Case C-387/11

European Commission

v

Kingdom of Belgium

‛Failure of a Member State to fulfil obligations — Articles 49 TFEU and 63 TFEU — Articles 31 and 40 of the EEA Agreement — Taxation of income from capital and movable property — Resident and non-resident investment companies — Withholding tax — Setting off of withholding tax — Exemption of income from capital and movable property — Discrimination — Justifications’

Summary — Judgment of the Court (First Chamber), 25 October 2012

1. Freedom of establishment — Free movement of capital — Provisions of the Treaty — Scope — National legislation excluding taxation of income from capital and movable property earned by non-resident investment companies with no permanent establishment in the Member State from certain benefits — Applicability of the provisions governing both freedom of establishment and free movement of capital

   (Arts 49 TFEU and 63 TFEU)

2. Freedom of establishment — Free movement of capital — Restrictions — Tax legislation — National legislation excluding taxation of income from capital and movable property earned by non-resident investment companies with no permanent establishment in the Member State from certain benefits — Not permissible — Justification — None

   (Arts 49 TFEU and 63 TFEU; EEA Agreement, Arts 31 and 40)

3. Freedom of establishment — Free movement of capital — Restrictions — Tax legislation — National legislation excluding taxation of income from capital and movable property earned by non-resident investment companies with no permanent establishment in the Member State from certain benefits — Not permissible — Conventions for the avoidance of double taxation concluded with other States — No effect

   (Arts 49 TFEU and 63 TFEU)

1.  See the text of the decision.

   (see paras 33-35)

2.  By maintaining different rules for the taxation of income from capital and movable property according to whether it is earned by resident investment companies or non-resident investment companies with no permanent establishment in the Member State, that Member State fails to fulfil its obligations under Articles 49 TFEU and 63 TFEU, and Articles 31 and 40 of the Agreement on the European Economic Area.

   Tax legislation which does not grant certain benefits on the taxation of income earned by non-resident investment companies with no permanent establishment in the Member State, whereas that legislation does grant such benefits to income earned by resident investment companies, establishes unfavourable treatment for non-resident companies.

   For such difference of treatment to be capable of being regarded as compatible with the provisions of the Treaty on free movement of capital and freedom of establishment, that difference of treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest.

   However, non-resident investment companies in receipt of that income find themselves in a situation comparable to that of resident companies as regards the risk of a series of charges to tax on income from capital and movable property, so that non-resident recipient companies cannot be treated differently from resident recipient companies.

   Moreover, such a restriction is not justified by overriding reasons in the public interest. First, it is not justified by the need to ensure a balanced allocation of the power to tax, since, if a Member State has chosen not to tax recipient companies established in its territory in respect of income of this kind, it cannot rely on the argument that there is a need to ensure a balanced allocation between the Member States of the power to tax in order to justify the taxation of recipient companies established in another Member State.

   Second, nor is such a measure justified by reasons connected with the coherence of the tax system, given that non-resident investment companies cannot, in any circumstances, enjoy exemption in respect of income from capital and movable property that they receive from companies established in the Member State of taxation or benefit from the setting off or reimbursement of withholding tax, irrespective of the guarantees that they might be able to provide concerning financial supervision.

   (see paras 38-40, 45, 51, 74-76, 80, 81, 83, operative part 1)

3.  See text of the decision.

   (see paras 55-58)

Case C-387/11

European Commission

v

Kingdom of Belgium

‛Failure of a Member State to fulfil obligations — Articles 49 TFEU and 63 TFEU — Articles 31 and 40 of the EEA Agreement — Taxation of income from capital and movable property — Resident and non-resident investment companies — Withholding tax — Setting off of withholding tax — Exemption of income from capital and movable property — Discrimination — Justifications’

Summary — Judgment of the Court (First Chamber), 25 October 2012

1. Freedom of establishment — Free movement of capital — Provisions of the Treaty — Scope — National legislation excluding taxation of income from capital and movable property earned by non-resident investment companies with no permanent establishment in the Member State from certain benefits — Applicability of the provisions governing both freedom of establishment and free movement of capital

   (Arts 49 TFEU and 63 TFEU)

2. Freedom of establishment — Free movement of capital — Restrictions — Tax legislation — National legislation excluding taxation of income from capital and movable property earned by non-resident investment companies with no permanent establishment in the Member State from certain benefits — Not permissible — Justification — None

   (Arts 49 TFEU and 63 TFEU; EEA Agreement, Arts 31 and 40)

3. Freedom of establishment — Free movement of capital — Restrictions — Tax legislation — National legislation excluding taxation of income from capital and movable property earned by non-resident investment companies with no permanent establishment in the Member State from certain benefits — Not permissible — Conventions for the avoidance of double taxation concluded with other States — No effect

   (Arts 49 TFEU and 63 TFEU)

1.  See the text of the decision.

   (see paras 33-35)

2.  By maintaining different rules for the taxation of income from capital and movable property according to whether it is earned by resident investment companies or non-resident investment companies with no permanent establishment in the Member State, that Member State fails to fulfil its obligations under Articles 49 TFEU and 63 TFEU, and Articles 31 and 40 of the Agreement on the European Economic Area.

   Tax legislation which does not grant certain benefits on the taxation of income earned by non-resident investment companies with no permanent establishment in the Member State, whereas that legislation does grant such benefits to income earned by resident investment companies, establishes unfavourable treatment for non-resident companies.

   For such difference of treatment to be capable of being regarded as compatible with the provisions of the Treaty on free movement of capital and freedom of establishment, that difference of treatment must concern situations which are not objectively comparable or be justified by an overriding reason in the public interest.

   However, non-resident investment companies in receipt of that income find themselves in a situation comparable to that of resident companies as regards the risk of a series of charges to tax on income from capital and movable property, so that non-resident recipient companies cannot be treated differently from resident recipient companies.

   Moreover, such a restriction is not justified by overriding reasons in the public interest. First, it is not justified by the need to ensure a balanced allocation of the power to tax, since, if a Member State has chosen not to tax recipient companies established in its territory in respect of income of this kind, it cannot rely on the argument that there is a need to ensure a balanced allocation between the Member States of the power to tax in order to justify the taxation of recipient companies established in another Member State.

   Second, nor is such a measure justified by reasons connected with the coherence of the tax system, given that non-resident investment companies cannot, in any circumstances, enjoy exemption in respect of income from capital and movable property that they receive from companies established in the Member State of taxation or benefit from the setting off or reimbursement of withholding tax, irrespective of the guarantees that they might be able to provide concerning financial supervision.

   (see paras 38-40, 45, 51, 74-76, 80, 81, 83, operative part 1)

3.  See text of the decision.

   (see paras 55-58)