Finanzamt Ulm v Ingeborg Wagner-Raith.

• Jurisdiction: European Union
• Celex Number: 62013CC0560
• ECLI: ECLI:EU:C:2014:2476
• Docket Number: C-560/13
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Date: 18 December 2014

OPINION OF ADVOCATE GENERAL

MENGOZZI

delivered on 18 December 2014 ( 1 )

Case C‑560/13

Finanzamt Ulm

v

Ingeborg Wagner-Raith, successor in title to Maria Schweier

(Request for a preliminary ruling from the Bundesfinanzhof (Germany))

‛Question not referred for a preliminary ruling — Free movement of capital — Article 73c of the EC Treaty — Article 57 EC — ‘Standstill’ clause — Third country — Overseas countries and territories (OCTs) — Legislation of a Member State which provides for the flat-rate taxation of income from foreign investment funds that do not send investors a breakdown of the profits (‘schwarze Fonds’) — Provision of financial services — Direct investment’

I – Introduction

1. By the present request for a preliminary ruling, the Bundesfinanzhof (Federal Finance Court, Germany) raises questions about the scope of the words ‘movement of capital to or from third countries involving direct investment [or] the provision of financial services’, contained in Article 73c of the EC Treaty and, from 1 May 1999, Article 57(1) EC. ( 2 )

2. This request has arisen from a dispute between Ms Wagner-Raith, the successor in title to Ms Maria Schweier, and the Finanzamt Ulm (Tax Office, Ulm) concerning the taxation of investment income from holdings in investment funds established in the Cayman Islands, in respect of the tax years 1997 to 2003.

3. It is common ground that, throughout the period at issue, the taxation in Germany of holders of units in investment funds was governed by the Law on the Sale of Foreign Investment Units and the Taxation of Income from Foreign Investment Units (Gesetz über den Vertrieb ausländischer Investmentanteile und über die Besteuerung der Erträge aus ausländischen Investmentanteilen) ( 3 ) (‘the AuslInvestmG’), which distinguished between three categories of foreign investment fund — commonly termed ‘white’, ‘grey’ and ‘black’ funds respectively — depending on the extent to which those funds complied with the provisions of the AuslInvestmG.

4. Thus, under Paragraph 17(3) of the AuslInvestmG, a fund was regarded as falling within the first category if the foreign investment company had either notified the German supervisory authority of its intention to sell units in foreign investment funds to the public in Germany or, if those units had been admitted to official trading or the regulated market on a German stock exchange, had appointed an agent established in Germany, and, in addition, satisfied certain notification and publication obligations. In that case, unit-holders were generally taxed in accordance with the same principles of ‘transparency’ as holders of units in a fund set up by a German investment company, that is to say, as if they had themselves directly earned the income derived from their holdings in the collective portfolio. ( 4 ) The basis of assessment consisted of the profits actually distributed as well as certain items of income that could be equated with distributed profits. ( 5 )

5. If a foreign investment company did not satisfy the requirements of Paragraph 17(3) of the AuslInvestmG, but furnished proof, in the form of documentation, of the distribution of actual profits as well as of certain ‘income to be regarded as distributed’ and, in addition, appointed an agent established in Germany, pursuant to Paragraph 18(2) of the AuslInvestmG, then the fund fell within the category of ‘grey’ funds. In that case, unit-holders were in principle taxed in the same way as in the case of ‘white’ funds, in accordance with Paragraph 18(1) of the AuslInvestmG.

6. If a foreign investment company did not satisfy either the requirements of Paragraph 17(3) of the AuslInvestmG or those of Paragraph 18(2) of that law, the fund was regarded as being a ‘black’ fund, the taxation of unit-holders of which was governed by Paragraph 18(3). That provision stated that a lump sum was to be deemed to have been distributed and attributed to unit-holders. That lump sum represented 90% of the positive difference between the first and last redemption prices of the unit established in the course of the calendar year, and amounted to at least 10% of the final redemption price established during the financial year. If no such redemption price was established, the stock exchange or market value was to be applied. That lump sum was mandatory and could not be challenged by furnishing proof to the contrary based, in particular, on accounting documents attesting to the income earned but not distributed to unit-holders.

7. The dispute in the main proceedings arose precisely as a result of the application of the flat-rate taxation regime relating to investment income from black funds.

8. Ms Schweier, the holder of an account with LGT Bank in Liechtenstein AG (‘LGT Bank’) comprising, inter alia, holdings in investment funds established in the Cayman Islands, declared her income for the years 1997 to 2003 to the German tax authorities, enclosing, in reliance upon Paragraph 18(3) of the AuslInvestmG, documents which LGT Bank had supplied to her.

9. The German tax authorities amended the tax assessment notices for the years in question and determined for each of those years the amount of investment income which had accrued to Ms Schweier from the funds at LGT Bank, the total amounting to more than EUR 623 000.

10. Ms Schweier lodged an objection against that decision, claiming that the flat-rate taxation provided for in Paragraph 18(3) of the AuslInvestmG was incompatible with the free movement of capital, and asked the German tax authorities to assess her actual income in accordance with Paragraph 18(1) of that law, while making available to them the documents and calculations necessary for that purpose.

11. After the German tax authorities dismissed her objection, Ms Schweier brought proceedings before the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg), which largely upheld the action, holding that Paragraph 18(3) of the AuslInvestmG was contrary to the free movement of capital. As a result, that court amended the calculation of the amount of investment income received by Ms Schweier during each of the tax years in question, on the basis of the actual profits evaluated by her. The total amount arrived at by that court was in the region of EUR 285 000.

12. The German tax authorities then lodged before the Bundesfinanzhof an appeal on a point of law in which they claimed that Paragraph 18(3) of the AuslInvestmG was covered by the ‘standstill’ clause in Article 57(1) EC regarding capital movements between Member States and third countries. Those authorities took the view that that provision should apply in a dispute such as that in the main proceedings because the situations governed by the AuslInvestmG relate either to the provision of financial services or to the concept of ‘direct investment’, within the meaning of Article 57(1) EC.

13. The Bundesfinanzhof takes the view that, whereas the AuslInvestmG satisfies the conditions ratione temporis and ratione personae laid down in Article 57(1) EC, since that legislation has remained essentially unchanged since 31 December 1993 and relates in this instance to units in investment funds whose management companies were established in a third country, the condition ratione materiae appears not to be satisfied and the appeal on a point of law brought by the German tax authorities would on that basis have to be dismissed. According to the referring court, there is no doubt that, if Article 57(1) EC is not applicable in the main proceedings, as that court is inclined to consider, the flat-rate taxation provided for in Paragraph 18(3) of the AuslInvestmG, combined, first, with the fact that it is impossible for an investor to furnish proof of the actual amount of his income where an investment fund does not satisfy the conditions laid down in Paragraph 17(3) of that law and, second, with the fact that no agent has been appointed in accordance with Paragraph 18(2) of that law, is manifestly not compatible with the free movement of capital provided for in Article 56 EC and cannot be justified by reference to the provisions of Article 58 EC or by overriding reasons in the public interest. Consequently, with reference to the judgment in Cilfit and Others, ( 6 ) the referring court considers that there is no need to refer a question concerning the interpretation of Articles 56 EC and 58 EC.

14. However, since there might still be some doubts as to the substantive scope of Article 57(1) EC, in particular following the judgment in VBV — Vorsorgekasse ( 7 ) concerning the interpretation of the concept of direct investment, the Bundesfinanzhof decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling: ‘1. In the case of holdings in third-country funds, does the free movement of capital provided for in Article [56 EC] not preclude national legislation (in this instance Paragraph 18(3) of the AuslInvestmG) which provides that, in certain circumstances, national investors in foreign investment funds are deemed to have received, in addition to distributions, notional earnings in the amount of 90% of the difference between the first and last redemption price of the year, but of at least 10% of the final redemption price (or of the stock exchange or market value), because that legislation, which has essentially remained unchanged since 31 December 1993, is concerned with the provision of financial services within the meaning of the [“standstill” clause] contained in [Article 57(1) EC]? If the answer to Question 1 is in the negative: 2. Does the holding in such an...