Staatssecretaris van Financiën contra B.G.M. Verkooijen.

• Jurisdiction: European Union
• Celex Number: 61998CC0035
• ECLI: ECLI:EU:C:1999:329
• Docket Number: C-35/98
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Date: 24 June 1999

61998C0035

Opinion of Mr Advocate General La Pergola delivered on 24 June 1999. - Staatssecretaris van Financiën v B.G.M. Verkooijen. - Reference for a preliminary ruling: Hoge Raad - Netherlands. - Free movement of capital - Direct taxation of share dividends - Exemption - Limitation to shares in companies whose seat is within national territory. - Case C-35/98.

European Court reports 2000 Page I-04071

Opinion of the Advocate-General

I - Subject-matter of the questions referred for a preliminary ruling

1 The three questions referred to the Court for a preliminary ruling in the present case concern the interpretation of Directive 88/361/EEC (1) and of Articles 6 and 52 of the EC Treaty (now, after amendment by the Treaty of Amsterdam, Articles 12 EC and 43 EC respectively). In particular, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands; hereinafter `the Hoge Raad') is asking the Court to determine whether a tax provision making the grant of an exemption (up to a certain amount) from income tax to natural persons in respect of dividends distributed to shareholders subject to the condition that those dividends are paid by a company whose seat is in the Member State where the taxpayer is resident is compatible with the rules guaranteeing free movement of capital, non-discrimination on the ground of nationality and freedom of establishment. The questions referred by the national court are the following:

(1) Is Article 1(1) of Directive 88/361/EEC in conjunction with Heading I(2) in Annex I to that directive to be interpreted as meaning that a restriction arising from a provision of the income tax legislation of a Member State which exempts shareholders, up to a certain amount, from liability to income tax on dividends, but restricts that exemption to dividends paid in respect of shares in companies established in that Member State, has been prohibited since 1 July 1990 pursuant to Article 6(1) of that directive?

(2) If the answer to Question 1 is in the negative, are Articles 6 and/or 52 of the EC Treaty to be interpreted as meaning that a restriction of the kind referred to in that question is incompatible with one or both of those articles?

(3) Do the answers to the questions set out above differ depending on whether the person seeking the benefit of such an exemption is an ordinary shareholder or an employee (of a subsidiary company) who holds the shares in question in the context of an employees' savings plan (`werknemersspaarplan')?

II - The relevant Community legislation

2 Article 1(1) of the Directive provides that: `[w]ithout prejudice to the following provisions, Member States shall abolish restrictions on movements of capital taking place between persons resident in Member States. To facilitate application of this directive, capital movements shall be classified in accordance with the Nomenclature in Annex I'. (2) Heading I(2) of Annex I, entitled `Nomenclature of the capital movements referred to in Article 1 of the directive' (hereinafter `the Nomenclature'), specifies, amongst `direct investments', `participation in new or existing undertakings with a view to establishing or maintaining lasting economic links'. Pursuant to Article 6(1), the Directive entered into force on 1 July 1990. Lastly, I would recall that Article 6 of the Treaty lays down a general prohibition on discrimination on grounds of nationality, whereas Article 52 of the Treaty, in conjunction with Article 58 of the EC Treaty (now Article 48 EC) guarantees freedom of establishment for companies or firms, ensuring them the benefit of `national treatment', in other words the application by the host Member State of the legislation in force for its own nationals.

II - The national legislative framework

3 It appears from the case file that under Article 47b of the Wet op de Inkomstenbelasting 1964 (`the Income Tax Law') (3) natural persons are exempted, up to a specified amount, from income tax on dividends in respect of shares. (4) Article 47b(1) provides that: `[t]he dividend exemption shall apply to income from shares in companies treated as income for the purpose of determining aggregate income from which a deduction for dividend tax has been made ...'. (5) Pursuant to Article 1(1) of the Wet op de Dividendbeslasting 1965 (6) (`the Dividend Tax Law'), the tax is charged, by deduction at source, only on dividends distributed by companies established in the Netherlands. Accordingly, the exemption provided for under Article 47b applies only to dividends distributed by companies established in the Netherlands. There is no indication whatsoever in the case file that the sum paid by way of dividend tax is deductible when income tax is assessed. The provision at issue does not distinguish between ordinary shareholders and shareholders who are employees of the company and acquired the shares in respect of which the dividend is paid in the context of an employees' savings plan.

4 It appears from the preparatory work for the introduction of Article 47b into the Netherlands legal system that that article was part of a series of measures which were `intended to raise the level of undertakings' equity capital and to stimulate interest on the part of private individuals in Netherlands shares'. (7) A second justification came to light only at the last stage of the preparatory work, when the draft legislation was before the first chamber of Parliament (Eerste Kamer): the `compensating' effect of the dividend exemption in respect of what essentially constitutes double taxation was also taken into consideration. As I have just pointed out, the Netherlands tax system provides for both a withholding tax on dividends and a tax on the income of natural persons in receipt of those dividends. (8)

IV - The facts and the main proceedings

5 In 1991, Mr Verkooijen resided in the Netherlands where he was employed by Fina Nederland BV, a Netherlands company indirectly controlled by Petrofina NV (hereinafter `Petrofina'), a public limited liability company established in Belgium and quoted on the Brussels and Antwerp stock exchanges. Mr Verkooijen acquired shares in the Petrofina group in the context of a company savings plan open to all employees of that group. In 1991, those shares yielded dividends in the sum of approximately NLG 2 337. (9) It appears from the case file that those dividends were subject in Belgium to a deduction at source, but that no taxes were levied in the Netherlands other than, as we will see below, that assessed against Mr Verkooijen himself. Mr Verkooijen had included the dividends in question in his statement of income for the 1991 tax year. In assessing Mr Verkooijen's income tax, the tax office assessed his taxable income without applying the exemption under Article 47b in respect of the dividends paid by Petrofina. The tax authorities considered that Mr Verkooijen was not entitled to the benefit of that exemption inasmuch as it relates only to share dividends in respect of which the (Netherlands) dividend tax has already been levied. In substance, instead of assessing Mr Verkooijen on the basis of a taxable income of NLG 164 697, the tax authorities raised that amount to NLG 166 697. (10)

6 After unsuccessfully objecting to the assessment, Mr Verkooijen challenged before the Gerechtshof te 's-Gravenhage the tax authorities' decision confirming that assessment. By judgment of 10 April 1996, the Gerechtshof found in favour of Mr Verkooijen, reducing his taxable income by the sum of NLG 2 000 on the ground that the Netherlands tax legislation restricted the movement of capital and freedom of establishment. The Staatssecretaris van Financiën (11) applied for review of the judgment of the Gerechtshof to the Hoge Raad which referred the abovementioned questions to the Court for a preliminary ruling. I shall examine the substance of those questions by reference to the national legal framework outlined above. Where necessary, I will set out the arguments put forward in these proceedings by the defendant and by the governments of the Member States which have submitted observations in this case.

V - The substance

A - Question 1

7 By its first question, the national court is essentially asking whether a national provision which partially exempts natural persons from income tax on share dividends provided the dividends are paid in respect of a company established in the Member State concerned is compatible with the Directive.

(1) The Community legal order and direct taxation

8 Contrary to the position adopted by Mr Verkooijen, the United Kingdom Government and the Commission, the Italian Government submits by way of introduction that the provision in question does not restrict free movement of capital since direct taxation has not been harmonised at Community level: therefore, each Member State is free to determine its own arrangements for taxing income. I cannot share that view. The Court has consistently held that `although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with Community law'. (12)

9 Following essentially the same argument as the Italian Government, the Netherlands Government points out that, in 1975, the Commission had submitted a proposal for a Council directive concerning the harmonisation of systems of company taxation and of withholding taxes on dividends, (13) only to withdraw it in 1990. (14) The Commission justified the withdrawal of that proposal on the ground that the measures it proposed were outdated both in terms of general concept (15) and of specific detail. (16) Unlike the Netherlands Government, I believe that the very existence of that proposal and the concerns reiterated by the Commission when it was withdrawn in 1990 show the significance at Community level of the effects of direct taxation of the movement of capital. It is not by chance that...