Case C‑342/10

European Commission

v

Republic of Finland

‛Failure of a Member State to fulfil obligations — Free movement of capital — Article 63 TFEU — EEA Agreement — Article 40 — Taxation of dividends paid to non-resident pension funds’

Summary — Judgment of the Court (Fourth Chamber), 8 November 2012

1. Judicial proceedings — Oral proceedings — Reopening — Conditions

   (Rules of Procedure of the Court of Justice, Art. 61)

2. Actions for failure to fulfil obligations — Application initiating proceedings — Formal requirements — Identification of the subject-matter of the dispute — Sufficiently precise definition of the subject-matter of the dispute — Admissibility

   (Rules of Procedure of the Court of Justice, Art. 38(1)(c))

3. Free movement of capital — Restrictions — Fiscal legislation — Corporation tax — Taxation of dividends — National legislation reserving exclusively to resident pension funds the right to treat dividends received and transferred to reserves as deductible costs — Different treatment of comparable situations — Not permissible — Justification — No need to guarantee the coherence of the tax system

   (Art. 63 TFEU; EEA Agreement, Art. 40)

1.  See the text of the decision.

   (see para. 13)

2.  See the text of the decision.

   (see paras 20-22)

3.  A Member State which reserves for resident pension funds the right to treat amounts reserved in order to meet their obligations as regards pensions as deductible costs without offering the same advantage to non-resident pension funds fails to fulfil its obligations under Article 63 TFEU and Article 40 of the Agreement on the European Economic Area (EEA).

   By reason of such legislation, dividends received by resident pension funds are, in practice, unlike the dividends received by non-resident pension funds, exempt or partially exempt from income tax, whereas dividends received by non-resident pension funds are subject to a withholding tax in respect of which no deduction is permitted. Such unfavourable treatment of dividends paid to non-resident pension funds as compared with dividends paid to resident pension funds is likely to discourage companies established in another Member State of the European Union or another Member State of the EEA from investing in that Member State and therefore constitutes a restriction on the free movement of capital prohibited, in principle, by Article 63 TFEU and Article 40 of the EEA Agreement.

   By creating a direct link between the amounts reserved in order to meet obligations as regards pensions and the activities of pension funds generating taxable income, such legislation aims to take account of the specific purpose of pension funds which is to accumulate capital, by way of investments producing, in particular, an income in the form of dividends in order to meet their future obligations under insurance contracts. Since, that specific purpose is also that of non-resident pension funds which pursue the same activity, the latter are in a situation objectively comparable to that of resident pension funds as regards dividends received in that Member State.

   Furthermore, such a restriction on the free movement of capital is not justified by the objective based on the need to ensure the coherence of the national tax system, since it has not been shown to the required legal standard that the financial advantage granted to resident pension funds is offset by a particular tax levy, thereby justifying the taxation of dividends paid to non-resident pension funds.

   (see paras 32, 33, 41-43, 50, 53, operative part)

Case C‑342/10

European Commission

v

Republic of Finland

‛Failure of a Member State to fulfil obligations — Free movement of capital — Article 63 TFEU — EEA Agreement — Article 40 — Taxation of dividends paid to non-resident pension funds’

Summary — Judgment of the Court (Fourth Chamber), 8 November 2012

1. Judicial proceedings — Oral proceedings — Reopening — Conditions

   (Rules of Procedure of the Court of Justice, Art. 61)

2. Actions for failure to fulfil obligations — Application initiating proceedings — Formal requirements — Identification of the subject-matter of the dispute — Sufficiently precise definition of the subject-matter of the dispute — Admissibility

   (Rules of Procedure of the Court of Justice, Art. 38(1)(c))

3. Free movement of capital — Restrictions — Fiscal legislation — Corporation tax — Taxation of dividends — National legislation reserving exclusively to resident pension funds the right to treat dividends received and transferred to reserves as deductible costs — Different treatment of comparable situations — Not permissible — Justification — No need to guarantee the coherence of the tax system

   (Art. 63 TFEU; EEA Agreement, Art. 40)

1.  See the text of the decision.

   (see para. 13)

2.  See the text of the decision.

   (see paras 20-22)

3.  A Member State which reserves for resident pension funds the right to treat amounts reserved in order to meet their obligations as regards pensions as deductible costs without offering the same advantage to non-resident pension funds fails to fulfil its obligations under Article 63 TFEU and Article 40 of the Agreement on the European Economic Area (EEA).

   By reason of such legislation, dividends received by resident pension funds are, in practice, unlike the dividends received by non-resident pension funds, exempt or partially exempt from income tax, whereas dividends received by non-resident pension funds are subject to a withholding tax in respect of which no deduction is permitted. Such unfavourable treatment of dividends paid to non-resident pension funds as compared with dividends paid to resident pension funds is likely to discourage companies established in another Member State of the European Union or another Member State of the EEA from investing in that Member State and therefore constitutes a restriction on the free movement of capital prohibited, in principle, by Article 63 TFEU and Article 40 of the EEA Agreement.

   By creating a direct link between the amounts reserved in order to meet obligations as regards pensions and the activities of pension funds generating taxable income, such legislation aims to take account of the specific purpose of pension funds which is to accumulate capital, by way of investments producing, in particular, an income in the form of dividends in order to meet their future obligations under insurance contracts. Since, that specific purpose is also that of non-resident pension funds which pursue the same activity, the latter are in a situation objectively comparable to that of resident pension funds as regards dividends received in that Member State.

   Furthermore, such a restriction on the free movement of capital is not justified by the objective based on the need to ensure the coherence of the national tax system, since it has not been shown to the required legal standard that the financial advantage granted to resident pension funds is offset by a particular tax levy, thereby justifying the taxation of dividends paid to non-resident pension funds.

   (see paras 32, 33, 41-43, 50, 53, operative part)