Belgian State - SPF Finances v Truck Center SA.

• Jurisdiction: European Union
• Celex Number: 62007CC0282
• ECLI: ECLI:EU:C:2008:513
• Docket Number: C-282/07
• Date: 18 September 2008
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 18 September 2008 ¹(1)

Case C‑282/07

État belge – SPF Finances

v

Truck Center SA

(Reference for a preliminary ruling from the Cour d’appel de Liège (Belgium))

(Freedom of establishment – Withholding tax – Withholding tax (précompte mobilier) on interest paid to an associated company resident in another Member State or in a non-member country – No withholding tax on interest paid to an associated company resident in national territory – Double taxation convention)

I – Introduction

1. Interest paid by a company resident in Belgium to its parent company resident in another Member State is subject in Belgium to a withholding tax, précompte mobilier. Equivalent payments to recipients in Belgium, on the other hand, are exempt from withholding tax, but are subject to corporation tax in the hands of the recipient.

2. Where the loan has been granted by a company resident in Luxembourg, the withholding tax charged in Belgium is, under a double taxation convention, included in the basis of assessment for the corporation tax owed in Luxembourg, with the effect of reducing the tax. However, the double taxation is not completely eliminated.

3. By the present reference for a preliminary ruling the Cour d’appel de Liège (Court of Appeal, Liège) seeks clarification as to whether the provisions of the EC Treaty on free movement of capital preclude such national rules. The provisions in question should perhaps also be tested, however, against freedom of establishment.

II – Legal context

4. The provisions of the Belgian Income Tax Code of 1992 (Code des impôts sur les revenus coordonné en 1992, ‘the CIR 92’) apply to the facts of the main proceedings.

5. Article 266 of the CIR 92 authorises the King, in certain circumstances, to refrain wholly or partly from charging withholding tax on income from capital.

6. Article 267 of the CIR 92 regulates liability to the tax as follows:

‘Allocation or payment of income, in cash or in kind, shall result in the withholding tax becoming due. The placing of income in an account opened in favour of the beneficiary shall in particular be considered to be an allocation, even if that account cannot be drawn on, provided that that situation results from an express or tacit agreement with the beneficiary. …’

7. Under Article 107(2)(9) of the Royal Decree implementing the CIR 92, withholding tax is not charged on certain income of professional investors. Article 105(3)(b) of the decree defines ‘professional investors’ as resident companies not referred to in paragraph 1 of the article. (2)

8. The Belgium-Luxembourg Convention for the prevention of double taxation of 17 September 1970 (‘the DTC’) provides:

‘Article 11 Interest

(1) Interest originating in one Contracting State and allocated to a resident of the other Contracting State shall be taxable in that other State.

(2) However, that interest may be taxed in the Contracting State in which it originates and in accordance with the legislation of that State, but the tax so payable may not exceed 15% of the interest.

(3) By derogation from paragraph (2), interest may not be taxed in the Contracting State in which it originates where it is allocated to an undertaking from the other Contracting State.

The previous paragraph shall not apply in the case of:

1. …

2. interest allocated by a company resident in one Contracting State to a company resident in the other Contracting State which holds directly or indirectly at least 25% of the shares carrying voting rights in the former company.

…

Article 23

(1) So far as concerns Luxembourg residents, double taxation shall be avoided in the following manner:

…

2. tax charged in Belgium in accordance with this agreement:

…

(b) on interest subject to the rules laid down in Article 11(2) shall be set off against the tax on that same income which is charged in Luxembourg. The amount thus set off may not however exceed either the fraction of the tax which corresponds proportionately to that income received from Belgium or an amount corresponding to the tax which is deducted at source in Luxembourg on equivalent income allocated to Belgian residents. That tax charged in Belgium can be set off against income taxable in Luxembourg to the extent only that it exceeds the tax which is deducted at source in Luxembourg on equivalent income allocated to Belgian residents.’

III – Facts and the question referred for a preliminary ruling

9. The Luxembourg company SA Wickler Finances held 48% of the capital of the Belgian company Truck Center SA (formerly Truck Restaurant Habay). On 25 February 1992 it granted Truck Center a loan of BEF 50 000 000. The holding and the rights under the loan subsequently passed to Cotralux and then to Socfin, companies incorporated under Luxembourg law. Truck Center entered the loan interest for the years 1994 to 1996 in its accounts, but did not pay it, and did not make a retention of withholding tax.

10. By decision of 11 December 1997 the Belgian tax authorities of their own motion assessed the withholding tax, applying the rates of 13.39% for 1994 and 1995 and 15% for 1996.

11. On an application by Truck Center, the Tribunal de première instance d’Arlon (Court of First Instance, Arlon) annulled the decision, since it considered that the national law was incompatible with Article 56 EC. The Cour d’appel de Liège, before which the case is now pending, has referred the following question to the Court for a preliminary ruling:

Do Articles 105(3)(b) and 107(2)(9) of the Royal Decree implementing the CIR 1992 adopted pursuant to Article 266 of the CIR 1992, read in conjunction with Article 23 of the Belgium-Luxembourg Double Taxation Convention, infringe Article 73[b] of the Treaty establishing the European Community (now Article 56 EC), providing for free movement of capital, in that, by limiting the waiver in respect of withholding tax provided for in Article 107(2)(9) exclusively to interest allocated to resident companies, they have, in particular, first, the effect of discouraging resident companies from borrowing capital from companies established in another Member State and, second, they constitute for companies established in another Member State an obstacle to investing capital, by way of loans, in companies having their seat in Belgium?

12. In the proceedings before the Court Truck Center, the Belgian, Netherlands, Portuguese and United Kingdom Governments and the Commission of the European Communities have made submissions. At the hearing the French Government also expressed an opinion.

IV – Legal assessment

13. In view of the formulation of the question referred, it must be pointed out that the Court has no jurisdiction, in proceedings for a preliminary ruling, to rule on the compatibility of a national measure with Community law, but can provide the referring court with all the elements of interpretation of Community law which will enable that court to determine the question of compatibility when deciding the case before it. (3)

14. The question referred should therefore be understood as asking whether Article 73b of the EC Treaty (now Article 56 EC) and Article 73d(1) of the EC Treaty (now Article 58 EC) preclude a national withholding tax on the payment of loan interest to recipients resident in another Member State, if equivalent payments to companies in national territory are exempt from withholding tax but are subject to corporation tax in the hands of the recipient.

15. It should be noted as a preliminary observation that, according to consistent case-law, direct taxes fall within the competence of the Member States, but they must exercise that competence consistently with Community law. (4) In the absence of unifying or harmonising Community measures, the Member States also retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, in particular with a view to eliminating double taxation. (5)

16. It is true that a common system of taxation for interest and royalty payments made between associated companies of different Member States has since been introduced by Council Directive 2003/49/EC. (6) However, the facts of the main proceedings concern periods of time before the entry into force of that directive. Belgium and Luxembourg were thus in principle free to agree in their DTC that interest paid by an undertaking resident in Belgium to an undertaking resident in Luxembourg could be taxed in Belgium at a rate of 15%.

17. Belgium has made use of that right by charging withholding tax at a rate of 15% in the case of interest payments to recipients resident in another Member State. Payments to taxable persons within the country, by contrast, are exempt from taxation at source. (7) It must therefore be examined whether such different treatment infringes the fundamental freedoms.

A – Which fundamental freedom applies

18. It is settled case-law that, when examining which fundamental freedom a rule of national law comes under, primarily the purpose of the legislation concerned must be taken into consideration. (8)

19. As well as the free movement of capital guaranteed by Article 73b(1) of the EC Treaty, to which the national court’s question refers, the provisions could also come under Article 52 of the EC Treaty (now Article 43 EC) on freedom of establishment. That freedom applies in the case of a holding which gives its owner definite influence over the company’s decisions and allows him to determine its activities. (9)

20. The provisions of the Belgian income tax code on withholding tax, as communicated by the referring court, admittedly do not apply only in cases in which the lender has a holding of a certain size in the borrower.

21. Those provisions, however, cannot be viewed in isolation from the DTC, which is also part of the national legal order of Belgium. (10) It follows from Article...