Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue.

JurisdictionEuropean Union
CourtCourt of Justice (European Union)
Date12 December 2006

Case C-446/04

Test Claimants in the FII Group Litigation

v

Commissioners of Inland Revenue

(Reference for a preliminary ruling from the High Court of Justice of England and Wales, Chancery Division

(Freedom of establishment – Free movement of capital – Directive 90/435/EEC – Corporation tax – Payment of dividends – Prevention or mitigation of a series of charges to tax – Exemption – Dividends received from companies resident in another Member State or a non‑member country – Tax credit – Advance corporation tax – Equal treatment – Claim for repayment or claim for damages)

Summary of the Judgment

1. Freedom of movement for persons – Freedom of establishment – Free movement of capital – Tax legislation

(Arts 43 EC and 56 EC)

2. Freedom of movement for persons – Freedom of establishment – Free movement of capital – Tax legislation

(Arts 43 EC and 56 EC)

3. Free movement of capital – Restrictions – Tax legislation

(Art. 56 EC)

4. Freedom of movement for persons – Freedom of establishment – Free movement of capital – Tax legislation

(Arts 43 EC and 56 EC)

5. Freedom of movement for persons – Freedom of establishment – Free movement of capital – Tax legislation

(Arts 43 EC and 56 EC)

6. Freedom of movement for persons – Freedom of establishment – Tax legislation

(Art. 43 EC)

7. Freedom of movement for persons – Freedom of establishment – Free movement of capital – Tax legislation

(Arts 43 EC and 56 EC)

8. Free movement of capital – Restriction on capital movements to or from non-member countries

(Arts 56 EC and 57(1) EC)

9. Community law – Rights conferred on individuals – Infringement by a Member State – Obligation to make good damage caused to individuals

10. Community law – Rights conferred on individuals – Infringement by a Member State – Obligation to make good damage caused to individuals

1. Articles 43 EC and 56 EC must be interpreted as meaning that, where a Member State has a system for preventing or mitigating the imposition of a series of charges to tax or economic double taxation as regards dividends paid to residents by resident companies, it must treat dividends paid to residents by non-resident companies in the same way.

(see para. 72, operative part 1)

2. Articles 43 EC and 56 EC do not preclude legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, when that State imposes corporation tax on dividends which a resident company receives from a non-resident company in which the resident company holds at least 10% of the voting rights, while at the same time granting a tax credit in the latter case for the tax actually paid by the company making the distribution in the Member State in which it is resident, provided that the rate of tax applied to foreign-sourced dividends is no higher than the rate of tax applied to nationally-sourced dividends and that the tax credit is at least equal to the amount paid in the Member State of the company making the distribution, up to the limit of the amount of the tax charged in the Member State of the company receiving the distribution.

The mere fact that, compared with an exemption system, an imputation system imposes additional administrative burdens on taxpayers, with evidence being required as to the amount of tax actually paid in the State in which the company making the distribution is resident, cannot be regarded as a difference in treatment which is contrary to freedom of establishment or free movement of capital, since particular administrative burdens imposed on resident companies receiving foreign-sourced dividends are an intrinsic part of the operation of a tax credit system.

(see paras 53, 60, 73, operative part 1)

3. Article 56 EC precludes legislation of a Member State which exempts from corporation tax dividends which a resident company receives from another resident company, where that State levies corporation tax on dividends which a resident company receives from a non-resident company in which it holds less than 10% of the voting rights, without granting the company receiving the dividends a tax credit for the tax actually paid by the company making the distribution in the State in which the latter is resident.

Such a difference in treatment constitutes a restriction on free movement of capital in that it has the effect of discouraging companies resident in the Member State concerned from investing their capital in companies established in another Member State. In addition, it also has a restrictive effect as regards companies established in other Member States in that it constitutes an obstacle to their raising of capital in the Member State concerned.

Irrespective of the fact that a Member State may, in any event, choose between a number of systems in order to prevent or mitigate the imposition of a series of charges to tax on distributed profits, the difficulties that may arise in determining the tax actually paid in another Member State cannot justify a restriction on the free movement of capital such as that which arises under the legislation at issue.

(see paras 64-65, 70, 74, operative part 1)

4. Articles 43 EC and 56 EC preclude legislation of a Member State which allows a resident company receiving dividends from another resident company to deduct from the amount which the former company is liable to pay by way of advance corporation tax the amount of that tax paid by the latter company, whereas no such deduction is permitted in the case of a resident company receiving dividends from a non‑resident company as regards the corresponding tax on distributed profits paid by the latter company in the State in which it is resident.

That system leads, in practice, to a company receiving foreign-sourced dividends being less favourably treated than a company receiving nationally‑sourced dividends. On a subsequent payment of dividends, the former is obliged to account for advance corporation tax in full, whereas the latter has to pay the tax only to the extent to which the distribution paid to its own shareholders exceeds that which the company has itself received.

The fact of not having to pay advance corporation tax represents a cash‑flow advantage, in so far as the company concerned may retain the sums which it would otherwise have had to pay by way of advance corporation tax until corporation tax is payable.

Nor can such a difference in treatment be justified by the need to preserve the cohesion of the tax system in place in the Member State concerned on the basis of a direct link between the tax advantage made available, namely the tax credit granted to a resident company receiving dividends from another resident company, and the corresponding tax liability, namely the advance corporation tax paid by the latter when it makes the distribution. The need for such a direct link must in fact lead to the same tax advantage being granted to companies receiving dividends from non‑resident companies, since those companies are also obliged to pay corporation tax on distributed profits in the State in which they are resident.

(see paras 84, 86, 93, 112, operative part 2)

5. Articles 43 EC and 56 EC do not preclude legislation of a Member State which provides that any relief for tax paid abroad made available to a resident company which has received foreign‑sourced dividends is to reduce the amount of corporation tax against which that company may offset advance corporation tax when a subsequent distribution of dividends is made to its own shareholders.

The fact that a company receiving foreign‑sourced dividends which is entitled to relief for foreign tax has to suffer a reduction as regards the amount of corporation tax against which surplus advance corporation tax may be offset will give rise to discrimination as between such a company and a company receiving nationally-sourced dividends only where the former company does not, in fact, have the same ability as the latter to offset the surplus advance corporation tax against the amount of corporation tax for which it is liable.

(see paras 120, 125, 138, operative part 3)

6. Article 43 EC precludes legislation of a Member State which allows a resident company to surrender to resident subsidiaries the amount of advance corporation tax paid which cannot be offset against the liability of that company to corporation tax for the current accounting period or previous or subsequent accounting periods, so that those subsidiaries may offset it against their liability to corporation tax, but does not allow a resident company to surrender such an amount to non-resident subsidiaries where the latter are taxable in that Member State on the profits which they made there.

(see para. 139, operative part 3)

7. Articles 43 EC and 56 EC preclude legislation of a Member State which, while exempting from advance corporation tax resident companies paying dividends to their shareholders which have their origin in nationally-sourced dividends received by them, allows resident companies distributing dividends to their shareholders which have their origin in foreign-sourced dividends received by them to elect to be taxed under a regime which permits them to recover the advance corporation tax paid but, first, obliges those companies to pay that advance corporation tax and subsequently to claim repayment and, secondly, does not provide a tax credit for their shareholders, whereas those shareholders would have received such a tax credit in the case of a distribution made by a resident company which had its origin in nationally-sourced dividends.

While it is true that a Member State must be allowed some time to take into account, in determining the amount ultimately due by way of corporation tax, all of the taxes already levied on the profits distributed, this cannot justify legislation which refuses completely to allow a resident...

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37 practice notes
  • Cargill Deutschland GmbH v Hauptzollamt Krefeld.
    • European Union
    • Court of Justice (European Union)
    • 19 December 2019
    ...tal como han sido interpretadas por aquel (sentencias de 12 de diciembre de 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, apartado 202; de 19 de julio de 2012, Littlewoods Retail y otros, C‑591/10, EU:C:2012:478, apartado 24, y de 25 de julio de 2018, Messer Fra......
  • Opinion of Advocate General Kokott delivered on 1 March 2018.
    • European Union
    • Court of Justice (European Union)
    • 1 March 2018
    ...2017, AFEPand Others (C‑365/16, EU:C:2017:378, paragraph 22); of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraph 7 Judgment of 17 May 2017, AFEP and Others (C‑365/16, EU:C:2017:378, paragraph 24). 8 Judgment of 7 September 2017, Eqiom and Enk......
  • Opinion of Advocate General Kokott delivered on 5 May 2022.
    • European Union
    • Court of Justice (European Union)
    • 5 May 2022
    ...du pêcheur e Factortame (C‑46/93 e C‑48/93, EU:C:1996:79, punto 57), del 12 dicembre 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, punto 214), del 30 maggio 2017, Safa Nicu Sepahan/Consiglio (C‑45/15 P, EU:C:2017:402, punto 31), e del 18 gennaio 2022, Thelen Tec......
  • Opinion of Advocate General Kokott delivered on 10 January 2019.
    • European Union
    • Court of Justice (European Union)
    • 10 January 2019
    ...2006, Keller Holding (C‑471/04, EU:C:2006:143, paragraph 45); of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraph 46); of 29 February 1984, REWE-Zentrale (37/83, EU:C:1984:89, paragraph 18); and of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:......
  • Request a trial to view additional results
35 cases
  • Cargill Deutschland GmbH v Hauptzollamt Krefeld.
    • European Union
    • Court of Justice (European Union)
    • 19 December 2019
    ...tal como han sido interpretadas por aquel (sentencias de 12 de diciembre de 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, apartado 202; de 19 de julio de 2012, Littlewoods Retail y otros, C‑591/10, EU:C:2012:478, apartado 24, y de 25 de julio de 2018, Messer Fra......
  • Opinion of Advocate General Kokott delivered on 1 March 2018.
    • European Union
    • Court of Justice (European Union)
    • 1 March 2018
    ...2017, AFEPand Others (C‑365/16, EU:C:2017:378, paragraph 22); of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraph 7 Judgment of 17 May 2017, AFEP and Others (C‑365/16, EU:C:2017:378, paragraph 24). 8 Judgment of 7 September 2017, Eqiom and Enk......
  • Opinion of Advocate General Kokott delivered on 5 May 2022.
    • European Union
    • Court of Justice (European Union)
    • 5 May 2022
    ...du pêcheur e Factortame (C‑46/93 e C‑48/93, EU:C:1996:79, punto 57), del 12 dicembre 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, punto 214), del 30 maggio 2017, Safa Nicu Sepahan/Consiglio (C‑45/15 P, EU:C:2017:402, punto 31), e del 18 gennaio 2022, Thelen Tec......
  • Opinion of Advocate General Kokott delivered on 10 January 2019.
    • European Union
    • Court of Justice (European Union)
    • 10 January 2019
    ...2006, Keller Holding (C‑471/04, EU:C:2006:143, paragraph 45); of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraph 46); of 29 February 1984, REWE-Zentrale (37/83, EU:C:1984:89, paragraph 18); and of 26 October 2010, Schmelz (C‑97/09, EU:C:2010:......
  • Request a trial to view additional results
2 books & journal articles
  • El reconocimiento mutuo y el derecho primario del mercado interior
    • European Union
    • El reconocimiento mutuo en el derecho Español y Europeo Parte I. Reconocimiento mutuo, mercado y administración
    • 5 May 2018
    ...104 STJUE de 13 de diciembre de 2005, as. C-446/03, Marks & Spencer , ECLI:EU:C:2005:763. 105 SSTJUE de 12 de diciembre de 2006, as. C-446/04, FII Group Litigation , ECLI:EU:C:2006:774, y de 12 de diciembre de 2006, as. C-374/04, ACT Group Litigation , ECLI:EU:C:2006:773. 32 DOLORES UTRILLA......
  • Contenido esencial y abuso de las libertades comunitarias
    • European Union
    • Las cláusulas anti-abuso específicas tributarias frente a las libertades de circulación de la Unión Europea
    • 7 November 2010
    ...aan den Rijn: Kluwer Law International, 2007, pág. 18. [341] STJUE de 12 de diciembre de 2006, Test Claimants in the FII Group Litigation (C-446/04, Rec. p. I-11753), ap. [342] STJUE de 24 de mayo de 2007, Holböck (C-157/05, Rec. p. I-4051), ap. 41. Véanse también las SSTJUE de 1 de junio d......

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