C-311/97

OPINION OF MR ALBER — CASE C-311/97

OPINION OF ADVOCATE GENERAL ALBER delivered on 19 November 1998 *

A — Introduction 3. The tax was calculated in accordance with the Greek Income Tax Code, Part II of which governs the taxation of the income of legal persons. Article 109(1) of the Code lays down the tax rates as follows:

'1. Tax shall be calculated on the total taxable 1. This reference for a preliminary ruling income of the legal person liable to tax at tax raises the question of the compatibility with rates to be determined, according to the cat- Community law of a Greek tax provision 1 egory of the taxpayer, as follows: under which foreign companies are always subjected to a tax rate of 40% whereas domestic public limited companies are taxed not at 40% but 35% if they issue registered shares or their bearer shares are quoted on the Athens Stock Exchange. (a) in respect of domestic public limited com- panies the shares of which, at the end of the accounting period, are bearer shares not quoted on the Athens Stock Exchange, and in respect of foreign companies and organisations operating with a view to profit, forty per cent (40%),

4. The plaintiff was subjected to a tax rate of 40% on the basis of that provision. It added to its 1995 income tax declaration a reserva­ 7. The referring court has referred the fol­ tion claiming that it should have been taxed lowing question to the Court of Justice for a at a rate of only 3 5 % as is the case with Greek preliminary! ruling: banks. In support of its claim it relied inter alia on Article 52 of the EC Treaty.

'Is Article 109(l)(a) of the Greek Income Tax 5. The reservation was rejected by an admin­ Code (Law N o 2238/1994, Oficial Journal of istrative decision with reference to the existing the Hellenic Republic No 151 A), which in legal situation. The plaintiff brought an action applying a tax rate of 40% to the taxable against that decision. income of foreign companies imposes on for­ eign companies a different heavier tax charge than on domestic companies, to which a tax rate of 3 5 % is applied, permissible under Community law and, in particular, is it in conformity with Articles 7 and 52 of the Treaty? In other words, is the Greek State 6. The referring court, the Diikitiko Proto- entitled to impose that differential tax treat­ dikio (Administrative Court of First Instance), ment on foreign companies?' Piraeus, states that Article 109(1)(a) of the Income Tax Code provides for tax treatment of foreign public limited companies which departs fundamentally from the provisions contained in Articles 7 2 and 52 of the Treaty. That provision introduces differential tax treat­ 8. The plaintiff, the Greek and French Gov­ ernments and the Commission have inter­ 2 — Now Article 6 of the EC Treaty. vened in the proceedings. I will return to the

Β — Opinion 12. The plaintiff considers that Article 109(1) of the Greek Income Tax Code infringes the general principle of equality contained in Article 6 of the Treaty and Article 52 thereof. That unequal treatment restricts, in a manner that is prohibited, the freedom of establish­ ment exercised in setting up secondary estab­ lishments in the form of agencies, branches or subsidiaries. 9. The plaintiff claims that Article 109(1) of the Greek Income Tax Code provides for prohibited unequal treatment between domestic and foreign companies. Whereas domestic public limited companies must be differentiated from one another in accordance 13. The plaintiff relies on the judgments of with the form of the shares which they issue, the Court of Justice in Case 270/83 Commis­ and may consequently enjoy the more favour­ sion ν France 3 and Case C-1/93 Halliburton able tax rate if they issue registered shares or Services. 4 bearer shares quoted on the Athens Stock Market, all foreign companies are subjected, under Article 109 of the Greek Income Tax Code, to the higher tax rate, irrespective of the legal form which they have chosen and the type of the shares which they issue. 14. The Greek Government refers, first, to the complementary relationship between Arti­ cles 48, 52 and 59 of the Treaty, on the one hand, and Article 6 thereof on the other, and submits that, within the scope of Articles 48, 52 and 59, Article 6 is no longer relevant. The Greek Government then states that freedom of establishment in accordance with Article 52 of the Treaty, read in conjunction with 10. The plaintiff maintains that the unequal Article 58, also applies to companies and, in treatment in the banking sector is reinforced accordance with settled case-law, that the seat by the fact that Laws N o s 2190/1920 and of the company determines its nationality. It 5076/1931 provide that Greek banks must be maintains that in those circumstances and constituted in the form of a public limited company issuing registered shares. Therefore, Greek banks are always taxed at 3 5 % and 3 — [1986] ECR 273. foreign banks are always taxed at 40%. 4 — [1994] ECR I-1137.

18. Even if the possibility of lower taxation were to be considered to constitute covert discrimination, it would, in any event, be jus­ The Court of Justice is requested to give tified. The position of residents differs a priori judgment on the compatibility with Articles from that of non-residents. Therefore, no 52 and 58 of the Treaty of Article 109(l)(a) of objection can be raised to the granting of tax Law N o 2238/1994 which imposes on foreign benefits only to residents. Under the prin­ public limited companies a rate of taxation of ciples of double-taxation agreements, it is for 40% of their taxable income, as it does on the country in which the taxpayer is resident domestic public limited companies, which to decide whether or not to grant tax benefits may, however, by way of exception, enjoy a to residents. Finally, the differential treatment more favourable tax rate of 35%. of foreign and domestic companies is also justified because the definition of taxable income differs from the outset (see Article

5 — Judgment in case C-250/95 Futura Participations and Singer [1997] ECR I-2471, at paragraph 19; judgment in Case 16. It maintains that, in answering that ques­ C-279/93 Schumacker [1995] ECR I-225, at paragraph 21; tion, it must be remembered that matters of judgment in Case C-80/94 Wielockx [1995] ECR I-2493, at paragraph 16, and judgment in Case C-107/94 Asscher [1996] direct taxation do not fall within the scope of ECR I-3089, at paragraph 36.

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O P I N I O N OF MR ALBER — CASE C-311/97

99(1 )(a) to (d) of the Greek Income Tax compatibility of a provision such as Article Code) 6 and the differential determination of 109 of the Greek Income Tax Code with the tax rates is simply a consequence thereof. Articles 6 and 52 of the Treaty, since it is not for the Court of Justice to rule on the com- patibility with Community law of a particular national rule in proceedings for a preliminary ruling brought under Article 177.

22. As regards the definition of the content of Article 52 of the Treaty, the French Gov- ernment states that that provision establishes the principle of equality of national treatment. 20. The French Government also proposes Consequently, it prohibits any discrimination rewording the question referred for a prelimi- on grounds of nationality. As the Court of nary ruling but to the effect that the Court of Justice has consistently held, discrimination is Justice is requested to give judgment on the characterised by the application of different provisions to objectively comparable situa- tions or the application of the same provision to different situations. 6 — Under Article 99(1 )(a) and (d) of the Greek Income Tax Code, the following are subject to tax: (a)in the case of Greek public and private limited companies, with the exception of banking institutions and insurance companies, on the total net income or profits earned in Greece or abroad ... In the case of Greek banking institutions and insurance companies, on the total net income or profits earned in Greece or abroad, after deduction of the portion corre- sponding to non-taxable receipts or to income subject to spe- cial tax entailing extinction of the tax debt. (d)in the case of foreign undertakings carrying on business in Greece under any form of company and foreign organisations of whatever type, operating with a view to profit, on the net 23. It considers that Article 109 of the Greek income or profit ansing from any source in Greece and on the net profit arising from the permanent establishment of the Income Tax Code provides for different tax undertaking in Greece, within the meaning of Article 100. rates for Greek companies depending on their

24. However, it maintains that there is no discrimination where the foreign company is in a situation objectively comparable to that of a domestic company taxed at 40%. The French Government puts forward certain observations on the comparability of the situ­ ations. It considers that the criteria 'public limited company' and 'bearer shares' are not in themselves discriminatory. However, that 'A company whose shares are quoted on the is not the case as regards the criterion of quo­ stock market of a Member State must be con­ tation on the Athens Stock Market. To satisfy sidered to be in a situation comparable to that that criterion it should be sufficient for the of a domestic company whose shares are shares of the company to be quoted on the quoted on the stock market of the country in stock market of any Member State. which it is established.'

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OPINION OF MR ALBER — CASE C-311/97

'A national provision which, for the purpose of taxing profits, treats Greek and foreign companies equally with regard to the deter- mination of taxable income but does not grant to the latter companies the more favourable tax rate of 35% — even under the same con- ditions as those which apply to companies 28. It states that the plaintiff maintains a per- with their seat in Greece — is incompatible manent establishment in Greece whose tax- with Article 52 of the Treaty.' able income is determined in the same way as that of Greek companies. Consequently, Article 109 of the Greek Income Tax Code contains both overt and covert discrimina- tion. Since foreign companies are excluded completely from the application of t h e m o r e favourable tax rate of 35%, Article 109 of the Greek Income Tax Code constitutes overt 30. During the hearing the Commission discrimination. Moreover, Article 109(1) of would make no distinction at all between the Greek Income Tax Code provides for overt and covert discrimination. It maintained overt discrimination in that it lays down a tax that, even though no harmonisation of direct rate of 40% 'in respect of domestic public taxation had yet taken place, the Member limited companies the shares of which, at the States should not subject the fundamental end of the accounting period, are bearer shares freedom at issue to any restriction. In this not quoted on the Athens Stock Exchange, case, there is no justification for the unequal and in respect of foreign companies and treatment and therefore Article 52 has been organisations operating with a view to profit'. infringed. That is because that tax rate is never applied to domestic banks — since domestic public limited companies in the banking sector are required to issue registered shares — whereas 7 — Case C-279/93 Schumacker (quoted in footnote 5, at para- graphs 36 to 38); see also Case C-107/94 Asscher (also quoted foreign banks are always subject to it. in footnote 5).

33. Article 52 embodies one of the four fun­ damental freedoms established by the Treaty. In conjunction with Article 58 of the Treaty, it guarantees legal persons freedom of estab­ lishment within the Community. That freedom 32. In answering the question referred to the is enjoyed by companies formed in accor­ Court for a preliminary ruling it must, of dance with the laws of a Member State and course, be borne in mind that the Court of having their registered offices, central admin­ Justice does not, in such proceedings, rule on istration or principal place of business within whether or not a national provision is incom­ the Community. The seat of a company, thus patible with Community law. Instead, it pro­ defined, is decisive in determining whether it vides the referring court with all the criteria may be ascribed to a particular legal system necessary to determine whether or not a in the same way that nationality is in respect national provision is compatible with Com­ of physical persons. munity law. Therefore, the question referred must be reworded. Such a step is permitted under the case-law of the Court of Justice. 9 Consequently, the observations below are intended to answer the question worded as follows: 34. In accordance with the second sentence of the first paragraph of Article 52, that freedom may be exercised by the setting up of agencies, branches or subsidiaries. In accor­ dance with the second paragraph of Article 52, freedom of establishment includes in prin­ Is a provision such as Article 109(l)(a) of the ciple the right to take up and pursue activi­ Greek Income Tax Code (Law N o 2238/1994, ties as self-employed persons under the con­ Official Journal of the Hellenic Republic No ditions laid down for its own nationals by the 151A), which, by applying a 40% tax rate to law of the country where such establishment their taxable income, imposes a heavier tax is effected. Therefore, equal national treat­ ment is a basic characteristic of the rule directly applicable since the end of the tran­ 8 — Judgment in Case 305/87 Commission ν Greece ([1989] ECR sitional period 1 0 and an important part of the 1461, at paragraphs 12 and 13); to this effect, see also the freedom of establishment itself. judgment in Case C-330/91 Commerzbank [1993] ECR 1-4017, at paragraph 21, and the judgment in Case C-1/93 Halliburton Services (quoted in footnote 4, at paragraph 12). 9 — See, to this effect, the early judgment in Case 6/64 Costa ν ENEL [1964] ECR 585 and the judgment in Case 78/70 Deutsche Grammophon ν Metro [1971] ECR 487, at para­ 10 — See the judgment in Case 270/83 Commission ν France graph 3. (quoted in footnote 3, at paragraph 13).

13 — According to the parties, Greek banks are required by law 37. That difference of opinion may be left to constitute themselves as public limited companies and issue registered shares. Sec Article ll(2)(a) or Law N o unresolved in determining whether or not 2190/1920 and Law N o 5076/1936. objectively unequal treatment is accorded to 14 — See the judgments in Case 270/83 Commission ν France (quoted in footnote 3, at paragraph 17), Case C-330/91 Commerzbank (quoted in footnote 8, at paragraph 16), Case C-279/93 Schumacker (quoted in footnote 5, at paragraph 39 et seq.), Case C-80/94 Wielockx (quoted in footnote 5, at paragraph 23 et seq.), Case C-107/94 Asscher (quoted in 11 — Article 109(l)(a) of the Greek Income Tax Code; emphasis footnote 5, at paragraph 50 et seq.), Case C-250/95 Futura added. Participations and Singer (quoted in footnote 5, at paragraph 12 — Article 109(l)(b) of the Greek Income Tax Code; emphasis 26), and in Case C-264/96 ICI [1998] ECR 1-4695, at para­ added. graphs 24 and 25.

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ROYAL BANK OF SCOTLAND ν ELLINIKO DIMOSIO (GREEK STATE)

40. Both the French Government in its sub a problem. O n that point, quotation on any missions and the Commission in the written stock market within the Community ought procedure applied the test of indirect discrimi to be sufficient. nation in which there must be comparability of situations and the possible justification of any unequal treatment found to exist. There fore, the attitudes of the intervening parties could stem from the fact that, in view of pre 43. In my view, the examination of this ques vious cases decided by the Court, 18 they tion goes beyond the question referred to the consider the seat of a company to be a cri Court for a preliminary ruling. In particular, terion for possible unequal treatment and there is insufficient information on the factual therefore as decisive as regards any indirect context to establish whether the criterion of discrimination between domestic and foreign quotation on the Athens Stock Market con companies. 19 stitutes indirect discrimination between domestic and foreign public limited compa nies and whether that requirement may, in certain circumstances, be justified.

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44. However, a clear distinction must first be would deprive Article 52, read in conjunction made between physical and legal persons as with Article 58, of all meaning. regards possible discrimination in the area of direct taxation. That is because the factors decisive to the taxation of physical persons' income, such as personal and family circum­ 21 stances, do not apply in the same way to 48. In order to create a balance between, on legal persons. the one hand, the fundamentally legitimate differentiation between residents and non­ residents 2 5 and, on the other, the associated risk of covert discrimination, it is necessary to examine the comparability of the situa­ tions. 2 6 If the situations are comparable, the same legal consequences, in the form of the 45. As Community law stands at present, grant of tax benefits, for example, must be matters of direct taxation do not fall within linked to objectively similar situations. It is the competence of the Community. However, only where unequal treatment may be justi­ the Member States must exercise the powers fied by overriding interests such as cohesion which they still have in this area consistently of the tax system 27 or pressing reasons of with Community law; 2 2 public interest, as these are set out in Article 56 of the Treaty, 28 that such a consequence is not imperative.

46. The usual distinction made in tax law between residents and non-residents is liable 49. If the facts in the main proceedings are to operate to the detriment of nationals of considered in that context, it must be acknow­ other Member States since non-residents are ledged that discrimination, be it direct or in the majority of cases foreigners. Therefore, indirect, indisputably exists. The parties differ differential treatment linked to those criteria as to the comparability of the situations. While may constitute indirect discrimination by the Commission is firmly of the opinion that 23 reason of nationality. the situation of domestic and foreign compa­ nies is the same as regards the determination of their taxable income, the Greek Govern­ ment considers that the situations are

different. Both parties rely on Article 99 of 51. However, the fact that even the Greek the Greek Income Tax Code. 29 Government has put forward no reasons to justify the unequal treatment, other than refer- ring to the fundamentally different situations of residents; and non-residents and claiming 50. In so far as the relevant provisions of the that the situations are different from the Greek Income Tax Code are reproduced in outset, is decisive. Consequently, it must be the procedural documents, it appears that the assumed, even without further examination taxable income of domestic and foreign com- of the facts, that unequal treatment of domestic panies is determined in the same way. That and foreign ι companies, such as is provided supports the Commission's view. In the final for by Article 109 of the Greek Income Tax analysis, it is for the referring court to make Code, is not justified and therefore incompat­ that assessment in accordance with the facts. ible with Articles 52 and 58 of the Treaty.

C — Conclusion

52. I n t h e light of t h e foregoing observations, I p r o p o s e t h a t t h e C o u r t s h o u l d reply as follows t o the q u e s t i o n referred for a preliminary ruling:

A p r o v i s i o n s u c h as Article 109(l)(a) of t h e G r e e k I n c o m e Tax C o d e ( L a w N o 2238/1994, Official Journal of the Hellenic Republic No 151 A), w h i c h , b y a p p l y i n g a r a t e of tax of 4 0 % t o their taxable i n c o m e , i m p o s e s a heavier tax b u r d e n o n for­ eign c o m p a n i e s t h a n o n d o m e s t i c c o m p a n i e s , t o w h i c h a tax rate of 3 5 % is applied, infringes Article 52, read in c o n j u n c t i o n w i t h Article 158, of t h e Treaty.