Keywords
Summary

Keywords

Freedom of movement for persons – Freedom of establishment – Free movement of capital – Tax legislation – Corporation tax

(EC Treaty, Art. 52 (now, after amendment, Art. 43 EC), Art. 58 (now Art. 48 EC), Arts 73b and 73d (now, respectively, Arts 56 EC and 58 EC)

Summary

Article 52 of the EC Treaty (now, after amendment, Article 43 EC), Article 58 of the EC Treaty (now Article 48 EC), Articles 73b and 73d of the EC Treaty (now, respectively, Articles 56 EC and 58 EC) must be interpreted as not precluding tax legislation of a Member State which provides for the retention of tax at source on interest paid by a company resident in that Member State to a recipient company resident in another Member State, while exempting from that retention interest paid to a recipient company resident in the first Member State, the income of which is taxed in that Member State by way of corporation tax.

The difference in treatment between companies receiving income from capital, established by such tax legislation, consisting in the application of different taxation arrangements to companies established in the Member State at issue and to those established in another Member State, relates to situations which are not objectively comparable. Firstly, when both the company paying the interest and the company receiving that interest are resident in the Member State concerned, the position of that State is different to that in which it finds itself when a company resident in the Member State concerned pays interest to a non-resident company, because, in the first case, the Member State acts in its capacity as the State of residence of the companies concerned, while, in the second case, it acts in its capacity as the State in which the interest originates. Secondly, the payment of interest by one resident company to another resident company and the payment of interest by a resident company to a non-resident company give rise to two distinct charges which rest on separate legal bases. Thus, on the one hand, the interest paid by one resident company to another resident company is taxed by the Member State concerned because it remains subject to corporation tax in the hands of the latter company and on the same footing as that company’s other income. On the other hand, the retention at source of the withholding tax on interest paid by a resident company to a non-resident company is carried out pursuant to the competence, by virtue of a double taxation convention, that that Member State and the other Member State have mutually reserved for themselves in the allocation of their powers of taxation. Those different procedures for charging tax thus constitute a corollary to the fact that resident and non-resident recipient companies are subject to different charges. Finally, those different taxation arrangements reflect the difference in the situations in which those companies find themselves with regard to recovery of the tax, resident companies being directly subject to the supervision of the tax authorities of the Member State in question, which is not the case with regard to non-resident recipient companies inasmuch as, in their case, recovery of the tax requires the assistance of the tax authorities of the other Member State.

Moreover, the difference in treatment resulting from such tax legislation does not necessarily procure an advantage for resident recipient companies because, firstly, those companies are obliged to make advance payments of corporation tax and, secondly, the amount of withholding tax deducted from the interest paid to a non-resident company is significantly lower that the corporation tax charged on the income of resident companies which receive interest.

In those circumstances, that difference in treatment does not constitute a restriction of the freedom of establishment within the terms of Article 52 of the Treaty, nor a restriction on the movement of capital within the meaning of Article 73b of the Treaty.

(see paras 41-52, operative part)