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OPINION OF ADVOCATE GENERAL

BOT

delivered on 3 July 2007 1(1)

Case C-194/06

Staatssecretaris van Financiën

v

Orange European Smallcap Fund NV

(Reference for a preliminary ruling from the Hoge Raad der Nederlanden (Netherlands))

(Free movement of capital – Taxation of dividends – Exemption from tax of dividends from shares in companies established in the Member State – Concession in respect of tax deducted at source on dividends from shares in companies established in another Member State – Limitation of that concession to the amount which a resident shareholder could offset by virtue of a convention for the prevention of double taxation – Limitation of that concession by reference to the holdings of non-resident shareholders in the capital of the investment company)





1.        This reference for a preliminary ruling concerns the Netherlands scheme for the taxation of fiscal investment enterprises established in the Netherlands. That scheme is designed in such a way that the tax payable to that Member State on the dividends received by those enterprises is not borne by the enterprises themselves but, following the distribution of their profits, by all their shareholders. To that end, the tax on dividends paid to fiscal investment enterprises by companies established in the Netherlands and deducted at source by those companies is refunded to those enterprises.

2.        Fiscal investment enterprises also receive from the Kingdom of the Netherlands a concession in respect of tax deducted abroad on dividends originating in other countries. That concession is subject to two restrictions. First, it is limited to the amount of the foreign tax which a natural person resident in the Netherlands could have deducted from Netherlands tax under a convention for the prevention of double taxation concluded between the Kingdom of the Netherlands and the country of the investment. Second, the concession is reduced according to the interest in the capital of the enterprise concerned of shareholders who are not resident or established in the Netherlands.

3.        The Hoge Raad der Nederlanden (Supreme Court of the Netherlands) has referred a number of questions for a preliminary ruling to enable it to assess the compatibility of those two restrictions with the rules of the EC Treaty on the free movement of capital.

4.        In this Opinion, I shall provide an outline of the case-law on the framework governing the powers of the Member States in matters relating to the taxation of dividends and the prevention of double taxation. I shall indicate the extent to which, in the light of that case-law, those two restrictions are, in my view, contrary to the provisions of Articles 56 EC and 58 EC.

I –  Legal framework

A –    Community law

5.        Article 56(1) EC states that, within the framework of the provisions set out in the chapter of which that article forms part, all restrictions on the movement of capital between Member States and between Member States and third countries are to be prohibited.

6.        Article 57(1) EC lays down transitional measures with respect to non-member countries. It provides as follows:

‘The provisions of Article 56 [EC] shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from third countries involving direct investment – including in real estate – establishment, the provision of financial services or the admission of securities to capital markets.’

7.        Finally, Article 58 EC states:

‘1.   The provisions of Article 56 [EC] shall be without prejudice to the right of Member States:

(a)      to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;

(b)      to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security.

…

3.      The measures and procedures referred to in [paragraph 1] shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56 [EC].’

B –    National law

8.        The tax scheme for fiscal investment enterprises is set out in Netherlands law in Article 28 of the 1969 Wet op de vennootschapsbelasting (Law on corporation tax) and Article 6 of the Besluit beleggingsinstellingen (Decree on fiscal investment enterprises).

9.        Pursuant to Article 28 of the Law on corporation tax, a fiscal investment enterprise is defined as any enterprise having the form of a public limited company, a private limited company or a pooled investment fund which is established in the Netherlands and the object and actual activity of which consists in investment. (2)

10.      The particular scheme to which fiscal investment enterprises are subject seeks to make the tax burden on revenue from investments by such enterprises as far as possible the same as that on direct investments by private individuals. The returns on investments by such enterprises are therefore taxed, as far as possible, as if they were proceeds enjoyed directly by their shareholders. This equalisation takes the form described below.

11.      The profits of a fiscal investment enterprise are liable to corporation tax but are taxed at a zero rate. However, those profits must in principle be distributed in full to shareholders within eight months of the end of the tax year in question.

12.      Where a fiscal investment enterprise holds interests in companies established in the Netherlands and receives dividends from those companies, it enjoys a refund of the Netherlands tax levied on those dividends which was deducted at source by the companies making the distributions.

13.      Where a fiscal investment enterprise receives dividends from companies established in other countries which have been taxed in those countries, the system is as follows.

14.      Under Netherlands law, the normal rules for the avoidance of double taxation do not provide for the offsetting of foreign tax. The Kingdom of the Netherlands in fact sets off foreign tax against corporation tax only up to the amount of the Netherlands corporation tax proportionately attributable to the dividends in question.

15.      In so far as the profits of a fiscal investment enterprise are taxed at a zero rate and therefore no tax is attributable in proportion to the dividends originating in other countries, the Netherlands rules make provision for a system known as a ‘concession’ in respect of tax levied abroad, up to the amount of the Netherlands tax which would be attributable to those dividends.

16.      That concession scheme is, however, subject to two limitations, which are the subject of dispute in the main proceedings.

17.      First, the concession is granted only if, in the case of direct investments by shareholders resident or established in the Netherlands, the latter would be entitled to set off the foreign tax against Netherlands tax under the law establishing the tax framework or a convention for the prevention of double taxation.

18.      Second, the amount of the concession is reduced in line with the interest in the capital of the fiscal investment enterprise of shareholders not resident or established in the Netherlands.

19.      Pursuant to Article 6 of the Decree on fiscal investment enterprises, where such an enterprise has shareholders who are not resident or established in the Netherlands, the amount of the concession is to be calculated in accordance with the following formula:

T = B x 7 Sr / (10 S – 3 Sr)

where T is the concession; B is the amount of the tax which would be deductible if all the shareholders were liable to tax in the Netherlands; Sr is the amount paid, on the relevant date, on the shares or units in the fiscal investment enterprise which are held directly or through other fiscal investment enterprises by natural persons resident in the Netherlands or by bodies established in the Netherlands and liable to corporation tax, other than fiscal investment enterprises; and S is the amount paid, on the same date, on all shares or units in the fiscal investment enterprise which are in circulation.

20.      Shareholders in a fiscal investment enterprise are liable to Netherlands tax on profits distributed by that enterprise, which is deducted at source by the enterprise when it makes the distribution.

21.      In the case of shareholders resident or established in the Netherlands, that deduction constitutes an advance payment of tax. The deduction from profits may be set off against the income or corporation tax which they owe and is refunded in so far as it exceeds that amount. As regards shareholders resident or established in another country, the tax deducted is refunded only if provision is made for this by a convention for the prevention of double taxation or by the Netherlands legislation establishing the tax framework.

22.      The referring court states that, under this scheme, it is not the fiscal investment enterprise which is taxed on the dividends it receives but, following the distribution of its profits, its shareholders.

II –  Facts and procedure in the main action

23.      The object of the company Orange European Smallcap Fund NV (3) is the investment of money in securities and other assets in such a way that the risks are spread. It is established in Amsterdam. For tax purposes, it is regarded as a fiscal investment enterprise within the meaning of Article 28 of the Law on corporation tax.

24.      It manages a portfolio of securities issued by listed European undertakings. The referring court states that, in the financial year in question, the interests held by OESF in companies established outside the Netherlands were not such as to enable it to determine the activities of those companies.

25.      The shareholders of OESF are natural and legal persons. During the financial year relevant to the present case, the majority of the shareholders were resident or established in the Netherlands. Some were resident or established in other Member States (Belgium, Germany France, Luxembourg and the United Kingdom) or in non-member countries (United States and Switzerland).

26.      During the financial year 1997/1998, OESF received dividends from its interests in foreign companies amounting to NLG 5 257 519.15. It was taxed abroad on those dividends, by way of deduction at source, in the total amount of NLG 735 320. That amount included taxes levied in Germany and Portugal, which amounted to NLG 132 339 and NLG 9 905 respectively.

27.      OESF applied to the Netherlands tax authority for a concession in respect of those foreign taxes, calculated on the basis of the total amount of NLG 735 320.

28.      The tax authority took the view that the tax paid in Germany and Portugal should be excluded from the basis for calculation. That exclusion was justified on the ground that, as regards the financial year in question, the convention concluded between the Kingdom of the Netherlands and the Federal Republic of Germany made no provision for any right to set off German tax deducted from dividends originating in Germany and paid to a Netherlands resident, and that no convention for the prevention of double taxation had been concluded between the Kingdom of the Netherlands and the Portuguese Republic.

29.      The tax authority therefore took as the basis for calculating the concession the sum of NLG 593 076. Then, in accordance with the method set out in Article 6 of the Decree on fiscal investment enterprises, which is applicable where shareholders are not exclusively natural or legal persons resident or established in the Netherlands, it fixed the amount of the concession at NLG 418 013.

30.      The Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam), to which OESF appealed, annulled the decision of the tax authority and fixed the amount of the concession at NLG 622 006. That court took the view that both the exclusion of the taxes deducted in Germany and Portugal from the basis for calculating the concession and the reduction of the concession in proportion to the holdings of shareholders resident or established outside the Netherlands in the capital of OESF constituted an unjustified obstacle to the free movement of capital.

31.      The Staatssecretaris van Financiën (Netherlands State Secretary for Finance) lodged an appeal in cassation against that judgment. He contested the position of the Gerechtshof te Amsterdam with regard to both the taking into account of the tax levied in Germany and Portugal and the reduction of the concession on the basis of the holdings of shareholders resident or established outside the Netherlands.

III –  Reference for a preliminary ruling

32.      The Hoge Raad der Nederlanden decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1)      Must Article 56 EC, in conjunction with Article 58(1) EC, be interpreted as meaning that the prohibition in Article 56 EC is incompatible with a rule in a Member State under which – for the reasons set out in at the end of section 5.2.1 of this judgment – a concession to be granted to a fiscal investment enterprise on account of taxation at source deducted in another Member State from dividends received by the fiscal investment enterprise is restricted:

(a)      to the amount which a natural person resident in the Netherlands could have had credited on the basis of a tax treaty concluded with the other Member State;

(b)      where and to the extent to which the shareholders of the fiscal investment enterprise are not natural persons resident in the Netherlands or bodies subject to Netherlands corporation tax?

(2)      If the answer to Question 1 is wholly or partly in the affirmative:

(a)      Does “direct investment” in Article 57(1) EC also include the holding of a block of shares in a company if the holder of the shares holds them only as an investment and the size of the block does not put the holder in a position to exercise a decisive influence over the management or control of the company?

(b)      Under Article 56 EC, is any restriction of the movement of capital connected with the levying of tax that would be impermissible if it related to cross-border movement of capital within the EC similarly impermissible in the case of the same movement of capital – in otherwise similar circumstances – to and from third countries?

c)      If the answer to Question 2(b) is in the negative, must Article 56 EC then be interpreted as meaning that a restriction by a Member State of a tax concession granted to a fiscal investment enterprise with regard to taxation at source of a dividend received from a third country, that restriction being based on the fact that not all shareholders of the fiscal investment enterprise have their place of residence in the Member State concerned, is incompatible with that article?

(3)      Is the answer to the above questions affected by whether:

(a)      the tax deducted in another country from the dividend received from that country is higher than the tax on the payment of that dividend to foreign shareholders in the Member State of establishment of the fiscal investment enterprise;

(b)      the shareholders of the fiscal investment enterprise who have their place of residence outside the Member State of establishment of the fiscal investment enterprise are resident or established in a country with which the abovementioned Member State has a treaty providing for reciprocal credit of taxation of dividends at source;

(c)      the shareholders of the fiscal investment enterprise who have their place of residence outside the Member State of establishment of the fiscal investment enterprise are resident or established in another country of the EC?’

IV –  Analysis

33.      Before examining the questions raised by the referring court, it may be useful to provide a broad outline of the case-law on the framework for the powers of the Member States in matters relating to the taxation of dividends, in particular that concerning mechanisms intended to prevent situations leading to the double taxation of a company’s profits and the impact of bilateral conventions.

A –    Broad outline of the case-law

1.      General framework

34.      The taxation of dividends forms part of direct taxation, competence in respect of which the Treaty has not to date expressly conferred on the Community. Member States therefore have the sovereign right to define the conditions applicable to their powers of taxation, that is to say, the rate, the basis for assessment, the procedures for recovery and the scope of their tax powers, unilaterally or by agreement in the form of inter-State conventions.

35.      However, as the Court regularly points out, that competence is not unlimited. It must be exercised in compliance with Community law, in particular the freedoms of movement laid down in the Treaty. (4)

36.      The fact that the competence of the Member States is circumscribed by the freedoms of movement has given rise to two principles. The first is the prohibition of discriminatory measures: a taxpayer from another Member State must not be the subject of discriminatory tax treatment by the host Member State. The second principle is that of the prohibition, by the Member State of origin, of obstacles to the exercise of one of the freedoms of movement by one of its nationals. This is the prohibition of ‘obstacles on exit’.

37.      Within the framework of the free movement of capital as applied to the taxation of company profits, those two principles find expression in case-law in the prohibition, firstly, of tax measures in a Member State which constitute an obstacle to the raising of capital in that State by foreign companies and, secondly, of tax measures in a Member State which dissuade taxpayers in that State from investing their capital in companies established in other countries, the difference being that, unlike the other freedoms of movement guaranteed by the Treaty, these prohibitions are not confined to intra-Community trade but also extend to trade with non-member countries.

38.      In accordance with the principle of non-discrimination, which is implemented by the various freedoms of movement provided for in the Treaty, a Member State may not apply different tax rules to comparable situations or the same tax rule to different situations. That principle also prohibits not only overt discrimination based on nationality. (5) It also precludes any discrimination which, by the application of other criteria of differentiation, leads to the same result.

39.      In the area of direct taxation, the principle of non-discrimination and the competence which Member States retain have come into conflict, in particular with regard to national measures providing for divergent treatment depending on the residence of the taxpayer.

40.      On the one hand, residence for tax purposes is, in principle, the criterion which defines the respective taxation powers of the Member States. Thus, generally speaking, Member States tax natural and legal persons who are taxpayers and resident in their territory and tax non-resident taxpayers on profits arising from activities carried on in that territory. Similarly, they provide tax advantages the benefit of which is limited to resident taxpayers, such as measures designed to take account of their personal and family circumstances, which they are best placed to assess. On this point, the Court has accepted that the situations of residents and of non-residents are not, as a rule, comparable. (6)

41.      On the other hand, national legislation of a Member State which reserves tax advantages for residents of the national territory principally benefits nationals of that State since, most often, the majority of non-residents are nationals of other countries. A rule based on the criterion of residence may therefore constitute indirect discrimination on grounds of nationality. (7)

42.      It is that conflict which is given expression in Article 58 EC, which states that Article 56 EC is to be without prejudice to the right of Member States to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or the place where their capital is invested, on condition, however, that those provisions do not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments.

43.      National legislation which draws a distinction between taxpayers on the basis of residence or the place where they invest their capital may therefore be considered compatible with Articles 56 EC and 58 EC only if that difference in treatment relates to situations which are not objectively comparable for the purposes of the application of the tax measure in question.

44.      Failing that, if the situations concerned are objectively comparable, such a distinction will, according to the case-law, be in accordance with Community law only if it is justified on one of the grounds set out in Article 58(1)(b) EC or by an overriding reason in the general interest, such as the need to safeguard the coherence of the tax system, and if it does not go beyond what is necessary in order to attain the objective of the legislation. (8)

2.      Measures designed to prevent or mitigate double taxation

45.      The Court has specified in a number of judgments the scope of this general framework for the competence of Member States in matters of direct taxation in the case of State or unilateral measures or measures pursuant to agreements designed to prevent or mitigate the double taxation of profits distributed by companies.

46.      It should be noted at the outset that a company’s profits may be the subject of double taxation in a number of different situations. Thus, they may be the subject of a ‘series of charges to tax’ or ‘economic double taxation’, where they are taxed through two different taxpayers, first the company, as part of the taxation of profits, then, second, through the shareholder to whom they are distributed, as part of corporation tax or income tax, depending on whether that shareholder is a company or a private individual.

47.      Those profits may also be the subject of ‘juridical double taxation’, where a single taxpayer is taxed twice on the same income. This situation may arise where a shareholder who receives dividends is liable, on the one hand, to deduction at source on those dividends by the Member State in which the company making the distribution is established and, on the other hand, to income tax on those dividends in his State of residence.

48.      On the basis of the presentation of the relevant case-law, it is appropriate to start from the premiss that double taxation is not, generally, contrary to Community law.

49.      No measure for the division of powers between Member States aimed at eliminating double taxation has been adopted within the framework of the Treaty. Double taxation is prohibited only by a number of directives, such as Council Directive 90/435/EEC, (9) which are not relevant in the case at issue. (10) Moreover, leaving aside Convention 90/436/EEC, (11) Member States have not concluded any multilateral convention to that effect under Article 293 EC.

50.      Two consequences follow from this premiss. First, if double taxation results from the exercise by Member States of their respective powers, such as taxation of the taxpayer by his State of residence on the entirety of his income and taxation of the same taxpayer by the State in whose territory the dividends were released, up to the amount of those dividends, it does not, as such, constitute an infringement of Community law. (12)

51.      Second, in the absence of measures and a multilateral convention to that effect, Member States are free to establish the criteria for the division between them of powers of taxation and to adopt, unilaterally or through bilateral conventions, the measures necessary to prevent cases of double taxation. However, in exercising that competence, Member States must, within the framework of both unilateral measures and agreements, observe the requirements of Community law and in particular those following from the freedoms of movement. (13)

52.      A number of cases have offered the Court the opportunity to illustrate the scope of that obligation with regard to the taxation by Member States of, on the one hand, incoming dividends, as the State of residence of the shareholder, and, on the other hand, outgoing dividends, as the source State of those dividends.

53.      As regards the taxation of incoming dividends, it follows from the case-law that, where a Member State taxes resident taxpayers on the entirety of the dividends they receive and adopts provisions to prevent or mitigate the double economic taxation of those dividends, it cannot limit the benefit of those provisions to nationally-sourced dividends but must extend that advantage to dividends paid by companies established in other Member States. (14)

54.      The Court held that that equal treatment was necessary on the ground that, in the light of the purpose of such provisions, the situation of a taxpayer receiving dividends originating in other Member States was comparable to that of a taxpayer receiving nationally-sourced dividends in so far as, in each case, such dividends were liable to be subject to a series of charges to tax or to double economic taxation, which the said provisions were specifically intended to prevent or mitigate. (15)

55.      As regards the taxation of outgoing dividends, it is also settled case-law that, from the time when a Member State, unilaterally or by agreement, makes not only resident shareholders but also non-resident shareholders liable to income tax on dividends which they receive from a resident company, that State must ensure that, with regard to the mechanism provided for in its domestic law to prevent or mitigate a series of charges to tax, non-resident shareholders are afforded treatment that is equivalent to that enjoyed by resident shareholders. (16)

56.      In such a case, equal treatment is required of the Member State which is the source of the dividends because that State has decided to exercise its fiscal powers not only in relation to dividends paid to resident shareholders but also in relation to dividends distributed to non-resident shareholders. (17)

3.      Effect of bilateral conventions

57.      An examination of the case-law on the effect of bilateral tax conventions provides four lessons which are relevant to the present case.

58.      The first of those lessons is that rights derived from the freedoms of movement guaranteed by the Treaty within the European Union are unconditional and that a Member State may not make respect for them subject to the contents of a convention concluded with another Member State. (18) In other words, a Member State may not make those rights subject to a reciprocity agreement entered into with another Member State for the purpose of obtaining corresponding advantages in that State. (19)

59.      The second lesson is that, where a tax measure introduced by a Member State constitutes an obstacle to a freedom of movement provided for in the Treaty, a bilateral convention may be taken into account when it neutralises that obstacle. (20) The Court examines whether the combined application of the legislation at issue and the bilateral convention allows a restriction on the applicable freedom of movement to continue (21) or refers that assessment to the national court. (22)

60.      The third lesson is that, where a non-resident taxpayer is in the same situation as a resident taxpayer, he must, under the principle of national treatment, benefit from the advantages of a bilateral convention concluded between the Member State of residence and a non-member country under the same conditions as resident taxpayers. (23)

61.      The fourth lesson is that Community law does not require a Member State to extend to a non-resident taxpayer who is not in a situation comparable to that of a resident taxpayer the benefit of a bilateral convention concluded with a country other than that of that non-resident taxpayer. (24) In other words, in matters of taxation, Community law does not require a Member State to grant to a resident of another Member State the benefit of the most-favoured-nation clause.

62.      I shall now examine the questions referred for a preliminary ruling by the Hoge Raad der Nederlanden in the light of that outline of the case-law.

B –    The questions referred

1.      Introduction

a)      The relevant freedom of movement

63.      It should be noted at the outset that the receipt, by a shareholder resident or established in a Member State, of dividends from non-resident companies constitutes a movement of capital within the meaning of Article 56 EC. (25)

64.      According to the case-law, national legislation which makes the receipt of dividends liable to tax, where the rate depends on whether the source of those dividends is national or otherwise, irrespective of the extent of the holding which the shareholder has in the company making the distribution, may fall within the scope of both Article 43 EC on freedom of establishment and Article 56 EC on free movement of capital. (26) However, where the shareholder’s interest in the capital of a company does not give him definite influence over the decisions of that company and does not allow him to determine its activities, the provisions of Article 56 EC alone are applicable. (27)

65.      It is clear from the information provided by the referring court that, during the relevant financial year, the interest held by OESF in the capital of the companies making distributions did not permit it to determine the activities of those companies. I shall therefore examine the compatibility of the contested limitations with Community law in the light of the Treaty provisions on the free movement of capital, and in the light of those provisions alone.

b)      Substance of the questions referred and the order in which they are to be examined

66.      The Hoge Raad has referred three sets of questions for preliminary ruling. By its first question, parts (a) and (b), it asks the Court whether the two limitations at issue are compatible with the provisions of Articles 56 EC and 58 EC.

67.      By its second question, parts (a) to (c), to which I attach the third question, parts (b) and (c), the Hoge Raad seeks to ascertain what conclusions should be drawn from the fact that a fiscal investment enterprise such as OESF has invested in non-member countries and itself has shareholders who are resident or established in non-member countries.

68.      Finally, by its third question, part (a), the Hoge Raad asks whether the fact that the tax deducted in another country is higher than the tax payable on dividends distributed to foreign shareholders in the Member State in which the fiscal investment enterprise is established affects the answers to the preceding questions.

69.      I shall examine those three sets of questions in turn.

2.      The first set of questions referred

a)      First question, part (a)

70.      By its first question, part (a), the Hoge Raad asks in essence whether Articles 56 EC and 58 EC must be interpreted as precluding legislation of a Member State, such as the Netherlands legislation at issue, which, in providing for the benefit of fiscal investment enterprises a concession intended to take account of tax deducted at source by another Member State on dividends paid to those enterprises, restricts that concession to the amount which a natural person resident in the Netherlands could have offset under a convention for the prevention of double taxation concluded with that other Member State.

71.      By that question, the Hoge Raad seeks to ascertain whether the refusal by the Netherlands tax authority to take account of the tax paid by OESF in Germany and Portugal on dividends originating in those States is contrary to Articles 56 EC and 58 EC.

72.      The Hoge Raad explains that it is putting this question to the Court in the light of the fact that a fiscal investment enterprise which receives dividends from companies established in the Netherlands enjoys a full refund of the Netherlands tax on dividends deducted at source by those companies.

73.      OESF and the Commission of the European Communities submit, in the light of that statement, that the contested scheme unjustifiably affords different treatment to tax deducted at source in Germany and Portugal and to tax deducted at source in the Netherlands and that it is therefore contrary to Community law.

74.      OESF further submits that the scheme is also contrary to Articles 56 EC and 58 EC because, if it invests in any Member State other than Germany and Portugal, the fiscal investment enterprise receives a concession intended to prevent or mitigate the double taxation of the dividends.

75.      The Netherlands Government argues that the contested scheme complies with Community law. In its opinion, that scheme makes no distinction based on the origin of the dividends because the refund of the Netherlands tax is in reality an exemption, with the result that fiscal investment enterprises are taxed neither on national dividends nor on foreign dividends. Consequently, the double taxation of the dividends from Germany and Portugal follows in this case from the exercise by each of those Member States of its respective powers in matters of taxation and the situation in the present case is comparable to that in Kerckhaert and Morres.

76.      The Netherlands Government also explains that the fact that the tax deducted in Germany and Portugal does not give rise to a concession, unlike the tax deducted at source in other Member States such as Italy, is inherent in the content of the bilateral conventions concluded with those other States, with the result that, from that point of view, the situation in this case is comparable to that in the judgment in D.

77.      I share the opinion of the Netherlands Government with regard to the first part of its analysis. Unlike OESF and the Commission, I do not believe that the contested tax scheme must be considered contrary to Community law when the treatment afforded under that scheme to dividends from Germany and Portugal is compared with that afforded to dividends originating in the Netherlands.

78.      However, like OESF, I take the view that the scheme at issue is indeed contrary to Articles 56 EC and 58 EC in that it applies to dividends from Germany and Portugal treatment which is less favourable than that afforded to dividends originating in the other Member States. In my opinion, limiting the benefit of the concession provided for under that scheme to taxes deducted at source in Member States other than Germany and Portugal cannot be considered to be a difference in treatment which is inherent in the bilateral conventions concluded between the Kingdom of the Netherlands and the Member States, within the meaning of the judgment in D.

79.      I shall deal with each of those points in turn.

80.      It should be noted at the outset that, under the contested tax scheme, a fiscal investment enterprise is taxed on its profits at a zero rate and that its shareholders are taxed on the entirety of the profits distributed to them by that enterprise irrespective of their origin, that is to say, both dividends paid by companies established in the Netherlands and foreign-sourced dividends. The profits distributed to a fiscal investment enterprise by companies established in Germany and Portugal therefore form part of the profits taxed in the Netherlands on their distribution to the shareholders of that enterprise by means of deduction at source by the latter.

81.      It is also common ground that the Netherlands tax on dividends, which is deducted at source by companies established in the Netherlands, is refunded to the fiscal investment enterprise and that that enterprise receives from the Kingdom of the Netherlands a concession for taxes deducted at source in Member States other than Germany and Portugal.

82.      In those circumstances, it is more advantageous for a fiscal investment enterprise to invest in companies established in the Netherlands and in Member States other than Germany and Portugal than to invest in companies established in the latter two Member States. While dividends originating in the Netherlands are taxed only once at the level of the shareholders, and while dividends originating in Member States other than Germany and Portugal give rise to a concession in respect of the tax deducted at source, dividends from the latter two Member States still remain subject to double taxation.

83.      This difference in treatment may therefore deter fiscal investment enterprises from investing in Germany and Portugal and may form an obstacle impeding companies established in those two Member States from raising capital from such enterprises in the Netherlands.

84.      However, in accordance with the case-law, such restrictions are contrary to the provisions of Articles 56 EC and 58 EC only if they result from discrimination, whether overt or covert, that is to say, if they are attributable to a single tax scheme in a Member State which applies a different rule to comparable situations or the same rule to different situations.

85.      A comparison of the treatment afforded under the contested tax scheme to dividends originating in Germany and Portugal and that afforded to dividends originating in the Netherlands shows that, at the level of the fiscal investment enterprise, those dividends, whatever their origin, are not taxed under Netherlands law.

86.      Indeed, as the Netherlands Government states, refunding the Netherlands tax on dividends, levied in the form of a deduction at source by the distributing companies established in the Netherlands, is in reality tantamount to exempting the fiscal investment enterprise from that tax. Deduction at source by those companies is, after all, no more than a means of recovering the tax on dividends owed by the person receiving them. (28) In so far as a fiscal investment enterprise is taxed on its profits at a zero rate, it is logical that such deductions at source should be refunded to it. (29)

87.      Similarly, the dividends paid to such an enterprise by companies established in Germany and Portugal are not taxed at the level of the enterprise under Netherlands law. At this stage, Netherlands law does not therefore apply to dividends originating in Germany and Portugal treatment differing from that afforded to Netherlands dividends.

88.      Next, an examination of the contested tax scheme at the level of the shareholders of a fiscal investment enterprise indicates that they are taxed under Netherlands law on the entirety of the profits distributed by that enterprise, with no distinction being made on the basis of the origin of the dividends which it receives. At this stage too, the scheme does not contain different rules for dividends originating in Germany and Portugal and for those originating in the Netherlands.

89.      In the light of this analysis, the fact that dividends originating in Germany and Portugal are subject to a heavier tax burden than dividends originating in the Netherlands follows, not from a difference in treatment attributable to the tax scheme applicable in the Netherlands, but from the decision of the German and Portuguese Governments to tax OESF on the dividends paid to that enterprise by companies established in their respective territories.

90.      The situation in this case is therefore different, in my view, from that at issue in Manninen, which was referred to both by the Hoge Raad and by OESF and the Commission. In Manninen, the Finnish rules granted to persons primarily taxable in Finland a tax credit in respect of dividends paid by companies established in that Member State. The tax credit was intended to prevent the economic double taxation of those dividends. It involved setting off the tax payable in the form of corporation tax by the company distributing the dividends against that payable by the shareholder in the form of income tax.

91.      That tax credit differs in two ways from the refund system at issue in the present case.

92.      First, as has been seen, the purpose of the refund is not to take account of the corporation tax payable by companies established in the Netherlands but to exempt a fiscal investment enterprise from tax on dividends. Second, the legislation at issue in Manninen provided for different treatment in comparable situations in that the tax credit was reserved for dividends paid by national companies, while a Finnish shareholder was also taxed in Finland on dividends originating in other Member States and there was no provision in Finnish law to take account of the corporation tax paid by companies making distributions abroad.

93.      Likewise, the exemption which results from the scheme at issue here is different from that provided for by the Netherlands legislation at issue in Verkooijen, to which OESF and the Commission have also made reference. That legislation provided for an exemption from the income tax payable on dividends paid to natural persons who were shareholders on condition that the dividends were distributed by companies which had their seat in the Netherlands.

94.      In so far as those shareholders were taxed in the Netherlands on the totality of the dividends which they received, including those originating in other Member States, the limitation of the exemption to national dividends did indeed constitute a difference in treatment between national dividends and dividends originating in the other Member States.

95.      However, as I have indicated, the Netherlands tax scheme applicable to fiscal investment enterprises does not treat dividends originating in the Netherlands differently from those originating in Germany and Portugal.

96.      Consequently, the question in this case is whether the Kingdom of the Netherlands, in such a situation, was required by Community law to provide for a concession for tax deducted at source in Germany and Portugal by reason of the fact that dividends originating in the Netherlands were not subject to double taxation.

97.      I do not believe this is so because, in such a situation, Community law does not oblige either Germany and Portugal, on the one hand, or the Netherlands, on the other, to waive their respective powers of taxation. Like the Netherlands Government, I take the view that the situation in this case may be likened to that in Kerckhaert and Morres.

98.      As in Kerkhaert and Morres, the present case concerns a situation in which dividends originating in other Member States are treated identically by the contested national legislation and are subject to double taxation because of the exercise by those other States of their respective powers of taxation at source. In Kerkhaert and Morres, the Court held that the Treaty provisions on the free movement of capital do not preclude legislation of a Member State which, in the context of tax on income, makes dividends from shares in companies established in the territory of that State and dividends from shares in companies established in another Member State subject to the same uniform rate of taxation, without providing for the possibility of setting off tax levied by deduction at source in that other Member State.

99.      It appears to me that that response may be transposed to the case at issue here. The fact that the Kingdom of the Netherlands is both the State of residence of the taxpayer, if the contested scheme is examined at the level of the taxation of fiscal investment enterprises, and the source State of the dividends, if the scheme is examined at the level of the taxation of the shareholders in those enterprises, does not alter that analysis.

100. However, I do not share the view taken by the Netherlands Government when it comes to comparing the treatment, under the contested tax scheme, of dividends originating in Germany and Portugal with that of dividends originating in other Member States.

101. As I have previously indicated, the freedoms of movement preclude any legislation of a Member State which unjustifiably lays down a different rule for identical situations or lays down the same rule for different situations. As is clear from the judgment in Cadbury Schweppes and Cadbury Schweppes Overseas, (30) this prohibition of discriminatory measures is not only aimed at differences in treatment between a resident taxpayer who invests in his State of residence and a resident taxpayer who invests in another Member State. It also applies to national measures which provide for a regime that differentiates between Member States and which treat investments in one Member State less favourably than those in another Member State.

102. It is true that, in the judgment in D., it was held that Community law did not require the Netherlands to extend to D., a German national resident in Germany, the benefit of the bilateral convention concluded between the Kingdom of the Netherlands and the Kingdom of Belgium. D. was therefore not eligible for the allowance on the wealth tax payable in the Netherlands which a taxpayer resident in Belgium who was in the same situation would be granted under that bilateral convention.

103. In that case, the Court took the view that the difference in treatment thus applied as between D. and a taxable person resident in Belgium was not contrary to Community law because they were not in the same situation. The Court based that assessment on two findings: first, that taxable person, as a natural person resident in Belgium, was covered by the aforementioned convention and, second, the fact that the reciprocal rights and obligations provided for under that convention applied solely to persons resident in one of the two contracting Member States was an inherent consequence of bilateral double taxation conventions. It inferred from this that the provision of the Belgium-Netherlands convention entitling persons resident in Belgium to the allowance was not a benefit separable from the remainder of the convention, but was an integral part thereof and contributed to its overall balance. (31)

104. It follows that it is the need to preserve the balance and reciprocity of commitments entered into bilaterally which justifies limiting the scope of such conventions to the natural and legal persons covered by them. It is therefore that requirement which leads to the conclusion that the difference in treatment thus created between nationals of different Member States who, aside from the provisions of those conventions, are in the same situation is not discriminatory.

105. In so far as the rule established in D. thus appears to constitute an exception to the principle of non-discrimination, it must in my view be interpreted strictly. That is why I do not believe that that rule can be transposed to the present case.

106. After all, an examination of the situation of a fiscal investment enterprise which invests in Germany or Portugal and that of a fiscal investment enterprise which invests in another Member State such as Italy shows that neither the first enterprise nor the second is covered by a bilateral convention for the prevention of double taxation.

107. The fact that the enterprise investing in Italy benefits from a concession for the deduction at source on the dividends originating in that State does not therefore result from the automatic application of the bilateral convention concluded between the Kingdom of the Netherlands and the Italian Republic but from a unilateral decision of the Netherlands Government to extend the benefit of that convention to fiscal investment enterprises. It cannot therefore be said that the right of such enterprises to set off the tax deducted at source in a Member State which has concluded a bilateral convention with the Kingdom of the Netherlands forms an integral part of that convention and contributes to its overall balance. Extending entitlement to the concession to dividends originating in Germany and Portugal would not therefore jeopardise the balance and reciprocity of the commitments contained in the bilateral conventions concluded by the Kingdom of the Netherlands.

108. In these circumstances, I take the view that the Court must ensure compliance with the principle of non-discrimination, which forms the very basis of the internal market and which Member States must observe when exercising their powers in matters of taxation. In my opinion, as soon as the Netherlands legislature decided to grant fiscal investment enterprises a concession for deductions at source applied to dividends originating in certain Member States, when, as it itself indicates, it was not required to do so by the bilateral conventions concluded with those States, it could not exclude from that advantage dividends originating in other Member States such as Germany and Portugal.

109. I therefore propose that the Court’s reply to the first question, part (a), should be that Articles 56 EC and 58 EC must be interpreted as precluding legislation of a Member State, such as the Netherlands legislation at issue, which, in providing for the benefit of fiscal investment enterprises a concession intended to take account of tax levied at source by another Member State on the dividends paid to those enterprises, restricts that concession to the amount which a natural person resident in the territory of the Netherlands could have offset under a convention for the prevention of double taxation concluded with the other Member State.

b)      First question, part (b)

110. By its first question, part (b), the Hoge Raad asks in essence whether Articles 56 EC and 58 EC must be interpreted as precluding legislation of a Member State which, in providing for the benefit of fiscal investment enterprises a concession intended to take account of tax levied at source by another Member State on the dividends paid to those enterprises, restricts that concession where and to the extent to which the shareholders of the enterprise concerned are made up of natural persons not resident in the Netherlands or enterprises not subject to Netherlands corporation tax.

111. By this question, the Hoge Raad seeks to ascertain whether the reduction in the concession granted to OESF in proportion to the holdings in the capital of that enterprise by shareholders resident or established in Member States other than the Netherlands (Belgium, Germany, France, Luxembourg and the United Kingdom) and in non-member countries (the United States and Switzerland) is in accordance with the free movement of capital.

112. The Hoge Raad explains that it is putting this question to the Court in the light of the fact that a fiscal investment enterprise which invests in the Netherlands benefits from the refund of tax deducted at source on nationally-sourced dividends irrespective of the place of residence or establishment of its shareholders.

113. Unlike the Commission, I do not believe that the contested scheme is contrary to Community law in this respect. As we saw when examining the compatibility of the first limitation with Community law, the exemption of fiscal investment enterprises from the Netherlands tax on dividends did not oblige the Kingdom of the Netherlands to provide for a system for offsetting tax deducted at source on foreign dividends.

114. Consequently, the fact that a fiscal investment enterprise is subjected to a reduction in the concession intended to take account of deductions at source on dividends originating in other countries in line with the holdings of foreign shareholders in its capital is not contrary to Community law in view of the fact that that enterprise is exempt from the Netherlands tax on dividends irrespective of the place of residence or establishment of its shareholders.

115. However, I take the view that the contested limitation is contrary to Articles 56 EC and 58 EC from the point of view of its effects on movements of capital between a fiscal investment enterprise and its shareholders.

116. First, the limitation at issue restricts such movements of capital. Thus, a fiscal investment enterprise all of the shareholders of which are resident or established in the Netherlands and which invests abroad benefits from a concession for tax deducted at source up to the amount of the Netherlands tax which would be applicable to the foreign dividends. By contrast, a fiscal investment enterprise some of the shareholders of which are foreign has its concession reduced in line with the holdings of those shareholders in its capital.

117. It should be noted in this respect that, under the tax scheme at issue, the amount of profits distributed to shareholders is calculated with reference to the refund of tax deducted at source on dividends paid by companies established in the Netherlands and the concession granted for deductions at source made abroad on dividends originating in other States. The amount of profit to be distributed, as thus established, is then divided among the shareholders in the fiscal investment enterprise according to their respective holdings in the latter’s capital and those shareholders are taxed on those dividends in the Netherlands in the form of deduction at source by the enterprise.

118. It follows that limiting the concession for foreign tax according to the respective holdings of foreign shareholders in the capital of the enterprise concerned indiscriminately penalises all of the latter’s shareholders since it has the effect of reducing the total amount of profit available for distribution.

119. Such a limitation therefore constitutes an obstacle to the raising of capital by a fiscal investment enterprise in other Member States and in non-member countries and deters foreign investors from acquiring shares in that enterprise.

120. Second, contrary to the submissions of the Netherlands Government, those restrictions cannot be justified on the ground that shareholders resident or established abroad are not in the same situation as shareholders resident or established in the Netherlands. As the Hoge Raad points out, all the shareholders of a fiscal investment enterprise are taxed in the Netherlands on the dividends distributed by that enterprise, whatever their place of residence or establishment. It follows that a fiscal investment enterprise investing abroad, some of the shareholders of which are foreign, is, in this respect, in the same situation as a fiscal investment enterprise investing abroad and all of the shareholders of which are resident or established in the Netherlands.

121. As a consequence, and in accordance with the rule established in Test Claimants in Class IV of the ACT Group Litigation and Denkavit Internationaal and Denkavit France, as soon as the Kingdom of the Netherlands decided to grant fiscal investment enterprises a concession for tax deducted abroad and to tax the shareholders of those enterprises irrespective of their place of residence or establishment, it had to extend the benefit of that concession to fiscal investment enterprises some of the shareholders of which are non-resident. (32)

122. I therefore propose that the Court’s answer to the first question, part (b), should be that Articles 56 EC and 58 EC must be interpreted as precluding legislation of a Member State, such as the Netherlands legislation at issue, which, in providing for the benefit of fiscal investment enterprises a concession intended to take account of tax levied at source by another Member State on dividends paid to those enterprises, restricts that concession where and to the extent to which the shareholders of the enterprise concerned are made up of natural persons not resident in the Netherlands or enterprises not subject to Netherlands corporation tax.

3.      The second set of questions referred

123. The Hoge Raad explains that it is faced with two issues to be resolved.

124. First, it seeks to ascertain whether it is appropriate to make a distinction between dividends originating in a Member State of the Community or of the European Economic Area (EEA) and dividends originating in a non-member country. It states that it is faced with this question because, during the financial year in question, OESF received dividends from a company established in Switzerland.

125. Second, the Hoge Raad raises the question whether the prohibition laid down in Article 56 EC has the same scope with respect to movements of capital from and to non-member countries as it does within the European Union and the EEA. It seeks clarification in this regard as to whether that article requires a Member State to waive an advantage within the context of movements of capital with a non-member country when that country is by definition not bound by the Treaty and does not therefore have an obligation to make a similar concession. Because of that lack of reciprocity, the issue is therefore whether restrictions might be justified on grounds which would not be acceptable in an intra-Community context.

126. It is in the light of those considerations that the Hoge Raad asks, by its second question, part (b), whether Article 56 EC has the same scope with respect to movements of capital to and from non-member countries as within the intra-Community context, and then, by its second question, part (c), whether, if the answer to the preceding question is in the negative, Article 56 EC precludes the first limitation in so far as the latter is intended to take account of deductions at source made in a non-member country, when that limitation is based on the fact that some of the shareholders of the enterprise concerned are foreign.

127. By its second question, part (a), the Hoge Raad asks whether ‘direct investment’ within the meaning of Article 57(1) EC, which permits Member States to maintain such restrictions on the movement of capital to or from non-member countries involving direct investment as existed on 31 December 1993, includes the holding of a block of shares in a company which does not place the holder in a position to exercise a decisive influence over the management or control of the company.

128. Finally, by its third question, parts (b) and (c), it asks the Court whether the fact that foreign shareholders of the fiscal investment enterprise in question are resident or established in another Member State or in a country with which the Member State in which the enterprise is established has concluded a convention making provision for the reciprocal offsetting of deductions at source on dividends affects the answers given to the preceding questions.

129. I shall first examine the second question, part (b), in so far as it refers to OESF’s investments in a non-member country, and the second question, parts (c) and (a), which relates solely to those investments. I shall then analyse the second question, part (b), in so far as it takes account of the fact that some of OESF’s shareholders are resident or established in a non-member country, and the third question, parts (b) and (c), which relates to that situation.

130. The Hoge Raad puts the second question, parts (a) to (c), to the Court in light of the fact that OESF received dividends from a company established in Switzerland. I take the view that that question is inadmissible because it is not necessary for the resolution of the dispute in the main proceedings. It is clear from the information provided by the Hoge Raad that the deductions at source made by Switzerland on the dividends paid to OESF originating in that country were taken into account in the calculation of the concession. It also follows from that information that the only deductions at source which were not taken into account were made in Member States, namely Germany and Portugal.

131. In accordance with the case-law, (33) I am therefore of the opinion that there is no need to reply to the second question, part (b), in that it relates to OESF’s investments in Switzerland, or the second question, parts (c) and (a), which refers specifically to those investments.

132. I shall now examine the second question, part (b), in so far as it refers to the participation in the capital of OESF of shareholders resident or established in non-member countries, and the third question, parts (b) and (c).

133. In the light of the grounds on which the Hoge Raad raises these questions, I propose that the Court should examine them together and take them to mean that the Hoge Raad is asking whether the limitations at issue can be justified by the fact that some of the shareholders of the fiscal investment enterprise concerned are not resident or established in another Member State or in a non-member country with which the Member State in which that enterprise is established has concluded a convention making provision for the reciprocal offsetting of deductions at source on dividends.

134. Admittedly, as I pointed out earlier, the Court has accepted that a restriction on movements of capital to or from non-member countries may be justified on a particular ground in circumstances in which that ground would not be such as to constitute a valid justification for a restriction on movements of capital between Member States.

135. The Court has given some indications as to which grounds may be relied on. Those grounds follow from the fact that a non-member country is not bound by Community law, in particular by the full range of obligations relations to cooperation in the provision of information and assistance with recovery. The Netherlands Government submits that those grounds may also be derived from the lack of reciprocity in compliance with the obligations in Article 56 EC.

136. In any event, I do not believe that, in the circumstances of the present case, the contested limitations can be justified on grounds relating to movements of capital with non-member countries. As I explained earlier, the contested limitations have the effect of reducing the total amount of profit available for distribution among all shareholders, irrespective of their place of residence or establishment, and thus penalise them without distinction. Moreover, it follows from the information provided by the Hoge Raad that some of the foreign shareholders of OESF were resident or established in other Member States during the relevant financial year.

137. Consequently, assuming that the contested limitations could have been justified on grounds relating to movements of capital to and from non-member countries if all the shareholders of the fiscal investment enterprise concerned had been resident or established in a non-member country, such a justification cannot be taken into account in this case.

138. I shall therefore propose that the answer to the second question, part (b), and the third question, parts (b) and (c), should be that the limitations at issue cannot be justified by the fact that some of the shareholders of the fiscal investment enterprise concerned are not resident or established in another Member State or in a non-member country with which the Member State in which that enterprise is established has concluded a convention making provision for the reciprocal offsetting of deductions at source on dividends.

4.      Third question, part (a)

139. By its third question, part (a), the Hoge Raad asks whether the fact that the tax deducted in another country on dividends paid from that country is higher than the tax levied on dividends distributed to foreign shareholders in the Member State in which the fiscal investment enterprise is established affects the answers to the preceding questions.

140. The Hoge Raad puts this question to the Court because the rate at which deductions at source were made in Portugal on dividends paid to OESF from that Member State was 17.5%, while the rate of deductions at source made in the Netherlands on dividends distributed to OESF shareholders was 15%.

141. I am of the opinion that this fact has no bearing on the answers which I have proposed should be given to the first set of questions referred.

142. As regards the first limitation, the concession granted by the Kingdom of the Netherlands for deductions at source made in a Member State other than Germany and Portugal is not dependent on the rate of those deductions. Deductions at source made in Portugal must therefore be afforded equivalent treatment and create an entitlement to a concession, irrespective of the fact that the rate of those deductions is higher than that of the Netherlands tax on dividends distributed to shareholders. (34)

143. The same reasoning applies to the second limitation. The concession for deductions at source made in another Member State which is granted to a fiscal investment enterprise all of the shareholders of which are resident or established in the Netherlands is likewise not dependent on the rate of that deduction at source. A fiscal investment enterprise all or part of the capital of which is held by foreign shareholders must therefore benefit from that concession irrespective of the rate of the deduction at source in the Member State in which the dividends originate.

144. I therefore propose that the answer to the third question, part (a), should be that the fact that the tax deducted in another Member State on dividends paid from that State is higher than the tax levied on dividends distributed to foreign shareholders in the Member State in which the fiscal investment enterprise is established has no bearing on the answers to the preceding questions.

V –  Conclusion

145. In the light of the foregoing considerations, I propose that the questions referred by the Hoge Raad der Nederlanden should be answered as follows:

(1)      Articles 56 EC and 58 EC must be interpreted as precluding legislation of a Member State, such as the Netherlands legislation at issue, which, in providing for the benefit of fiscal investment enterprises a concession intended to take account of taxation at source deducted by another Member State from dividends paid to those enterprises, restricts that concession, first, to the amount which a natural person resident in Netherlands territory could have offset under a convention for the prevention of double taxation concluded with the other Member State, and, second, where and to the extent to which the shareholders of the enterprise concerned are made up of natural persons not resident in the Netherlands or enterprises not subject to Netherlands corporation tax.

(2)      Those restrictions on movements of capital cannot be justified by the fact that some of the shareholders of the fiscal investment enterprise concerned are not resident or established in another Member State or in a non-member country with which the Member State in which that enterprise is established has concluded a convention making provision for the reciprocal offsetting of deductions at source on dividends.

(3)      The fact that the tax deducted in another Member State on dividends paid from that State is higher than the tax levied on dividends distributed to foreign shareholders in the Member State in which the fiscal investment enterprise is established has no bearing on the answers to the preceding questions.

1 – Original language: French.

2 – According to the referring court, the other conditions laid down are not relevant to the case at issue.

3 – Hereinafter ‘OESF’.

4 – Case C-292/04 Meilicke and Others [2007] ECR I-1835, paragraph 19 and the case-law cited there.

5 – As regards companies or firms within the meaning of Article 48 EC, it is their seat that serves as the connecting factor with the legal system of a particular State, in the same way as nationality in the case of natural persons (Case C-330/91 Commerzbank [1993] ECR I-4017, paragraph 13).

6 – Case C-279/93 Schumacker [1995] ECR I-225, paragraph 31.

7 – See, as regards natural persons, Schumacker, paragraphs 28 and 29, and, with respect to legal persons, Commerzbank, paragraph 15.

8 – Case C-319/02 Manninen [2004] ECR I-7477, paragraph 29.

9 – Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, p. 6). See also Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments (OJ 2003 L 157, p. 38) and Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (OJ 2003 L 157, p. 49).

10 – Directive 90/435, in the version in force during the financial year in question, was applicable to companies which had a minimum holding of 25% in the capital of a company of another Member State. Moreover, pursuant to its Article 2, that directive covers only companies which are subject to corporation tax without being exempt from it, and we know that financial investment enterprises, although liable to corporation tax, are taxed at a zero rate.

11 – Convention of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (OJ 1990 L 225, p. 10).

12 – See, on this point, Case C-513/04 Kerckhaert and Morres [2006] ECR I-10967, concerning Belgian legislation which, in the context of income tax, subjects dividends from shares in companies established in Belgium and dividends from shares in companies established in another Member State to the same uniform rate of taxation, without providing for the possibility of setting off the tax levied by deduction at source in that other Member State. The Court ruled that the tax system at issue made no distinction between the dividends of companies established in Belgium and those of companies established in another Member State. It held that the adverse consequences which might arise from the application of such a system for a taxpayer receiving dividends which had been subjected to deduction at source in another Member State resulted solely from the exercise in parallel by two Member States of their fiscal sovereignty (paragraph 20).

13 – Case C-307/97 Saint-Gobain ZN [1999] ECR I-6161, paragraphs 57 and 58.

14 – See, with regard to the grant of an exemption from the income tax payable on dividends distributed to natural persons who are shareholders, Case C-35/98 Verkooijen [2000] ECR I-4071; with regard to the application of a discharge rate of tax or a rate reduced by half, see Case C-315/02 Lenz [2004] ECR I-7063; with regard to the grant of a tax credit, Manninen and Meilicke and Others; and, with regard to an exemption from corporation tax on nationally-sourced dividends, where dividends of foreign origin were liable to that tax and conferred an entitlement to relief only as regards any withholding tax charged in the State in which the company making the distribution was resident, Case C-446/04 Test Claimants in the FII Group Litigation [2006] ECR I-11753, paragraphs 61 to 71.

15 – Test Claimants in the FII Group Litigation, paragraph 62. The same requirement does not necessarily apply to dividends paid by companies established in non-member countries. In that judgment, the Court accepted that it cannot be ruled out that a Member State may be able to demonstrate that a restriction on capital movements to or from non-member countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States. This may be the case, in particular, in a situation involving verification of the tax paid by distributing companies established in non-member countries since the Community legislation aimed at ensuring cooperation between national tax authorities, such as Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15), is not applicable and thus it may be more difficult to determine the tax paid by those companies in the State in which they are resident than it would be in a purely Community context (paragraphs 169 to 171).

16 – See, as regards the legislation of a Member State providing for a system of tax credits in respect of dividends paid by a resident company to its resident shareholders and to non-resident shareholders where this is provided for by a convention for the prevention of double taxation, Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I-11673, and, as regards national legislation taxing dividends paid by resident subsidiaries to parent companies established in another Member State and almost fully exempting dividends paid to resident parent companies, Case C-170/05 Denkavit Internationaal and Denkavit France [2006] ECR I-11949.

17 – Test Claimants in Class IV of the ACT Group Litigation, paragraph 70.

18 – Case 270/83 Commission v France [1986] ECR 273, paragraph 26.

19 – Idem.

20 – Denkavit Internationaal and Denkavit France, paragraph 45 and the case-law cited.

21 – Ibidem, paragraph 47.

22 – Test Claimants in Class IV of the ACT Group Litigation, paragraph 71.

23 – Saint-Gobain ZN, paragraph 59. In that judgment, the Court held that the permanent establishment of a non-resident company must, like resident companies, benefit from the exemption from corporation tax for dividends received from companies established in a non-member country, provided for by a tax convention concluded with that non-member country.

24 – Case C-376/03 D. [2005] ECR I-5821. In that case, D., a German national resident in Germany, who held 10% of his wealth in the Netherlands and was liable to wealth tax in that Member State by virtue of the assets he held there, had applied for the allowance provided under Netherlands law for resident taxpayers. The Court held that that wealth tax could be treated in the same way as income tax in that it was established on the basis of the taxpayer’s capacity to pay. It inferred from this that a non-resident taxpayer who held only a small portion of his wealth in the Netherlands was not in the same situation as a resident taxpayer, with the result that he was not eligible for the allowance at issue. The next question was whether D. was the subject of discrimination on the ground that a taxpayer resident in Belgium in a situation similar to his own was eligible for the disputed allowance by virtue of the convention concluded between the Kingdom of the Netherlands and the Kingdom of Belgium. The Court held that such a difference in treatment was not contrary to Community law. See also, to the same effect, Test Claimants in Class IV of the ACT Group Litigation, with regard to the difference in circumstances resulting from the fact that only some of the bilateral conventions concluded between Member States and other States provided for a tax credit for residents of the contracting States.

25 – Verkooijen, paragraphs 28 to 30.

26 – Case C-157/05 Holböck [2007] ECR I-4051, paragraph 24 and the case-law cited.

27 – See, to that effect, Test Claimants in the FII Group Litigation, paragraph 38.

28 – The purpose of this system of deduction at source, according to the explanations provided by the Netherlands Government, is to collect in advance the income tax or corporation tax payable on dividends in order to avoid any concealment on the part of shareholders.

29 – The Netherlands Government explained in its written observations that its legislation initially provided for an exemption from the tax on dividends but that that exemption had had to be replaced by the contested scheme because of the administrative constraints which it imposed on the fiscal investment enterprises in terms of justifying their situation to the companies making a distribution prior to each dividend payment.

30 – Case C-196/04 [2006] ECR I-7995, paragraphs 43 to 46.

31 – D., paragraphs 59 to 62. The Court adopted the same analysis in Test Claimants in Class IV of the ACT Group Litigation with regard to the difference in treatment applied to companies not resident in the United Kingdom because some of the conventions concluded by that Member State with other Member States provided for a tax credit for companies resident in those Member States, while others did not (paragraphs 84 to 91).

32 – Denkavit Internationaal and Denkavit France, paragraph 37 and the case-law cited there.

33 – See, in particular, Lenz, paragraph 52, and Case C-152/03 Ritter-Coulais [2006] ECR I-1711, paragraph 15 and the case-law cited there.

34 – It should be pointed out in this regard that, contrary to the submissions of OESF at the hearing, the Netherlands Government is not obliged to refund to it the total amount of tax paid in Portugal if the contested tax scheme, as I have understood it, limits the concession intended to take account of tax deducted at source on dividends from abroad to the amount of the Netherlands tax which would be payable on those dividends. Deductions at source made in Portugal must create an entitlement to a concession under the same conditions as deductions made in the other Member States.