Case C‑190/12

Emerging Markets Series of DFA Investment Trust Company

v

Dyrektor Izby Skarbowej w Bydgoszczy

(Request for a preliminary ruling from the Wojewódzki Sąd Administracyjny w Bydgoszczy)

(Reference for a preliminary ruling — Freedom of establishment — Free movement of capital — Articles 63 TFEU and 65 TFEU –– Tax on income of legal persons — Difference of treatment between dividends paid to resident and non-resident investment funds — Exclusion of tax exemption — Restriction not justified)

Summary — Judgment of the Court (First Chamber), 10 April 2014

1.        Judicial proceedings — Oral part of the procedure — Reopening — Obligation to reopen the oral part of the procedure to allow parties to lodge observations on a new fact — No obligation — Justification — Whether sufficient information to give a ruling

(Rules of Procedure of the Court of Justice, Art. 83)

2.        Freedom of establishment — Free movement of capital — Scope — Tax legislation — Corporation tax — Taxation of dividends — Exemption for dividends of national origin paid to resident investment funds — Exemption applicable irrespective of the type of investment which generates the dividends received — Legislation not intended to impose conditions for access to the national market on traders from non-Member countries — Provisions governing freedom of establishment not applicable — Provisions governing free movement of capital applicable

(Art. 63 TFEU)

3.        Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Corporation tax — Taxation of dividends paid to investment funds– Exemption for dividends of national origin paid to resident funds — Taxation of dividends of national origin paid to funds resident in a non-Member State — Not permissible — Justification — None

(Arts 63 TFEU and 65 TFEU)

1.        See the text of the judgment.

(see paras 20, 21)

2.        Article 63 TFEU on the free movement of capital applies in a situation where, under national tax legislation, the dividends paid by companies established in a Member State to investment funds established in a non-Member State are not the subject of a tax exemption, while investment funds established in that Member State receive such an exemption.

In a context which relates to the tax treatment of dividends originating in a third country, it is sufficient to examine the purpose of national legislation in order to assess whether the tax treatment of dividends originating in a third country falls within the scope of the FEU Treaty provisions on the free movement of capital. That applies to tax legislation which makes no distinction according to the type of investment which generates the dividends received by an investment fund established in a non-Member State.

However, the interpretation of Article 63(1) TFEU, as regards relations with third countries, does not enable economic operators who do not fall within the limits of the territorial scope of freedom of establishment to profit from that freedom. Nonetheless, the risk that an economic operator who does not fall within the territorial scope of freedom of establishment might derive some advantage therefrom does not exist, where the tax legislation concerns the tax treatment of dividends and is not intended to impose conditions for access to the national market on traders from non-Member countries.

(see paras 29, 31, 33, 35, operative part 1)

3.        Articles 63 TFEU and 65 TFEU must be interpreted as precluding tax legislation of a Member State under which dividends paid by companies established in that Member State to an investment fund situated in a non-Member State cannot qualify for a tax exemption, provided that that Member State and the non-Member State concerned are bound by an obligation under a convention on mutual administrative assistance which enables the national tax authorities to verify any information which may be transmitted by the investment fund. It is for the referring court, in the case at issue, to examine whether the mechanism for the exchange of information provided for within that cooperation framework is in fact capable of enabling the Member State’s authorities to verify, where necessary, the information provided by investment funds established in a non-Member State on the conditions for their formation and the conduct of their business, in order to establish that they operate within a regulatory framework equivalent to that of the European Union.

That difference in the tax treatment of dividends as between resident and non-resident investment funds may discourage, on the one hand, investment funds established in a third country from investing in companies established in the Member State, and, on the other hand, investors resident in that Member State from acquiring shares in non-resident investment funds. It follows that such national legislation is such as to entail a restriction on the free movement of capital which is prohibited, in principle, by Article 63 TFEU.

With regard to the tax legislation of a Member State which adopts as the main distinguishing criterion the place of residence of investment funds, according to which criterion tax is or is not deducted at source on dividends paid to them by resident companies, non-resident investment funds are in a situation which is objectively comparable to that of investment funds whose registered office is situated in that Member State.

Further, where a Member State has chosen not to tax resident investment funds in receipt of nationally-sourced dividends, it cannot rely on the argument that there is a need to ensure a balanced allocation between the Member States of the power to tax in order to justify the taxation of non-resident investment funds in receipt of such income.

Moreover, legislation which does not establish a direct link between the exemption from the deduction of tax at source on dividends of national origin received by a resident investment fund and the taxation of those dividends as the income of unit-holders in that investment fund cannot be justified by the need to preserve the coherence of the tax system.

Last, the risk of diminution of the tax revenue of a Member State to the advantage of a non-Member State cannot be regarded as an overriding reason in the public interest which may be relied upon in order to justify a measure which is, in principle, contrary to a fundamental freedom.

(see paras 42, 43, 69, 95, 99, 102, 105, operative part 2)