuneration’. ( 9 )

26.

In the present case, there is no doubt that the sums paid by Cartrans Preda constitute the consideration for the provision of services by FDE Holding. It follows that the classification of such fees paid for the provision of a service as ‘commission’ on the basis of national law or on the basis of the double taxation convention does not, in any way, affect the classification as a ‘service’ within the meaning of Article 57 TFEU of the services for which such fees are paid.

27.

Moreover, it is clear from the case-law that, in the absence of unifying or harmonising measures for the elimination of double taxation at EU level, the Member States, within the scope of their power to determine the criteria for taxation on income and capital with a view to eliminating double taxation, where appropriate by means of conventions, are free to classify the consideration paid for the provision of services as they see fit, provided, however, that this is in keeping with the freedoms of movement guaranteed by the FEU Treaty. ( 10 )

28.

To conclude, in the light of the considerations above, I consider that the answer to the third question referred by the referring court is that Article 57 TFEU must be interpreted as meaning that a contract for consideration under which the principal service consists in the recovery of VAT and excise duties from the tax authorities of more than one Member State involves the provision of a ‘service’ within the meaning of that article.

29.

In the fourth and fifth questions, the referring court asks, in essence, whether Article 56 TFEU is to be interpreted as meaning that an obligation imposed on the recipient of services, under the legislation of a Member State, to withhold tax on the remuneration paid to a service provider established in another Member State which provides services that are actually performed in more than one Member State, while there is no such obligation in the case of remuneration paid to a service provider established in the Member State in question which provides exactly the same services constitutes a restriction on the freedom to provide services within the meaning of that article.

30.

The legislation at issue in the main proceedings obliges the recipient of a service to withhold tax on the remuneration payable for the service provided by a non-resident provider. In that context, it must, first of all, be recalled that, according to settled case-law, although direct taxation falls within the competence of the Member States, they must nonetheless exercise this competence consistently with EU law and, in particular, the fundamental freedoms guaranteed by the FEU Treaty. ( 11 )

31.

In that regard, it should also be recalled that, again according to settled case-law, Article 56 TFEU precludes the application of any national rules which have the effect of making the provision of services between Member States more difficult than the provision of services purely within a Member State. ( 12 )

32.

In fact, Article 56 TFEU requires the abolition of any restriction on the freedom to provide services imposed on the ground that the person providing a service is established in a Member State other than that in which the service is provided. ( 13 )

33.

National measures which prohibit, impede or render less attractive the exercise of the freedom to provide services constitute restrictions on that freedom. ( 14 ) In that respect, it is sufficient for the rule in question to be likely to make the exercise of that freedom less attractive. ( 15 )

34.

Such restrictions on the freedom to provide services are warranted only if they pursue a legitimate objective compatible with the FEU Treaty and are justified by overriding reasons in the public interest; if that is the case, they 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. ( 16 )

35.

Furthermore, according to settled case-law, the freedom to provide services within the meaning of Article 56 TFEU is for the benefit of both providers and recipients of services. ( 17 )

36.

In the present case, as is clear from the provisions cited in the points 5 to 8 above, the national legislation in question requires recipients of services such as those at issue in the main proceedings, provided by non-resident operators, to pay withholding tax at a rate of 16% on gross income, which, by virtue of the provisions of the double taxation convention, may be reduced to a rate of 4%. That withholding tax obligation, however, does not apply in the case of the provision of the same services by resident operators, who, as is apparent from the case file, are taxed at a rate of 16% on net income by way of corporation tax.

37.

In that regard, the Court has previously held that, irrespective of the effects that the withholding tax may have on the tax situation of non-resident service providers, such an obligation to withhold tax, inasmuch as it entails an additional administrative burden as well as the related risks concerning liability, may render cross-border services less attractive for resident recipients of services than services provided by resident service providers and may, therefore, deter those recipients from having recourse to non-resident service providers. ( 18 )

38.

In the present case, as is submitted by Cartrans Preda, resident recipients of services are treated differently depending on whether they use the service of a resident provider or a non-resident provider. If the recipient of the services uses a non-resident provider, the recipient is subject to the obligation to withhold tax on the remuneration paid to that provider, which entails an additional administrative burden, as well as the related risks concerning liability. The existence of such risks is, moreover, clearly demonstrated in the present case, where Cartrans Preda was served with the ex post assessment notice which has been challenged before the referring court.

39.

In such a situation, the difference in treatment constitutes discrimination against a resident who uses a cross-border service. It must therefore be concluded that the freedom to provide services is subject to a restriction which is, in principle, prohibited. ( 19 )

40.

This finding is not called into question by the arguments put forward by the Romanian Government, based on the judgment of 22 December 2008, Truck Center (C‑282/07, EU:C:2008:762), according to which, in relation to direct taxes, the situations of resident persons and non-resident persons are, as a rule, not comparable. ( 20 )

41.

Indeed, the Court has previously rejected similar arguments in that regard, noting that, as is, moreover, clear from the case-law cited in point 35 above, the provider and the recipient of the services are two distinct legal entities, each with its own interests and each entitled to claim the benefit of the freedom to provide services if its rights are infringed. ( 21 )

42.

As is apparent from paragraphs 38 and 39 above, in a case such as the present one, the restriction exists in relation to the position of the recipient of the services and is therefore independent of any impact on the position of the service provider.

43.

Similarly, for the purposes of the existence of the restriction, it is also irrelevant that the provider of the service has the opportunity, by virtue of a double taxation convention, to deduct the amount withheld by the recipient of the service, in the performance of his obligation to withhold tax, from the tax for which he is liable in the Member State in which he is resident. As is clear from point 37 above, in a case such as the present one, the existence of the restriction is independent of the effects that the withholding tax may have on the tax situation of non-resident service providers. ( 22 )

44.

The Romanian Government submits, however, that the national legislation at issue constitutes a measure imposed by the Member State in order to achieve the aim, pursued in the public interest, of ensuring that tax due from non-resident persons is collected and is therefore justified by the need to guarantee the effective collection of tax.

45.

In that regard, as pointed out in point 34 above, in accordance with settled case-law, a restriction on the freedom to provide services may be accepted if it is justified by overriding reasons in the public interest, provided that the application of that restriction is such as to ensure achievement of the aim pursued and does not go beyond what is necessary for that purpose. ( 23 )

46.

As regards, in the first place, the existence of an overriding reason in the public interest, the Court has previously held on several occasions that the need to guarantee the effective collection of tax constitutes an overriding reason in the public interest capable of justifying a restriction on the freedom to provide services. ( 24 )

47.

In that regard, 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. ( 25 )

48.

In the second place, as regards the issue of whether the measure is such as to ensure the achievement of the aim pursued, in its judgment of 18 October 2012, X (C‑498/10, (EU:C:2012:635), the Court ruled that a withholding tax at source constitutes an appropriate means of ensuring the effective collection of the tax due in the case of service providers who provide occasional services in a Member State other than that in which they are established, and where they remain only a short period of time. ( 26 )

49.

In my view, that reasoning applies in particular where, as in the present case, on the one hand, the non-resident service provider supplies a service to a resident which is actually carried out in a number of Member States other than the Member State in which the income originates and, on the other hand, the remuneration for those services is, by virtue of national legislation and a double taxation convention, taxed in the Member State of residence of the recipient of the services. ( 27 )

50.

As regards, in the third place, the question as to whether such a measure goes beyond what is necessary to ensure the effective collection of the tax due, the Court has had occasion to hold that a measure providing for the withholding of the tax due by a non-resident is not necessarily a more binding and burdensome measure than the direct collection of the tax from the non-resident service provider, and may thus be regarded as justified by the need to ensure the effective collection of the tax. ( 28 )

51.

Lastly, there was discussion at the hearing of the risk of double taxation in a situation such as the present case, in which, under the national legislation of the Member State of the recipient of the services, the remuneration paid to the provider for the services in question is taxed, by means of an ex post withholding tax obligation, when that provider has already provided proof that it has paid the tax in its Member State of residence.

52.

In that regard, I note, however, on the one hand, that at the hearing the Romanian Government submitted that the double taxation convention ( 29 ) provides for the possibility of deducting from the taxes on income generated in Romania, payable in Denmark, the taxes due on that income in the other Member State, namely Romania. The Romanian Government also made it clear that the provision did not preclude such deductions from being made ex post, that is to say, even where the tax on that income due in the provider’s State of residence had already been paid. In such a case, a tax credit is granted which may be taken into account for the tax due in subsequent tax years.

53.

Naturally, as the Commission submitted at the hearing, that opportunity to take advantage of a tax credit does not entirely exclude the risk of double taxation on such income. That is the case, for example, when the service provider is not obliged, for whatever reason, to pay tax in subsequent years in its State of residence and therefore cannot benefit from that tax credit. However, that does not necessarily mean that a situation of this kind is incompatible with EU law. In that regard, it is clear from the case-law that, since EU law, as it currently stands, does not lay down any general criteria for the attribution of areas of competence between the Member States in relation to the elimination of double taxation within the European Union, such double taxation is not necessarily excluded in all circumstances. ( 30 )

54.

It follows from all the considerations above that, in my view, the answer to the fourth and fifth questions referred by the referring court is that Article 56 TFEU must be interpreted as meaning that an obligation imposed, under the legislation of a Member State, on a recipient of services to withhold tax on the remuneration paid to a service provider established in another Member State which provides services that are actually performed in more than one Member State, while there is no such obligation in the case of remuneration paid to a service provider established in the Member State in question constitutes a restriction on the freedom to provide services within the meaning of that article, in so far as it entails an additional administrative burden, as well as the related risks concerning liability. To the extent that the restriction on the freedom to provide services resulting from the abovementioned national legislation stems from the obligation to deduct tax at source, in so far as it entails an additional administrative burden as well as the related risks concerning liability, that restriction may be justified by the need to ensure the effective collection of the tax where it does not exceed what is necessary to achieve that aim.

55.

In its sixth question, the referring court asks, in essence, whether Article 56 TFEU is to be interpreted as meaning that there is a restriction on the freedom to provide services where the tax levied on the remuneration received by a non-resident provider of particular services – levied by obliging the recipient of those services to withhold the relevant amount of tax – is 4% or 16%, as the case may be, of the gross amount of those payments, whereas the corporation tax due on the payments received by a resident provider of the same services is 16% of the net amount of those payments.

56.

The referring court’s question is whether a withholding tax such as that at issue in the main proceedings also constitutes a restriction on the freedom to provide services where that withholding tax is applied to the gross income received by non-resident operators, while resident operators are taxed on their net income.

57.

In that regard, it should be noted that the Court has previously had occasion to hold that Article 56 TFEU precludes national tax legislation which, as a general rule, takes into account gross income when taxing non-resident persons, without deducting business expenses, whereas residents are taxed on their net income, after deduction of those expenses. ( 31 )

58.

In the present case, as is clear from point 8 above, national legislation imposes a withholding tax of 16% on remuneration for services such as those at issue in the main proceedings provided by non-resident service providers. Such withholding tax, under the terms of the double taxation convention concluded between Romania and Denmark, can be reduced to 4%. The withholding tax is calculated on the basis of the gross amount of the remuneration payable to non-resident service providers, while the corporation tax payable by resident service providers is 16% of the net amount.

59.

It follows that the 16% withholding tax, applied on a gross basis, clearly places non-resident providers at a disadvantage compared to resident providers. When, on the other hand, the rate of withholding tax provided for in the double taxation convention is 4% of the gross amount of the remuneration and non-resident service providers are not offered the possibility of deducting the business expenses connected with that service, the application of the 16% rate to the net amount of remuneration will favour resident service providers if the overall tax payable by non-resident providers, applying the 4% withholding tax rate on a gross basis, is higher than the tax that would be payable by them if the 16% rate were applied to the net income, that is, if the relevant business expenses could be deducted from the remuneration paid by the recipient of the service.

60.

In that context, in the light of the case-law referred to in point 57 above, it must be concluded that national legislation, such as that at issue in the main proceedings, under which non-resident service providers are taxed on the income derived from payments for services rendered, without giving them the opportunity to deduct business expenses directly related to the activity in question, whereas such an opportunity is given to resident service providers, constitutes a restriction on the freedom to provide services, which is prohibited, in principle, by Article 56 TFEU. ( 32 )

61.

The fact that non-resident service providers may possibly be subject to a more favourable tax rate than resident service providers cannot justify a restriction on the freedom to provide services such as that referred to in the preceding paragraph.

62.

In that regard, in the first place, the Court has repeatedly held that unfavourable tax treatment contrary to a fundamental freedom cannot be regarded as compatible with EU law because of the potential existence of other advantages, assuming that such advantages exist. ( 33 )

63.

In the second place, in its case-law, the Court has clearly differentiated between the possibility of claiming business expenses, on the one hand, and the level of the tax rate, on the other. ( 34 ) It has thus acknowledged that the refusal to permit a non-resident person to deduct business expenses directly linked to his or her taxed activity in itself infringes the freedom to provide services. ( 35 )

64.

Accordingly, what is in principle an infringement of the freedom to provide services of non-resident persons arising out of the inability to deduct financing costs directly linked to the taxed activity cannot be balanced out by a tax rate that is lower by comparison with that for residents. ( 36 )

65.

Furthermore, it is clear from the case-law of the Court that business expenses directly related to the income received in the Member State in which the activity is pursued must be understood as expenses occasioned by the activity in question, and therefore necessary for pursuing that activity. ( 37 )

66.

In that regard, there is no doubt that the services at issue in the main proceedings, that is to say, the recovery of VAT in the Member States in which the recipient of the services provides road transport services, give rise to business expenses, such as those connected with making contact with the tax authorities of the various Member States or those relating to tax and legal advice.

67.

Moreover, it is for the referring court, before which the dispute in the main proceedings has been brought and which must assume responsibility for the subsequent judicial decision, to determine in those proceedings, first, which of the expenses claimed may be regarded as business expenses directly related to the activity in question for the purposes of national legislation, and second, what is the portion of the general expenses which may be regarded as directly related to that activity. ( 38 )

68.

In conclusion, it follows from the considerations above that, in my view, the answer to the sixth question referred for a preliminary ruling is that Article 56 TFEU must be interpreted as precluding national legislation under which, as a rule, non-resident service providers are taxed on the income derived from payments for services rendered, without giving them the opportunity to deduct business expenses directly related to the activity in question, whereas such an opportunity is given to resident service providers. It is for the national court to assess, on the basis of its national law, which business expenses may be regarded as being directly related to the activity in question.

69.

In the light of the considerations above, I propose that the Court give the following answers to the third to sixth questions referred for a preliminary ruling by Tribunalul Prahova (Regional Court, Prahova, Romania):