Centro di Musicologia Walter Stauffer v Finanzamt München für Körperschaften.

• Jurisdiction: European Union
• Celex Number: 62004CC0386
• ECLI: ECLI:EU:C:2005:785
• Date: 15 December 2005
• Docket Number: C-386/04
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling

OPINION OF ADVOCATE GENERAL

STIX-HACKL

delivered on 15 December 2005 ¹(1)

Case C-386/04

Centro di Musicologia Walter Stauffer

v

Finanzamt München für Körperschaften

(Reference for a preliminary ruling from the Bundesfinanzhof, Germany)

(Tax law – Corporation tax – Tax exemption for charitable foundations established under private law – Residence requirement)

I – Introduction

1. In this case the Court is essentially required to ascertain the extent to which a foreign foundation which satisfies national requirements governing charitable status may, on account of the location of its seat, be treated less favourably than a similar domestic foundation for the purposes of direct taxation in respect of the taxation of certain domestic income.

II – Legal framework

A – Provisions of Community law

2. The provisions of Community law on which an interpretation is being sought are Articles 52, 58, 59, 66 and 73b of the EC Treaty.

B – National law

3. The relevant provisions of the German Körperschaftsteuergesetz (Law on Corporation Tax) (KStG) (2) read as follows:

‘Paragraph 2: Limited tax liability

The following shall be subject to limited liability to corporation tax:

1. corporations, associations of persons and bodies of assets neither managed nor established in Germany, on their domestic income …

Paragraph 5: Exemptions

(1) The following shall be exempt from corporation tax:

…

9. corporations, associations of persons and bodies of assets which, under their statutes, act of foundation or other constitution and under their de facto management, pursue exclusively and directly charitable, benevolent or religious objects (Paragraphs 51 to 68 of the Abgabenordnung (Tax Code)). If commercial activities are undertaken, tax exemption shall be excluded. The second sentence shall not apply to self-managed forestry activities;

…

(2) The exemptions under subparagraph 1 shall not apply to:

…

3. persons with limited tax liability within the meaning of Paragraph 2(1).

Paragraph 8: Determination of income

(1) The provisions of the Einkommensteuergesetz (Law on Income Tax) and of this Law shall determine what is to be regarded as income and the way in which income is to be determined … .’

4. The relevant provisions of the German Einkommensteuergesetz (EStG) read as follows:

‘Paragraph 21: Rental

(1) The following shall be rental income:

1. income from rental of immovable property, in particular land, buildings, parts of buildings, … .

Paragraph 49: Income subject to limited tax liability

(1) The following shall be domestic income for the purposes of limited income tax liability (Paragraph 1(4))

…

6. rental income (Paragraph 21), where the immovable property, conglomerations of property or rights are located … in Germany … .’

III – Facts and proceedings

5. The applicant, the Centro di Musicologia Walter Stauffer (hereinafter referred to as ‘the foundation’) is a foundation established under Italian law which has its seat in Italy.

6. The foundation owns commercial premises in Munich and receives rental income from those premises, on which the Finanzamt München (Munich Tax Office, hereinafter referred to as ‘the defendant tax office’) charged corporation tax for the 1997 tax year. The foundation does not have commercial premises of its own or a registered branch establishment in Germany. Nor does it not operate through a German subsidiary. The services in connection with the rental of the real property are provided by a German property management agent.

7. Under its statutes in the version in force for the year at issue, 1997, the foundation pursues purposes exclusively in the fields of education and training by supporting instruction in the classical methods of production of stringed instruments, the history of music and musicology in general. The foundation may endow one or more scholarships to enable Swiss young people, preferably from the city of Berne, to reside in Cremona during the entire period of instruction.

8. The reference for a preliminary ruling from the Bundesfinanzhof (Federal Finance Court, Germany) is based on the assumption that in the year at issue the foundation pursued charitable objects and satisfied the requirements with regard to company statutes for tax exemption under the first sentence of Paragraph 5(1)(9) of the KStG, whilst partial liability to tax on that income under the second and third sentences of Paragraph 5(1)(9) of the KStG did not arise, because the letting did not extend beyond property management and was not therefore a commercial activity.

9. The Bundesfinanzhof points out in particular that the promotion of the interests of the general public within the meaning of Paragraph 52 of the German Abgabenordnung (AO 1977) does not require the promotion to be undertaken for the benefit of German residents or nationals.

10. In the view of the Bundesfinanzhof, the one point which is unclear from the background provided by the first instance court is whether the foundation also satisfies the requirements as to its de facto management, and in particular, whether it uses the resources it receives quickly for its statutory objects, which are eligible for tax relief. The Bundesfinanzhof is considering referring the matter back to the Finanzgericht in this respect.

11. Since, because its seat and management are in Italy, the foundation receives the rental income against the background of its limited tax liability under Paragraph 49(1)(6) of the EStG in conjunction with Paragraph 21 of the EStG and Paragraphs 2(1) and 8(1) of the KStG, Paragraph 5(2)(3) of the KStG (now Paragraph 5(2)(2) of the KStG) applies, in the view of the Bundesfinanzhof; this provides that tax exemption does not apply to taxpayers with limited tax liability. The foundation would therefore be liable to pay tax on the domestic income from the rental of the commercial premises.

12. The challenge brought by the foundation against the assessment for corporation tax was rejected by the Finanzgericht München (Finance Court, Munich). The foundation thereupon lodged an appeal on a point of law with the Bundesfinanzhof, which has doubts whether the exclusion of non-resident corporations from the tax exemption under Paragraph 5(2)(3) of the KStG complies with the requirements of Community law. The Bundesfinanzhof considers that there may be a breach of the principles of freedom of establishment, freedom to provide services and/or the free movement of capital.

13. In particular, the Bundesfinanzhof takes the view that the applicability of the fundamental freedoms is not precluded in the present case by the fact that the second paragraph of Article 48 EC requires companies or firms to be ‘profit-making’. In its view, this means not only the intention to maximise profits, but also any economic activity that is carried on for the purposes of profit and in exchange for a consideration. From this perspective, the rental of real property, as in the present case, could also be seen as profit-making in this sense.

14. The referring court also has doubts whether the difference in treatment between charitable foundations established in Germany and those established abroad can be justified under the cohesion principle. The cohesion principle states that tax exemption should be the correlate to the charitable objects. The charitable nature of a foreign foundation which pursues its objects abroad may not benefit Germany. However, the Bundesfinanzhof stresses that Paragraph 52(1) of the AO 1977 does not make the recognition of charitable status for tax purposes dependent on the promotion of the interests of the general public in Germany. From that point of view, the presumed correspondence between the crediting of an advantage and tax exemption in German tax law appears not to depend on charitable status, but on whether tax liability is limited or unlimited or whether the foundation in question has its seat in Germany or abroad, which is no longer cohesive.

15. By order of 14 July 2004 the Bundesfinanzhof decided to stay the proceedings and made reference to the Court of Justice for a preliminary ruling on the following question:

‘Is it contrary to Article 52 EC, in conjunction with Article 58 EC, Article 59 EC, in conjunction with Articles 66 EC and 58 EC and Article 73b EC, for a charitable foundation established under private law in another Member State, with limited liability to tax on its rental income in Germany, unlike a charitable foundation established in Germany, with unlimited liability to tax and receiving similar income, not to be entitled to exemption from corporation tax?’

IV – The question referred for a preliminary ruling

16. First of all, it is necessary to consider the discussion regarding the basic applicability of the fundamental freedoms, which is controversial because of the charitable nature of the foundation in question (A). It should then be examined which fundamental freedom should be applied in respect of income obtained from the rental of a property in a Member State other than the one in which the foundation has its seat (B). After clarifying these preliminary questions, consideration should then be given to the issue of the restriction of any fundamental freedoms that might be relevant (C). Lastly, if it is found that there is a restriction of one or more fundamental freedoms which is relevant from the point of view of Community law, possible justifications should be examined (D).

A – The basic applicability of the fundamental freedoms

1. Main arguments of the parties

17. The Federal German Government takes the view that the fundamental freedoms do not apply at all because the German tax rules on charitable institutions have a social normative content. The Court has held that such rules are applicable to foreign Community citizens only where there is a sufficiently close connection between the Community citizen and the Member State in question...