Case C‑628/15
The Trustees of the BT Pension Scheme
v
Commissioners for Her Majesty’s Revenue and Customs
(Request for a preliminary ruling from the
Court of Appeal (England & Wales) (Civil Division))
(Reference for a preliminary ruling — Free movement of capital — Article 63 TFEU — Scope — Tax legislation of a Member State — Corporation tax — Tax credit — Pension funds — Refusal to grant the tax credit to shareholders not subject to tax on investment income for dividends arising from foreign income — Interpretation of the judgment of 12 December 2006, Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774) — Tax credit unlawfully withheld — Remedies)
Summary — Judgment of the Court (Second Chamber), 14 September 2017
1. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends –Tax credit — National legislation not allowing for the grant of a tax credit to shareholders not subject to tax on investment income for dividends arising from foreign income — Unlawful
(Art. 63 TFEU)
2. Free movement of capital and liberalisation of payments — Provisions of the Treaty — Scope — Distribution of dividends to resident shareholders by a resident company — Unfavourable tax treatment of dividends which have their origin in the profits received by the resident company from a non-resident company — Included
(Art. 63 TFEU)
3. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation— Taxation of dividends — Tax credit — National legislation not allowing for the grant of a tax credit to shareholders not subject to tax on investment income for dividends arising from foreign income — Unlawful — Right to repayment of taxes levied in breach of EU law — Obligation of the Member State to provide remedies to non-taxable shareholders in order to enforce the rights conferred by Article 63 TFEU — Requirements — Procedures — Application of national law — Limits — Respect for the principles of equivalence and effectiveness
(Art. 63 TFEU)
4. Free movement of capital and liberalisation of payments — Restrictions — Tax legislation — Taxation of dividends — Tax credit — National legislation not allowing for the grant of a tax credit to shareholders not subject to tax on investment income for dividends arising from foreign income — Unlawful — Non-taxation of those shareholders for income tax in respect of dividends — Infringement of EU law not sufficiently serious, according to the referring court — Possibility of making up for the fact that the recipient shareholder was not entitled to a tax credit — Irrelevant
(Art. 63 TFEU)
1. Article 63 TFEU must be interpreted as conferring, in circumstances such as those at issue in the main proceedings, rights on a shareholder receiving dividends treated as ‘foreign income dividends’.
In the present case, the Trustees received dividends treated as FIDs without having been entitled to a tax credit in respect of those dividends.
Such an absence of a tax credit for shareholders not subject to income tax in respect of dividends, such as the Trustees, has the effect of discouraging those shareholders from investing in the capital of companies resident in the United Kingdom which receive dividends from companies resident outside the United Kingdom, and favouring investments in companies resident in the United Kingdom receiving dividends from other companies resident in that same State (see, by analogy, judgment of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 166).
(see paras 35, 36, 44, operative part 1)
2. In that regard, it should be recalled that, according to the case-law of the Court, national legislation which applies without distinction to nationals of all the Member States, may generally fall within the scope of the provisions of the FEU Treaty on the free movement of capital only to the extent that it applies to situations related to trade between Member States (see, to that effect, judgment of 5 March 2002, Reisch and Others, C‑515/99, C‑519/99 to C‑524/99 and C‑526/99 to C‑540/99, EU:C:2002:135, paragraph 24).
It does not appear to be the case that the legislation at issue in the main proceedings concerns only situations unrelated to trade between Member States, or that the relevant factors relating to the case in the main proceedings would be confined to within the United Kingdom.
On the contrary, the unfavourable tax treatment of certain shareholders receiving dividends treated as FIDs, namely the absence of the tax credit provided for in section 246C ICTA, is precisely due to the fact that those dividends have their origin in the profits that the distributing company has received from a non-UK-resident company, whereas in the case of dividends which have their origin in the profits received from a UK-resident company, those recipient shareholders would have been entitled to such a tax credit, all other things being equal.
(see paras 39, 41, 42)
3. However, it must be recalled that the right to a refund, within the meaning of the case-law cited in paragraph 50 of the present judgment, is concerned not only with the amounts paid to the Member State by way of unlawful charges but also any deducted amount the refund of which is essential in restoring the equal treatment required by the provisions of the FEU Treaty on the freedoms of movement (see, by analogy, judgments of 8 March 2001, Metallgesellschaft and Others, C‑397/98 and C‑410/98, EU:C:2001:134, paragraph 87; of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 205, and of 19 July 2012, Littlewoods Retail and Others, C‑591/10, EU:C:2012:478, paragraph 25), including, consequently, the amounts due to the individual in respect of a tax credit of which he has been deprived under the national legislation precluded by EU law.
Next, it must be recalled that, according to the settled case-law of the Court, both the administrative authorities and the national courts called upon, within the exercise of their respective jurisdiction, to apply provisions of EU law, are under a duty to give full effect to those provisions, if necessary refusing of their own motion to apply any conflicting provision of national law, and it is not necessary for that court to request or to await the prior setting aside of that provision of national law by legislative or other constitutional means (see, to that effect, in relation to administrative authorities, judgments of 22 June 1989, Costanzo, 103/88, EU:C:1989:256, paragraph 31, and of 29 April 1999, Ciola, C‑224/97, EU:C:1999:212, paragraphs 26 and 30, and, in relation to courts, judgments of 9 March 1978, Simmenthal, 106/77, EU:C:1978:49, paragraph 24, and of 5 July 2016, Ognyanov, C‑614/14, EU:C:2016:514, paragraph 34).
Thus, although, in the absence of EU rules in the area of payment of tax credits of which the beneficiaries have been unduly deprived, it is for the domestic legal system of each Member State to determine the procedural rules governing actions intended to ensure the protection of directly effective EU law rights, under the principle of equivalence, those rules must not be less favourable than those relating to similar domestic actions (see, to that effect, judgments of 16 December 1976, Rewe-Zentralfinanz and Rewe-Zentral, 33/76, EU:C:1976:188, paragraph 5; of 8 March 2001, Metallgesellschaft and Others, C‑397/98 and C‑410/98, EU:C:2001:134, paragraph 85; of 12 December 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 203, and of 6 October 2015, Târșia, C‑69/14, EU:C:2015:662, paragraphs 26 and 27).
Furthermore, under the principle of effectiveness, the Member States are responsible for ensuring that the rights conferred by EU law are effectively protected in each case and, in particular, for ensuring compliance with the right to an effective remedy and to a fair hearing enshrined in Article 47(1) of the Charter of Fundamental Rights of the European Union (see, to that effect, judgments of 15 September 2016, Star Storage and Others, C‑439/14 and C‑488/14, EU:C:2016:688, paragraph 46; of 8 November 2016, Lesoochranárske zoskupenie VLK, C‑243/15, EU:C:2016:838, paragraph 65, and of 16 May 2017, Berlioz Investment Fund, C‑682/15, EU:C:2017:373, paragraph 44).
EU law requires that the domestic law of a Member State provide remedies to shareholders who, in a situation such as that at issue in the main proceedings, have received dividends treated as FIDs but have not, however, obtained a tax credit in respect of those dividends, in order to enable those shareholders to enforce the rights that Article 63 TFEU confers on them. In that regard, the national court with jurisdiction must ensure that shareholders not subject to income tax in respect of dividends who have received dividends that have their origin in foreign-sourced dividends treated as FIDs, such as the Trustees of the BT Pension Scheme, have a remedy which, first, ensures payment of such a tax credit — of which the beneficiaries have been unduly deprived — under rules which are not less favourable than those relating to an action seeking payment of a tax credit, or of a comparable tax advantage, in a situation where the tax authorities have unduly deprived the beneficiaries of that tax credit or of that tax advantage during a distribution of dividends which have their origin in the dividends received from a UK-resident company and, second, allows the protection of the rights conferred on such shareholders by Article 63 TFEU to be guaranteed in an effective manner.
(see paras 52, 54, 58, 59, 61, operative part 2)
4. Neither the fact that the Trustees of the BT Pension Scheme are not subject to income tax in respect of the dividends they receive, the fact that the infringement of EU law at issue is not, in the referring court’s view, sufficiently serious so as to give rise to the non-contractual liability of the Member State concerned in favour of the company distributing dividends treated as ‘foreign income dividends’, under the principles established in the judgment of 5 March 1996, Brasserie du pêcheur and Factortame (C‑46/93 and C‑48/93, EU:C:1996:79) nor the fact that a UK-resident company has distributed an increased amount of dividends treated as ‘foreign income dividends’ in order to make up for the fact that the recipient shareholder was not entitled to a tax credit are such as to alter the answers given to the other questions asked by the referring court.
(see paras 65, 69, 75, operative part 3)