C-35/98

VERKOOIJEN

OPINION OF ADVOCATE GENERAL LA PERGOLA delivered on 24 June 1999 *

Table of contents

I — Subject-matter of the questions referred for a preliminary ruling I-4074

II — The relevant Community legislation I-4075

III — The national legislative framework I - 4075

(4) Is the national measure applicable in a discriminatory manner? I-4085

(5) Is the national measure justified? I-4086

(6) Overriding reasons in the general interest I-4087

(7) Is the national measure suitable and proportionate? I-4091

(8) The derogation under Article 73d(1)(a) I-4092 B — Question 2 I -4095

C — Questions 1 and 2: a comprehensive approach I - 4099

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OPINION OF MR LA PERGOLA — CASE C-35/98

I — Subject-matter of the questions re- which exempts shareholders, up to a ferred for a preliminary ruling certain amount, from liability to income tax on dividends, but restricts that exemption to dividends paid in respect of shares in companies estab- 1. The three questions referred to the Court lished in that Member State, has been for a preliminary ruling in the present case prohibited since 1 July 1990 pursuant concern the interpretation of Directive to Article 6(1) of that directive? 88/361/EEC 1and of Articles 6 and 52 of the EC Treaty (now, after amendment by the Treaty of Amsterdam, Articles 12 EC and 43 EC respectively). In particular, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands; hereinafter 'the Hoge Raad') is asking the Court to deter- mine whether a tax provision making the grant of an exemption (up to a certain amount) from income tax to natural per- sons in respect of dividends distributed to shareholders subject to the condition that those dividends are paid by a company (2) If the answer to Question 1 is in the whose seat is in the Member State where negative, are Articles 6 and/or 52 of the taxpayer is resident is compatible with the EC Treaty to be interpreted as the rules guaranteeing free movement of meaning that a restriction of the kind capital, non-discrimination on the ground referred to in that question is incom- of nationality and freedom of establish- patible with one or both of those ment. The questions referred by the articles? national court are the following:

2. Article 1(1) of the Directive provides that: '[w]ithout prejudice to the following provisions, Member States shall abolish restrictions on movements of capital taking place between persons resident in Member 3. It appears from the case file that under States. To facilitate application of this Article 47b of the Wet op de Inkomstenbe- directive, capital movements shall be clas- lasting 1964 ('the Income Tax Law') 3 sified in accordance with the Nomenclature natural persons are exempted, up to a in Annex I'. 2 Heading 1(2) of Annex I, specified amount, from income tax on entitled 'Nomenclature of the capital move- dividends in respect of shares. 4 Arti- ments referred to in Article 1 of the direc- cle 47b(1) provides that: '[t]he dividend tive' (hereinafter 'the Nomenclature'), spe- exemption shall apply to income from cifies, amongst 'direct investments', 'parti- shares in companies treated as income for cipation in new or existing undertakings the purpose of determining aggregate with a view to establishing or maintaining income from which a deduction for divi- lasting economic links'. Pursuant to Arti- dend tax has been made.

Accord- Treaty, in conjunction with Article 58 of ingly, the exemption provided for under the EC Treaty (now Article 48 EC) guar- Article 47b applies only to dividends dis- antees freedom of establishment for com- tributed by companies established in the panies or firms, ensuring them the benefit Netherlands. There is no indication what- of 'national treatment', in other words the soever in the case file that the sum paid by application by the host Member State of the legislation in force for its own nation- als. 3 — Hereinafter 'Article 47b' or 'the provision at issue'; that article was introduced by the Wet van 24 juni 1981 tot invoering van een voorraad-aftrek en vermogensaftrek in de inkomstenbelasting en de vennootschapsbelasting alsmede invoering van een beperkte rentevrijstelíing en een beperkte 2 — Since the Directive was adopted 'for the implementation of dividenvrijstelling in de inkomstenbelasting (Law of 24 June Article 67 of the Treaty', it is worthwhile recalling that 1981 on the introduction of a deduction in respect of stocks paragraph 1 of that article (abolished by the Treaty of and of a deduction in respect of capital on income tax and Amsterdam, see footnote 1) provided that: '[d]uring the on company tax as well as a partial interest exemption and a transitional period and to the extent necessary to ensure the partial dividend exemption from income tax; Staatsblad proper functioning of the common market, Member States 387). shall progressively abolish between themselves all restric- tions on the movement of capita] belonging to persons 4 — In the version in force before 1997, at the time of the facts in resident in Member States and any discrimination based on the main proceedings. the nationality or on the place of residence of the parties or 5 — The italics are mine. on the place where such capital is invested'. 6— Staatsblad 621.

5. In 1991, Mr Verkooijen resided in the Netherlands where he was employed by Fina Nederland BV, a Netherlands com- pany indirectly controlled by Petrofina NV (hereinafter 'Petrofina'), a public limited liability company established in Belgium and quoted on the Brussels and Antwerp stock exchanges. Mr Verkooijen acquired 4. It appears from the preparatory work for shares in the Petrofina group in the context the introduction of Article 47b into the of a company savings plan open to all Netherlands legal system that that article employees of that group.

tion. As I have just pointed out, the gories of such methods, depending on the tax (or the tax 'bracket') against which the 'compensation' is applied: Netherlands tax system provides for both corporation tax or the deduction at source which affects the dividends and income tax payable by shareholders on the a withholding tax on dividends and a tax dividends concerned. In the United Kingdom, for example, British taxpayers are granted — under certain conditions — tax credits in connection with dividends received from companies established in the same Member State (see Case C-397/98 Metallgesellschaft and Others, pending before the 7 — Parliamentary documents II, 1980-1981, 16539, p. 10, Court, OJ 1999 C 1, p. 7, and Case C-410/98, Hoechst and

will increase. Thanks to the exemption in respect of in a free capital market, in EC Tax Review, 1997, p. 227. dividends, this measure will, moreover, deter investors from turning away from shares or not investing in shares'. 9 — Equivalent to approximately 1 060 euros.

6. After unsuccessfully objecting to the A — Question 1 assessment, Mr Verkooijen challenged before the Gerechtshof te 's-Gravenhage the tax authorities' decision confirming that assessment. By judgment of 10 April 1996, the Gerechtshof found in favour of Mr Verkooijen, reducing his taxable income by the sum of NLG 2 000 on the 7. By its first question, the national court is ground that the Netherlands tax legislation essentially asking whether a national pro- restricted the movement of capital and vision which partially exempts natural freedom of establishment. The Staatssecre- persons from income tax on share divi- dends provided the dividends are paid in respect of a company established in the 10 — For married persons like Mr Verkooijen, the exemption in Member State concerned is compatible question is limited to an amount of NLG 2 000 (about 910 with the Directive. euros) in taxable income. Originally, the exemption in respect of dividends applied to an amount of NLG 500 (about 227 euros); by law of 6 September 1985 (Staats- blad 504) that amount was increased to NLG 1 000 (about 454 euros), or to NLG 2 000 in the case of married 11 —The State Secretary for Finance (hereinafter 'the State couples taxed jointly. Secretary').

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9. Following essentially the same argument 13 — OJ 1975 C 253, p. 2 (hereinafter 'the proposal'). as the Italian Government, the Netherlands 14 — See Notice of the Commission to the Parliament and the Government points out that, in 1975, the Council, document SEC(90) 601 final of 20 April-18 May 1990 (hereinafter 'the Notice'). Commission had submitted a proposal for 15 — Namely, a centralised concept of fiscal harmonisation and a Council directive concerning the harmo- of economic and monetary union, rather than an approach emphasising the coordination and approximation of nisation of systems of company taxation national policies, taking into account also the principle of subsidiarity (see the Notice, p. 10). 16 — The 1975 proposal, which the Council and the European Parliament had not debated further, no longer satisfied the requirements of the Community in the nineties (ibidem). 12 — Case C-246/89 Commission v United Kingdom [1991] ECR I-4585, paragraph 12; Case C-279/93 Schumacker 17 — Those proposals are now Council Directives 90/434/EEC [1995] ECR I-225, paragraph 2 1 ; Case C-80/94 Wiebckx of 23 July 1990 on the common system of taxation [1995] ECR I-2493, paragraph 16; Case C-107/94 Asscher applicable to mergers, divisions, transfers of assets and [1996] ECR I-3089, paragraph 36; Case C-250/95 Futura exchanges of shares concerning companies of different Participations and Singer [1997] ECR I-2471, para- Member States (OJ 1990 L 225, p. 1) and 90/435/EEC of graph 19; Case C-118/96 Safir [1998] ECR I-1897, para- 23 July 1990 on the common system of taxation applicable g r a p h 2 1 ; s e e a l s o C a s e C - 2 6 4 / 9 6 ICI [1998] in the case of parent companies and subsidiaries of (ECR I-4695, paragraph 19; and Case C-311/97 Royal different Member States (OJ 1990 L 255, p. 6); see the Bank of Scotland [1999] ECR I-2651, paragraph 19. Notice, p. 13.

not warn the Netherlands Government that 11. Referring to the rule in Bachmann, 20 the provisions at issue might be inconsistent the United Kingdom and French Govern- with Community law. That is all the more ments argue that Article 67 of the Treaty is significant because the Kingdom of the not relevant since it is secondary to the Netherlands is not the only Member State provisions guaranteeing other fundamental to provide in its tax system for a mechan- freedoms. In Bachmann, the Court stated ism mitigating the effects of double taxa- that 'Article 67 does not prohibit restric- tion, which is limited to 'internal relation- tions which do not relate to the movement ships' in order to encourage investment in of capital but which result indirectly from national securities. 18 However, that obser- restrictions on other fundamental free- vation of the Kingdom of the Netherlands doms'. 21 In other words, Article 67 comes is irrelevant in the context of proceedings into play only where a transfer of assets brought before the Court pursuant to does not constitute a payment connected subparagraph (a) of the first paragraph of with trade in goods or services. 22 However, Article 177 of the EC Treaty (now subpar- the Governments which have submitted agraph (a) of the first paragraph of Arti- observations in this case have not indicated cle 234 EC) which relates exclusively to the which other fundamental freedoms are interpretation of Community law. Deci- more directly restricted by the provision sions handed down by the Court pursuant at issue. That aside, reasoning in accor- to Article 177 of the Treaty are based on an dance with the aforecited case-law, I believe 'objective' jurisdiction and it is not neces- that this is clearly a case where Article 67 is sary to take into consideration the subjec- not of a residual nature. In acquiring the tive circumstances (for example, good faith) of the subject required to apply the Petrofina shares, 2 3 Mr Verkooijen cer- rule to be interpreted. The subjective ele- tainly did not effect a payment in consid- ment can, if need be, enter into account in eration for a service. It was a genuine proceedings brought before the Court for financial transaction undertaken for the non-compliance with the Treaty or second- purpose of investing a specific sum in the ary legislation. 19 shares of a company established in another Member State: namely, a genuine cross- border movement of capital. In Veronica

Omroep Organisatie, 24 where the national cle 1(1) of the Directive, essentially on the measure at issue restricted the participa- basis of two types of considerations: tion, permitted under national legislation, by a broadcasting station in the capital of another broadcasting station established, or to be established, in another Member State, the Court considered as already decided the question whether the purchase of such participations constituted a move- ment of capital within the meaning of (a) the link between the provision at issue Article 67 and proceeded directly to exam- (which only affects dividends) and free ining the merits. The Court thus clearly movement of capital is too tenuous and established the relevance of that article for indirect for Article 47b to fall within the the purposes of the case before it. In any scope of the Directive; event, in the present case, it is for the national court to assess the relevance of the question referred for a preliminary ruling in connection with capital movements. 25

(b) neither the acquisition of shares in companies established in a Member State other than the Netherlands nor the distri- bution of dividends as a result of participa- tions in foreign companies is, as such and (3) Does the national measure restrict the per se, hindered or restricted in the present movement of capital? case.

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VERKOOIJEN

a dividend necessarily presupposes 'partici- tions must be interpreted broadly. 30 There- pation in undertakings' or the 'acquisition fore, neither the nature nor the subject- of securities' and these most certainly are matter of the national measure at issue is capital movements within the meaning of decisive for the purpose of applying Arti- Article 67. 27 That is sufficient, in my view, cle 67. What is decisive is its possible effect to bring the provision at issue within the on capital movements. I believe that such scope of the Directive. What is more, the an approach is fully consistent with the movement of capital consisting in invest- wording of Article 1(1) of the Directive (in ment in shares in companies is often force at the material time) and of Arti- prompted by the intention of collecting cle 73b of the Treaty (currently in force) the dividends to which the shareholder is which, by prohibiting without reserve all entitled on the ground of that participation. restrictions on the free movement of capi- The Court recently stated that, for a tal, 'enshrines' and, as it were, 'constitu- restriction or an obstacle to a particular transaction to be covered by Article 73b of the EC Treaty (now Article 56 EC), that transaction need only be 'inextricably linked' to a movement of capital, 2 8 that is to say constitute a prerequisite thereof. 29 The Court has also for a long time held that the concept of capital movement restric-

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OPINION OF MR LA PERGOLA — CASE C-35/98

14. As regards the contention that capital tax to the investor. Contrary to the view of movements are neither hindered nor the governments which have submitted restricted (see paragraph 12(b) above), I observations, that distorting effect is not would observe that, as the corresponding so secondary as to have no impact on the legislative history clearly shows, the pur- legal analysis. 32 As the Commission pose of Article 47b was to introduce 'pre- observed a few years ago, 33 with the ferential' tax treatment for those looking to completion of the single market, the phy- the Netherlands stock market, thus sical and technical obstacles to the exercise encouraging them to invest their capital in of the fundamental freedoms have been the Netherlands. Considering its wording, eliminated. As a result, differences between the provision at issue is certainly direct and the taxation systems of the Member States suitable for the required purpose. Not even are accentuated and exert considerable the Netherlands Government denies that. If influence precisely on investment decisions. that is indeed the case, I would be inclined Moreover, I must add that dividend taxa- to define it as a measure based on a tion is becoming an increasingly important 'protectionist' policy. It can be argued factor in investment decisions as a result of that — insofar as it applies to the dividends the implementation of economic and mone- distributed by Netherlands companies to tary union (the next stage after 1992 in the progress towards a fully-integrated single market) and with the disappearance from 31 — In the text I indicate the reasons, drawn from the Court's 1 January 1999 of exchange risks within case-law, why I consider that the provision at issue produces a sufficiently direct effect on capital movements. eleven Member States. It follows that the It must be observed — using the analogies between the fundamental freedoms outlined in point 17, the list of which is certainly not exhaustive (see, for example, footnote 84, in fine) — that applying to capital move- ments the principles enunciated in Case 8/74 Dassonville [1974] ECR 837, paragraph 5, in respect of free move- 32 — 'The link between free movement of capital and taxation is ment of goods leads to the conclusion that even an indirect clear. Capital moves in response to two elements: the rate

Dr. Hugo J. Hahn a national rule limiting the grant of a tax benefit to zum 70. Geburtstag, Nomos Verlagsgesellschaft, Baden- publishers who have their books printed in the Member Baden, 1997, p. 177, in particular p. 184 (the translation is State concerned is incompatible with Article 30 of the EC my own). Also see the conclusions of the Report of the Treaty (now, after amendment, Article 28 EC) (Case 18/84 Committee of independent experts on company taxation, Commission v France [1985] ECR 1339). See also the issued by the Commission on 18 March 1992, Office for Opinion of Advocate General Cosmas (Case C-412/97 ED Official Publications of the European Communities, Lux- [19991 ECR I-3845), where it is stated that 'indirect' embourg, 1992 (hereinafter the 'Ruding Report'), also restrictions on free movement of goods and capital are in published in European Taxation, 1992, p. 105. principle permissible (points 23 and 24). 33 — See the Notice, p. 10.

34 — According to Servais, op. cit. 'fiscal regimes designed to develop certain forms of investment, [inducing] the acquisition of national securities... are discriminatory vis 15. Again on the basis of the elements of à vis foreign securities' (see p. 57). The Court has already the national legislation emerging from the had occasion to consider a restriction producing restrictive effects on two levels: see Case C-410/96 Ambry [1998] case file, there is a second aspect of ECR I-7875, paragraphs 28 and 29, concerning a national rule requiring a guarantor providing financial guarantees Article 47b which is relevant for the pur- in favour of a bank or insurance company established in poses of Article 67 and Article 1(1) of the another Member State to enter into an additional agree- ment with a bank or an insurance company established on Directive. The 'geographical' limit of the national territory. The Court observed that such a rule has a restrictive or dissuasive effect (a) on financial institutions exemption certainly has a restrictive and established in other Member States since it prevents them dissuasive effect even on companies estab- from offering the required guarantees directly to residents of the Member State concerned in the same way as a lished in other Member States in that it guarantor established on national territory and (b) on residents of the Member State concerned who are discour- constitutes an obstacle to the raising of aged from turning to financial institutions established in another Member State since the obligation for such capital: those companies are dissuaded financial institutions to enter into another guarantee from placing their own shares in the agreement with a bank or an insurance company estab- lished in that Member State is likely to entail additional Netherlands since their shares are less costs which are normally passed on to the consumer in the fee charged for issuing the guarantee. attractive to investors in view of the fact that the dividends paid to the shareholders 35 — See Bordessa, paragraph 17. Chronologically, it must be observed that the facts of the case, involving a tax of such companies receive less favourable declaration for the 1991 fiscal year, are subsequent to the date of full liberalisation provided for in Article 6(1) of the tax treatment than dividends distributed by Directive, namely 1 July 1990.

or an option which is a component of such in the decision as to where to invest his a freedom. 36 capital. 38 In any event, the argument put forward by the governments which sub- mitted observations runs counter to the case-law since the Court has ruled that even national rules which merely constitute a 'hindrance' to capital movements are con- trary to the directives for the implementa- tion of Article 67. 39 I believe that that case-law can be placed on a par with the case-law concerning free movement of goods, 4 0 in which the Court has ruled that 'a national measure does not fall outside the scope of the prohibition in Article 30 merely because the hindrance to imports which it creates is slight'.4142 There is

tenuous nature of the effects of the provi- sion at issue clearly depends on the sum to be invested and on the resources of the investor. For a small investor who necessa- 38 — See the statement of the State Secretary cited in footnote 8. rily invests only limited sums, the exemp- 39 — See Brugnoni and Ruffinengo, paragraph 22. tion under Article 47b probably consti- 40 — The analogy is all the more fitting — and I see no reason tutes, contrary to the view of the United for regarding restrictions on one fundamental freedom any differently from restrictions on another (see Gebhard, Kingdom Government, a significant factor paragraph 37) — because both Article 30 of the Treaty (see Dassonville, paragraph 5) and Article 1(1) of the Directive (now Article 56 EC) do not merely require the elimination of national measures which are discriminatory in nature but prohibit all restrictions. 36 — See, for example, Trummer and Mayer, paragraph 2 6 ; 41 — Case 103/84 Commission v Italy [1986] ECR 1759, Ambry, paragraphs 28 and 29; Safir, paragraph 30; Case paragraph 18. C-19/92 Kraus [1993] ECR I-1663, paragraph 32; Svens- 42 — Joined Cases 177/82 and 178/82 Van de Haar [1984] son, p a r a g r a p h 10; Case C-55/94 Gebhard [1995] ECR 1-4165, paragraph 37; Bachmann, paragraph 31. ECR 1797, paragraph 13. 43 — See, for example, Kraus, paragraph 32; in the context of 3 7 — The United Kingdom Government stressed the following freedom of establishment, see Avoir Fiscal (Case 270/83 elements: (i) there are instances where an investment in Commission v France [1986] ECR 2 7 3 , paragraph 21) in foreign shares does not involve any capital movement which the Court stated that Article 52 [of the Treaty] whatsoever, if the shares are traded between Netherlands residents; (ii) given the low amount of the de qua prohibits all discrimination, 'even if only of a limited

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fied). That case concerns the movement of capital and is clearly similar to the case at hand. It makes no difference that in Svens- son and Gustavsson the national measure provided for different treatment depending 18. The parties which submitted observa- on the Member State from which the tions in this case focused their attention on capital originated (restriction on imports) whether or not free movement of capital is rather than the Member State to which the restricted. However, consideration must capital was transferred (restriction on also be given to the compatibility of exports) as in the present case.

. . the place where such that, as a consequence, and on the same capital is invested'. The Directive brought ground, the contested provision is incom- about the 'maturity' of the single market in patible with Article 1(1) of the Directive. respect of capital movements as well. The very notion of fully-guaranteed free move- ment should mean that the national legis- 46 — See Avoir Fiscal, paragraph 21. lature cannot consider the place of origin or 47 — Among those who argue that a 'distinction' in treatment of destination of the capital — namely, the per se on the sole ground of the place where capita] is invested is unlawful, see A.P_ Dourado, Free movement of place where the capital is invested — as capital and capital income taxation within the European being a legitimate basis for distinction for Union, in EC Tax Review, 1994, p. 176, pp. 184 and 185 in particular; J.-H. Hauptmann, Comments on Article 73b the purposes of legislation in that area. in Traité sur l'Union européene - Commentaire article par article, under the direction of V. Constantinesco, J.-P. Jac- More specifically: a rule of national law qué, R. Kovar and D. Simon, Economica, Paris, 1995, treating capital movements differently p. 176, point 6; P. Julliard, Comments on Article 67, in Traité instituant la CEE — Commentaire article par solely on the ground of the place where article, under the direction of V. Contantinesco, J-P Jacqué, R. Kovar and D. Simon, Economica, Paris, 1992, they are located should, I believe, be p. 353, point 5(b); S. Mohamed, Community rules on the Free Movement of Capital, Stockholm University, 1997, regarded as incompatible with the Treaty pp. 36 to 38; Ståhl, op. cit., p. 232; W. Vermeend, Tax even without assessing how far the national policy in Europe, in EC Tax Review, 1998, p. 151, in particular p. 152. The Ruding Report, op. cit., moreover, stresses the fact that discrimination on the sole ground of the place where capital is invested tends to fragment

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That has significant consequences as counter to the criteria set out in the case- regards the permissible justifications in this law according to which, in order not to be case: it is not possible to rely upon an contrary to Community law, in addition to imperative requirement in the general inter- being suitable and proportionate to the est not contemplated by the Treaty in order objective pursued by the authority which to justify a difference in treatment that is in adopts them, measures of this type must be principle incompatible with Article 1(1) of justified by express derogations, if they are the Directive (and with Article 67(1)). It is applicable in a discriminatory manner, and settled case-law that only express deroga- also by overriding reasons in the general tions (such as Articles 36, 48(3) and 56(1) interest, if they are applicable in a non- of the EC Treaty (now, after amendment, discriminatory manner. 50 Articles 30 EC, 39(3) EC and 46(1) EC respectively) and Article 66 of the EC Treaty (now Article 55 EC)) can bring such discrimination into line with Community law. 49

20. Firstly, I would observe that none of the governments which submitted observa- tions, much less the Netherlands Govern- ment, relied upon the derogating provisions set out in the Directive — the only ones in force at the material time 51 — to justify the difference of treatment introduced by the legislation in question. Strictly speaking, therefore, the obstacle to capital move- ments created by Article 47b should be (5) Is the national measure justified? regarded as neither justified nor justifiable tout court. The governments which sub- mitted observations nevertheless maintain that the provision at issue warrants an exception for two sets of reasons, the first based on the Court's case-law on overriding reasons in the general interest and the second on a specific derogating provision which was expressly introduced into the EC

Treaty by the EU Treaty and came into would be undermined and the Netherlands force after the facts in the main proceed- Government would be obliged to forego ings, namely Article 73d(1)(a) of the EC tax entirely on part of the dividends (of Treaty (now, after amendment, Arti- foreign origin) paid to shareholders resi- cle 58(1)(a) EC). dent for tax purposes in the Netherlands. 'Extending' the application of the exemp- tion would mean foregoing all taxation on a portion of the income of natural persons and, the governments which have submit- ted observations maintain, there is no provision of Community law imposing such a result. In short, they rely on the strict correlation between the possibility of exempting dividends from income tax (6) Overriding reasons in the general interest levied on natural persons and the applica- tion of dividend tax to those dividends.

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In Svensson and Gustavsson 56 and in ICI, 57 for example, the Court examined, ruling that they were contrary to the Treaty, national measures (in ICI, of a fiscal nature) applicable in a discriminatory manner 58 where a compa- 23. It must now be determined whether the ny's place of business (or rather, the Mem- national governments were justified in ber State in which a company was estab- putting forward the need to preserve the lished) was the discretionary criterion for cohesion of the tax system concerned. the grant or withholding of advantages to Despite the discriminatory nature of the certain parties. 59 In considering national provision at issue (see paragraph 18 measures of that kind the Court explicitly above), the substance of that justification confirmed the general principle that over- must be examined in the light of certain riding reasons in the general interest which case-law of the Court according to which are not recognised by the Treaty 60 cannot even national measures applicable in a be relied upon to justify a difference in discriminatory manner (in this case, based on the place where the capital is invested) can be excepted — solely on the basis of 55 — See Bachmann and Case C-300/90 Commission v Belgium that overriding reason in the general inter- [1992] ECR I-305. est — on grounds not provided for in an 56 — Cited in footnote 30. express derogating clause. In two judg- 57 — Cited in footnote 12. 58 — For the Court's express findings: in Svensson and Gus- ments of the same date concerning one and tavsson, see paragraph 12 on the 'services' aspect and, in the same national measure which was ICI, see paragraph 24. It should be noted that concerning the 'capital' aspect, in Svensson and Gustavsson the Court found to be contrary to Articles 48 and does not make any express statement on the question whether or not the measure at issue is applicable in a 59 of the Treaty (now, after amendment, discriminatory manner; in that respect, see point 18 of this

and 49 EC). The tax measures favouring national products the judgment). over imports which the Court held to be contrary to 60 — The only exceptions in the case of freedom of establish- Article 95 of the EC Treaty (now, after amendment, ment ICI) are set out in Article 56(1) of the Treaty; the Article 90 EC) in view of their protectionist effects also exceptions concerning freedom to provide services [Svens- come to mind (see, for example, Case 112/84 Humblot son and Gustavsson) are limited to the circumstances [1985] ECR 1367; Case C-132/88 Commission v Greece mentioned in Article 66 of the Treaty (now, after amend- [1990] ECR I-1567; Case C-113/94 Casarin [1995] ment, Article 55 EC) which refers back to Article 56 (now, ECR I-4203). after amendment, Article 46 EC).

treatment that is in principle contrary to it cannot apply). In other words, it is Articles 52 and 59 of the Treaty 61 and precisely on the ground of the need to cited on each occasion the rules in Bach- safeguard fiscal cohesion that, having pro- mann and Commission v Belgium, but il vided for the exemption at issue, 64 the nonetheless examined the substance — Netherlands legislature did not extend it to instead of dismissing it as inadmissible — cover dividends distributed by a company of the justification based on the need to established in another Member State. preserve the cohesion of the tax system in question. 62 The Court thus seems to have confirmed — once again with very succinct reasons — that the overriding reasons in the general interest which could be relied upon to justify national measures restrict- ing the fundamental freedoms included one which was more overriding', so to speak, than the others because it could be validly 25. According to the case-law of the Court, relied upon even in the case of national the need to preserve the cohesion of the tax legislation applicable in a discriminatory system can only justify a restriction of a manner. 63 fundamental freedom where there is a direct link between tax relief (namely, a loss of tax revenue for the administration) and a tax levy. 65 Such a link exists, for example, where the deductibility of insur- ance contributions from taxable income is

taxation. Where, by contrast, policyholders are allowed to deduct contributions paid to a company established in another Member 61 — See Svensson and Gustavsson, paragraph 15, and ICI, paragraph 28. State, the tax authority of the Member 62 — See Svensson and Gustavsson, paragraph 18, and ICI, State concerned would suffer a loss of paragraph 29. However, it must be observed that in ICI, while on the one hand reiterating the general principle that revenue if the policyholder had returned overriding reasons in the general interest cannot be relied upon to justify national measures applicable in a discrimi- natory manner and on the other examining the merits of the argument based on the need to ensure the cohesion of the tax system, the Court nonetheless applied that 64 — As both the Commission and Mr Verkooijen pointed out, principle correctly and rejected as inadmissible another the tax system applicable in the Netherlands prior to 1981, reason put forward by the Member State concerned, when Article 47b was adopted, was already distinguished namely the need to prevent a loss of tax revenue (see by a certain degree of cohesion insofar as that system did paragraph 28 of the judgment). not provide for exceptions eliminating or mitigating the economic consequences of the double taxation of divi- 63 — To the same effect, see Asscher (freedom of establishment) dends distributed to Netherlands taxpayers by companies and Schumacker (freedom of movement for workers) established in the Netherlands. where the Court, recalling the Bachmann case, went on to consider the merits of the justification relating to the 6-5 — See ICI, paragraph 29; Asscher, paragraphs 58 to 60; need to ensure fiscal cohesion (at paragraphs 58 to 60 and Svensson and Gustavsson, paragraph 18; Bachmann, 39 to 42 respectively) after establishing that the national paragraphs 22 and 23, and Commission v Belgium, measure in question was discriminatory (at paragraphs 48 paragraphs 14 to 16. and 49, and 27 to 38 respectively). 66 — See Bachmann and Commission v Belgium.

27. Moreover, in my view, the link between the exemption referred to in Article 47b and the levy of the dividend tax is direct. As 26. According to the principles which can is clear from the legislative history of the be inferred from the case-law of the Court, provision at issue by which the Netherlands extending the exemption of dividends re- legislature sought to mitigate the effects of ferred to in Article 47b to Mr Verkooijen double taxation, 69 from the economic would, I believe, have the effect of dama- point of view, the dividend tax and the ging the link between the possibility of income tax payable by natural persons exempting dividends from income tax and referred to in the order for reference affect their subjection to dividend tax. The King- one and the same taxpayer (the recipient of dom of the Netherlands introduced the tax the dividends). By contrast, in Svensson and relief at issue solely on the premiss that its Gustavsson, where the Court held that the tax system could in any event have an cohesion of the Luxembourg tax system impact on the income concerned by the was not at risk, the tax credit and the tax (which were allegedly linked) did not 67 — See Svensson and Gustavsson, paragraph 18. 68 — See point 31 of the Opinion of Advocate General Elmer in Svensson and Gustavsson. 69 — See point 4 above.

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29. I do not believe that there are any 70 — See point 30 of the Opinion of Advocate General Elmer. doubts concerning the suitability of the 71 — More recently and, essentially, to the same effect, see ICI, provision at issue for mitigating, at least paragraph 29, and points 26 to 28 of the Opinion of Advocate General Tesauro. partially, the effects on the recipient share- 72 — Again from the perspective of the cohesion of its tax holder of the double taxation of dividends system, and in particular the need to avoid effects that were not intended by the national legislature, the Nether- in the Netherlands, and none of the parties lands Government also pointed out that a general applica- which have submitted observations in this tion of the exemption would have the effect of favouring shareholders of companies established in Member States case has raised any in that regard. As where the tax rules offsetting the effects of double taxation of dividends apply at source, namely on dividend tax, over regards the proportionality of the provision shareholders of Netherlands companies. According to the at issue to the aim pursued by the Nether- Netherlands Government, shareholders investing in shares of foreign companies would thus benefit more from the lands legislature, it is for the national court, mitigation of double taxation than shareholders of Nether- by reason of the division of jurisdiction lands companies: that would go beyond the intended purpose of the exemption and would have the added effect, provided for in Article 177 of the Treaty, to if I understand correctly, of hindering the second aim of the tax measure in question, namely supporting the national determine whether or not the restriction of economy. The reasoning of the Netherlands Government is a fundamental freedom arising from a not convincing. Firstly, Community law does not prevent Member States from treating purely internal cases less national measure could have been avoided favourably than those dealt with by the Treaty. Secondly, I would recall that the Court has already had occasion to or reduced without jeopardising the aims rebut the argument that certain disadvantages (in this case, the fact of not benefiting from the exemption) can be pursued by that measure. 74 In this regard, justified because they are offset by advantages for the persons concerned in another Member State (in the the only alternative put forward in the situation outlined by the Netherlands, a 'reduction' applied to dividend tax, a measure unknown in the Netherlands tax system): see Case C-330/91 Commerz- bank [1993] ECR I-4017, paragraphs 18 and 19, and 73 — See, inter alia, Gebhard, paragraph 37, and Kraus, para- Avoir fiscal (paragraph 21; see also point 7 of the Opinion of Advocate General Mancini). graph 32. 74 — Case 222/84 Johnston [1986] ECR 1651, paragraph 39.

(8) The derogation under Article 73d(1)(a) 76 — Article 73d of the Treaty provides: '1. The provisions of Article 73b shall be without prejudice to the right of Member States: (a) to apply the relevant provisions of their tax law which distinguish between tax-payers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested; (b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions... 2. The provisions of this chapter shall be without prejudice to the applicability of restrictions on the right of establish- ment which are compatible with this Treaty. 3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary 30. Apart from the justifications based on discrimination or a disguised restriction on the free movement of capital and payments as defined in Arti- overriding reasons in the general interest cle 73b'. Article 73b(1) of the Treaty states: 'Within the framework that emerge from the case-law of the Court, of the provisions set out in this chapter, all restrictions on all the governments which have submitted the movement of capital between Member States and between Member States and third countries shall be observations argue that Article 47b must in prohibited'. any event be excepted under the derogation 77 — Regarding the troubled history of the Treaty's provisions on capital movements, see footnote 1 above; Arti- cle 73d(1)(a) introduces, in particular, a derogation (here- inafter referred to as 'the derogation') to the freedom in question, that was not explicitly provided for in the 75 — On this subject, see points 46 to 56 below, and para- previously applicable provisions of the Treaty or in the graph 54 in particular. directive.

The derogation is thus relied on to demon- the provisions in force before 1 January strate that under the provisions previously 1994. 79 It is true that, in its case-law, the in force, the Member States already had the Court has allowed Member States to main- power to apply tax rules discriminating tain certain distinctions (based, for exam- between taxpayers in different situations ple, on the taxpayers' place of residence) in based on the place where their capital was their taxation rules, provided such distinc-

Treaty. That conclusion is essentially based on a literal interpretation of the article itself. 78 Thus, the power in question is 33. On the other hand, I reject the argu- unconditional: it is not subject to judicial ment that different tax treatment based on review either as regards the merits of the the place where capital is invested — which overriding reasons in the general interest that purportedly justify different treatment based on the place where the capital is 79 — With few exceptions, legal writers agree that Arti- cle 73d(1)(a) of the Treaty is not at all a step backwards, invested, or as regards the proportionality in seeming contradiction with the letter of Article 67(1) (prohibiting discrimination based on the place where of the measure to the objectives pursued. capital is invested), but must be read in harmony with the pre-existing system as interpreted in case-law (see, inter alia, Dourado, op. cit., p. 180, 181 and 184; P. Farmer and R. Lyal, EC Tax Law, Clarendon Press, Oxford, 1994, p. 334; J-M. Hauptmann, 'Commentaire sur l'art. 73 D', in Traité sur l'Union européene, op. cit., p. 184; Lodin, op. cit., p. 231; Mohamed, op. cit., pp. 134 to 135; M. Peters, 'Capital movements and taxation in the EC', in EC Tax Review, 1998, p. 1, and especially pp. 10 and 11; Servais, op. cit. p. 64, note 58; R. Smits, 'Freedom of payments and capital movements under EMU' in A. Weber (ed.) Wäh- rung und Wirtschaft, op. cit., pp. 245, 262 and 263; Ståhl, op. cit., pp. 229 and 231; J.A_ Usher, The Law of Money and Financial Services in the European Community, Clarendon Press, Oxford, 1994, p. 32 et seq.; S. van Thiel, 'The Prohibition of Income Tax Discrimination.in

point. On the one hand, I am convinced 'substance' in establishing whether or not two distinct situations are comparable, without going into distinctions that the derogation does not constitute a of a more 'formal' nature (such as that between resident step backwards in the acquis communau- and non-resident) that are frequently found in national legislation, see Schumacker, paragraph 34 (where the taire. It can reasonably be said to antedate reasoning would appear to hinge on the term 'situation', already employed in paragraphs 24 and 31), and points 35 to 38 of the Opinion of Advocate General Léger (see also the latter's Opinion in Wielockx, point 21); the term 'situation' is also used in Article 73d(1)(a) of the Treaty. 78 — The governments which submitted observations empha- See, moreover, Royal Bank of Scotland, paragraphs 27 to sise, in particular, the fact that Article 73d(3) mentions 31; Asscher, paragraph 42; Wielockx, paragraphs 18 to only 'measures' and 'procedures' and therefore refers solely 22, and Avoir fiscal, paragraph 19. to the literal wording of Article 73d(1)(b) and (2), whereas 81 — See the judgments in Bachmann and Commission v Article 73d(1)(a) refers to 'provisions'.

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be deprived of all meaning. It follows that 34. If we apply to the present case the the limitations set out in Article 73d(3) of derogation set out in Article 73d(1)(a) of the Treaty also apply to the derogation the Treaty and adopt the above-mentioned referred to in paragraph 1(a) of the same criteria for interpretation, the result is article which, contrary to the opinion of the substantially comparable to the result governments which have submitted obser- obtained on the basis of the provisions vations, must be read as a whole. 84 Sec- previously in force. Considered as such, ondly, to consider — as an absolute pre- Article 47b provides for differentiated sumption — that all the situations covered treatment based solely on the place where by the derogation are justified per se would the Dutch taxpayer's capital is invested, mean attributing to the derogation itself the and that provision does not avoid the specific capacity, not contemplated by the prohibition under Article 73b of the Treaty. Treaty, of distinguishing — for reasons I The fact that such difference in treatment, cannot see — the cases concerned by this set out in a provision of tax law, may be derogation from all other exceptional justified by an overriding reason in the cases — set out expressis verbis in the general interest recognised by the Court simply means that the national measure in question is liable — again, in principle, since it is not arbitrarily discriminatory in nature — to fall within the scope of the

capital came into force. 85 volume I, paragraph 92. Considering the close structural similarity between Article 36 and Article 73d of the Treaty, the above reconstruction seems to accord with the case-law which draws analogies with the general system guaranteeing the fundamental freedoms (see Geb- 85 — See Bachmann, paragraph 27, and Commission v Belgium, hard, paragraph 37). paragraph 20.

38. As a preliminary point, the United Kingdom and Netherlands Governments submitted that Article 52 of the Treaty is not applicable to the present case since it is a general provision as opposed to the more specific rules on free movement of capital B — Question 2 which must be applied by way of excep- tion. As we have seen, those governments defend the provision at issue, maintaining that it is compatible with Community rules guaranteeing free movement of capital. If my understanding is correct, those govern- ments argue that Article 52 of the Treaty does not preclude the provision at issue 36. If the first question is answered in the negative, the Hoge Raad asks the Court 86 — See, inter alia, Case 305/87 Commission v Greece [1989] whether Articles 6 and/or 52 of the Treaty ECR 1461, paragraphs 12 and 13; Case C-18/93 Corsica Ferries [1994] ECR I-1783, paragraph 19; Case C-1/93 preclude a national measure such as Arti- Halliburton Services [1994] ECR I-1137, paragraph 12; and Case C-193/94 Skanavi and Chryssanthakopoulos cle 47b. [19961 ECR I-929, paragraphs 20 and 21.

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87 40. Moreover, as for whether or not there — Correspondingly, in its present version, Article 73d(2) of the Treaty is worded analogously as regards capital is a restriction under Article 52 of the movements: 'the provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with this Treaty'. 88 — See point 17 of the Opinion in Safir. 89 — See Avoir fiscal, paragraph 21.

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91 — Article 52 of the Treaty does not merely guarantee free- 41. There are many situations in which a dom of establishment on a primary basis: under the first paragraph of Article 52 and the first paragraph of national measure such as Article 47b Article 58 of the Treaty, freedom of establishment includes the right of companies formed in accordance with the law restricts — to a greater or lesser extent — of a Member State and having their registered office, freedom of establishment: central administration or principal place of business within the Community to pursue their activities in another Member State through a branch or agency. On this substantive question, see Case C-334/94 Commission v France [1996] ECR I-1307, paragraph 19, and Case C-212/97 Centros [1999] ECR I-1459, paragraph 21. On a more general level, see Case C-106/91 Ramrath [1992] ECR I-3351, paragraph 20; Gebhard, paragraph 24, and Case C-53/95 Kemmler [1996] ECR I-703, paragraph 10. 92 — The right of establishment includes the right to 'manage undertakings' (see the second paragraph of Article 52 of the Treaty and Gebhard, paragraph 23: 'the right of establishment... allows all types of self-employed activity to be taken up and pursued on the territory of any other Member State, undertakings to be formed and operated...'; the italics are mine). (a) as Mr Verkooijen has observed, a 93 — See point 15 of my Opinion in Centros. company that has its principal place of 94 — See paragraphs 20 to 22 of the judgment, and the case-law references to the same effect. Among these, see Avoir fiscal where the Court stated that 'the second sentence of the first paragraph of Article 52 expressly leaves traders free to choose the appropriate legal form in which to pursue their 90 — See point lá and the case-law of the Court cited in activities in another Member State' (paragraph 22; the footnote 36. italics are mine).

(c) I believe that Article 47b also plays a role in the case of a merger involving a company established in the Netherlands 43. Moreover, as regards the view of the whose shareholders are natural persons governments which have submitted obser- resident in the Netherlands. As in the case vations that the effects of Article 47b on under (b) above, those shareholders lose the freedom of establishment are too tenuous, I advantage under the provision at issue (i) in would point out that the Court has con- the case of a merger by incorporation, sistently held that Article 52 of the Treaty where the incorporating company does not prohibits 'any restriction, even minor, of have its registered office in the Nether- that freedom' (see the end of point 17). 97 lands, and (ii) in the case of a true merger, where the ensuing, newly-formed company does not have its registered office in the Netherlands. 96 In both cases, the dividends paid to Netherlands taxpayers following such mergers will no longer originate from a company established in the Netherlands. 44. Assuming that, under certain aspects, the provision at issue is inconsistent with 95 See, a contrario, Case 81/87 Daily Mail and General Trust Article 52 of the Treaty, we must now [1988] ECR 5483, paragraphs 24 and 25, where the Court held that 'Articles 52 and 58 of the Treaty cannot be interpreted as conferring on companies incorporated under the law of a Member State a right to transfer their central management and control and their central administration 97 — The Ruding Report shows that, in the case of 48% of to another Member State while retaining their status as Community undertakings, tax considerations are nearly companies incorporated under the legislation of the first always crucial in deciding where to establish a production Member State' (the italics are mine). unit (see Chapter 10, Section II, on the impact of differ- 96 — These operations entail the 'transfer' of the company's ences in taxation between the Member States); on the other registered office to another Member State (see situation hand, the percentages are 38% in the case of a sales point, (b)) and a different strategy in terms of the location of the 41% for a research and development centre, 57% for a management of the undertaking. coordination centre and 78% for a finance centre.

determine whether it can be regarded as ary ruling, I have concentrated on the justified, suitable for attaining the objective elements that emerge clearly from the case pursued by the legislature, and proportion- file. I believe it is now worthwhile con- ate. Despite the various aspects under sidering certain other elements which are which Article 47b can be deemed incom- relevant, in my view, for the purpose of patible with Treaty provisions on freedom giving a proper answer to the questions of establishment, I believe that — as referred, namely, for the reasons set out regards the determination and existence of below, the provisions of the bilateral Dou- a justification and the appropriateness and ble-Taxation Convention concluded proportionality of the national measure — between the Kingdom of Belgium and the the line of reasoning followed in the section Kingdom of the Netherlands 9 8 (that is, the on Question 1 (see points 19 to 29) also Member State where Petrofina has its applies here: the provision at issue is the registered office and the dividends at issue same (within the same tax system) and the in the main proceedings originated, and the fact that it is also applicable in a discrimi- Member State where Mr Verkooijen is natory manner from the 'exercise of free- resident, respectively). Admittedly, the fact dom of establishment' point of view has the that both the order for reference and the consequences already described (see observations submitted in the course of the point 23) in respect of the determination proceedings before the Court 99barely refer of the causes which may justify that measure. to the Convention could at once raise doubts on the proper formulation of the question referred by the Hoge Raad: by failing to consider the Convention (even if only to dismiss it as irrelevant to the proceedings), the order for reference does not appear to provide a sufficiently precise 45. To conclude, I believe that a national description of the legal background to the measure such as the one at issue here is questions at issue. Moreover, as Advocate inconsistent with Article 52 of the Treaty General Léger rightly observed in Wie- under several aspects but that, in principle, lockx, 100 'double-taxation conventions... it must nevertheless be regarded as justified are an integral part of national tax law', by the need to ensure the cohesion of the and they must therefore be duly taken into tax system of the Member State concerned. account, in any event, in order to have a complete picture of the ins and outs in tax cases involving a cross-border element.

47. Nevertheless, to fulfil the obligations of cally and directly concern the case at judicial cooperation under Article 177 of issue. 104 the Treaty, I believe that it is for the Court to take into consideration all relevant elements of which it is aware, in order to provide the national court with a useful answer. In that regard, I would recall that the Court has already had several occasions to dwell (more or less at length) on these 48. By way of a further preliminary com- conventions, even where they were not the ment, I would observe that in preliminary object of the questions referred for a rulings the Court has already had occasion preliminary ruling. 101 Therefore, it is to rely upon ambivalent wording in order necessary (or at least appropriate) here to cover all possible alternative legal frame- not to disregard 102 the provisions of a works. In Naranjo Arjona and Others, 105 bilateral convention, such as that conclu- the Court interpreted Community law by ded between the Kingdom of Belgium and referring first to the provisions of national the Kingdom of the Netherlands, which the law indicated by the national court (para- Court has already considered at length 103 graphs 15 to 24 and the operative part of and which contains provisions that specifi- the judgment) and then broadening its analysis to encompass an international convention (cited by the Commission but not mentioned in the order for reference),

Analisi although the French Government referred to the double del principio nel contesto giuridico comunitario, doctoral taxation agreement between Greece and the United thesis, Università degli Studi 'Federico II', Naples, 1999, Kingdom (the two Member States concerned by the facts Chapter IV, Section 5): '[if fiscal cohesion is understood] in the main proceedings), that agreement was the object as preserving the macro-economic balances underlying neither of the question referred to the Court for a

Thereinafter, in Wielockx, case-law evolved considerably 105 — Joined Cases C-31/96 to C-33/96 Naranjo Arjona and in terms of the importance that the Court attaches to Others [19971 ECR I-5501.

50. Article 10(1) of the Convention estab- lishes the basic principle that the Contract- ing State where the shareholder is resident is entitled to charge tax on dividends originating in the other Contracting (1) The Double-Taxation Convention State. 110 Article 10(2) of the Convention between Belgium and the Netherlands also entitles the State of origin of the dividends (namely, the country where the distributing company is established) to charge tax on them (as a rule, by deduction at source, in addition to tax on company 49. Let me now consider specifically this convention, but only in so far as it has a bearing on this case. My comments may, 107 — See Case C-336/96 Cilly [1998] ECR I-2793, para- however, also apply in cases other than this graph 24. 108 — Organisation for Economic Cooperation and Develop- one, since the provisions on 'cross-border' ment. dividends between Belgium and the Nether- 109 — As late as 1992, the Ruding Report identified a number of cases where Member States had not concluded bilateral double-taxation agreements with each other (see Chap- ters 3 and 10, Section III, on tax agreements). 110 — Under Article 10(1) of the Convention (whose content, 106 — The operative part of the judgment in Naranjo Arjona like that of paragraph 2, reflects that of Article 10 of the and Others essentially reflects my Opinion where I OECD Model Convention): 'Dividends paid by a com- outlined the two (alternative) answers which I proposed pany which is a resident of a Contracting State to a should be given to the questions referred for a prelimin- resident of the other Contracting State may be taxed in ary ruling. that other State'.

profits) below a maximum limit. 1 1 1More- dividends from a Belgian company, the over, under Article 24 of the Conven- Convention provides for a mechanism tion, 112 the Netherlands must award a which is quite common in practice and is tax credit in order to avoid double taxation designed less to mitigate than to avoid the of the dividends paid to its taxpayers effects of double taxation. holding shares in companies established in Belgium, provided that, and to the extent that, a deduction at source such as that provided for in Article 10(2) of the Con- vention has already been made from those dividends in Belgium. 113 In essence, in the 51. Considering the whole framework of case of a Netherlands taxpayer receiving relevant provisions — both national and international — the Netherlands tax sys- tem — which seeks to eliminate, or at least mitigate, the effects of double taxation both in purely 'internal' cases and in 'cross-border' cases — is therefore charac- terised by the consistent nature of the 111 — Article 10(2) of the Convention states: 'However, such treatment applied to different circum- dividends may also be taxed in the State of which the stances. I would observe, moreover, that company paying the dividends is a resident and according to the laws of that State, but the tax so charged shall not by applying a tax credit to dividends exceed: (1) 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) distributed by Belgian companies, the which holds directly at least 25% of the capital of the company paying the dividends; (2) 15% of the gross Netherlands apparently achieves a more amount of the dividends in all other cases.

. . (3) The Netherlands shall grant. . . a reduction in the tax thus assessed in respect of such elements of income as are taxable in Belgium pursuant to Article 10(2) and are included in the basis of assessment referred to in (1). That reduction shall be equal to the lower of: (a) an amount equal to the tax charged in Belgium; (b) an amount equal to the fraction of the Netherlands tax calculated in accordance with (1), which (2) Capital movements corresponds to the relationship between the amount of such elements of income and the taxable amount referred to in (1).

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sion. . . is shifted to another level, that of dissuading Netherlands taxpayers from the reciprocity of the rules applicable in the investing their capital in Belgium. For those Contracting States'. 115 Although it is true who invest in shares in companies estab- that the obligation to grant a tax credit in lished in that State, the tax system of the respect of the deduction at source made by Netherlands, considered as a whole, pro- the other contracting State (Article 24(1) of vides an even more effective solution than the Convention) reduces the tax revenue of that introduced (ten years after the Con- the Netherlands, it is equally true that that vention was concluded) in the 'internal' State is entitled to made a deduction at case; moreover, Community law does not source from the dividends paid by Nether- prohibit Member States from treating lands companies to shareholders residing in purely internal situations less favour- Belgium (Article 10(2) of the Convention). ably. 116 The Netherlands taxpayer wishing to invest his capital in shares with a view to collecting the corresponding dividends may thus choose between shares in companies established in Belgium (in which case he is assured so-called fiscal neutrality under the Convention, avoiding double taxation entirely) and shares in companies estab- lished in the Netherlands (in which case the effects of double taxation are simply miti-

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gated, to a limited degree). In essence, (3) Freedom of establishment therefore, the tax system of the Netherlands is distinguished by a sort of fiscal neutrality as regards investments in shares in Belgian and Netherlands companies. Considering the relevant legal framework in its entirety, I believe we can also rule out the aspect of 56. In points 36 to 45, I explained the discrimination referred to in point 18 reasons why, in my view, in the light of above. The fact that the advantage provi- national provisions alone, the provision at ded for in Article 47b does not apply in issue must be regarded as compatible with respect of dividends distributed by compa- Article 52 of the Treaty. As for capital nies established in another Member State is movements, however, a more comprehen- accounted for by the fact that the Conven- sive analysis encompassing the provisions tion establishes a particular system for that of conventions described above leads me to category of dividends: the two categories of reconsider my opinion on freedom of dividends ('national' and 'cross-border') establishment. As I said, the 'cohesion' are not, therefore, in a comparable situa- distinguishing the Netherlands tax system tion and the two advantages, concerning as a whole makes it 'neutral' in respect of different situations, cannot be aggre- the taxation of dividends for shareholders gated. 117 who are natural persons. It follows that such cohesion, or neutrality, also rules out the existence of any discrimination or restriction from the angle of freedom of establishment. Moreover, the fact that, as we have seen, 'cross-border' dividends enjoy truly privileged treatment compared with 'national' dividends has the effect of encouraging both capital movements between Member States and the exercise, in certain cases at least (see point 41(b) and (c)), of the right of establishment.

two questions are likely to differ if the 59. However, Mr Verkooijen submits an investor is an employee of a company additional line of reasoning, concerning controlled by the issuing company, who more specifically the object of the second holds the shares giving rise to the dividends question. He essentially takes the view that in the context of an employees' savings the limit introduced by Article 47b for the plan. cases subject to the exemption has a negative influence on the professional mobility of employees, precisely because that provision excludes the application of the exemption to dividends distributed by the foreign companies employing them. That makes it more difficult for foreign companies to attract employees to the Netherlands. Foreign companies would be obliged to set up employees' participation schemes or employees' savings plans com- parable to those which only companies established in the Netherlands can offer, and this would contribute to increasing the costs for a foreign company establishing a place of business in the Netherlands. While 58. The parties which have submitted it is not my purpose to ignore the case-law observations in these proceedings generally of the Court according to which all restric- agree that that question must be answered tions, even minor, on freedom of establish- in the negative, considering also that Arti- ment are contrary to Article 52 of the cle 47b does not lay down different rules Treaty, 119 I believe, however, that the link depending on the type of taxpayer holding between the provision at issue and the shares. That article does not distinguish exercise of freedom of establishment in the between third-party investors and investors Netherlands of companies with employees' holding shares in the context of an employ- savings plans comparable to that of Petro- ees' savings plan. As regards the first fina is too tenuous and indirect to have any question for a preliminary ruling, which I intrinsic importance for the purposes of have already considered, I share the posi- Article 52 of the Treaty. Even assuming it tion of the parties: the Treaty and the were sufficient to qualify as a restriction Directive guarantee the widest possible freedom as regards capital movements, 118 contrary to the article concerned, that link without any other conditions or distinc- is not such as to alter my opinion on the tions based on the nature or characteristics second question, particularly as regards the of the person undertaking such a move- existence of a valid justification for ment. The freedom in question must be the restriction. Moreover, any restriction understood as being guaranteed to all persons under the same conditions.

(1) Article 1(1) of Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty and Article 52 of the EC Treaty (now, after amendment, Article 43 EC) must be interpreted as precluding the legislation of a Member State which makes the grant of an exemption from the income tax payable on dividends from shares subject to the condition that those dividends are paid by a company established in that Member State, unless the legislation in question is necessary to ensure the cohesion of the tax system. It is for the national court to establish whether that legislation goes further than is necessary to ensure the cohesion of the tax system.

However, where the Member State concerned has concluded a double- taxation convention containing provisions such as those in Articles 10 and 24 of the Convention concluded on 19 October 1990 between the Kingdom of Belgium and the Kingdom of the Netherlands, Article 1(1) of Directive 88/361 and Article 52 of the Treaty must be interpreted, solely as regards

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capital movements and the exercise of freedom of establishment between contracting Member States, as not precluding national legislation such as that presently at issue.

(2) The answer under (1) is not affected by the fact that the recipient of the dividends is an employee of a company controlled by the issuing company, who acquired the shares in question in the context of an employees' savings plan set up by the company controlling the subsidiary.