C-478/98

COMMISSION V BELGIUM

OPINION OF ADVOCATE GENERAL JACOBS delivered on 15 June 2000 *

1. In this action brought under Article 169 particular, the bonds are issued in bearer of the EC Treaty (now Article 226 EC) the form and are denominated in a currency Commission seeks a declaration that, by other than that of the issuer and interest is prohibiting Belgian residents from acquir- paid free of withholding tax by a bank ing Eurobonds issued by the Kingdom of appointed by the issuer as its paying agent Belgium on the Eurobond market, Belgium to investors who present coupons or the has failed to comply with its obligations bond certificates. Most issues are struc- under Article 73b of the EC Treaty (now tured so that investors are not required to Article 56 EC). sign certificates or otherwise identify them- selves to the issuer. It is the practice in publicly traded Eurobond issues, especially those which are intended to be placed with retail investors, to respect the anonymous nature of the traditional Eurobond by not requiring any certification or declaration as to the identity of the holder. A substantial 2. The action concerns a specific issue of part of the market will simply disregard Eurobonds made by the Kingdom of Bel- any issue requiring certification of inves- gium in 1994. Eurobonds are tradeable tors' identities. debt instruments with an original maturity of at least one year, i.e. a contractual obligation by a borrower to make pay- ments of interest on and repayments of principal of borrowed funds at certain fixed dates. Eurobonds are underwritten, distrib- uted and traded on the Eurobond market, which is currently worth over USD 3 000 billion. Issues are denominated in 29 dif- ferent currencies, including the euro.

We have decreed and decree:

Kingdom of Belgium

Article 1. Our Finance Minister is author- ised to contract a public loan at a fixed rate for 1 000 million deutschmarks with the The Bonds may not be offered or sold, Dresdner Bank AG and the Schweizerischer directly or indirectly, to residents of, or Bankverein (Deutschland) AG in Frankfurt. corporations or other legal entities having This loan may be the subject, in whole or in their domicile in, The Kingdom of Belgium part, of one or more swap transactions. except, provided that the offer or sale does not constitute an offer to the public of The Kingdom of Belgium, to (i) a bank which is so resident or domiciled, (ii) a broker, Art. 2. The terms and conditions of the similar intermediary or institution of inter- loan and of any swap transactions will be national standing whose business involves determined by agreements to be entered dealing in securities or managing custo- into with the financial institutions con- mers' funds, which is so resident or dom- cerned. iciled and (iii) an insurance company which is so resident or domiciled....' Art. 3. Withholding tax on interest payable on the loan is hereby waived.

Subscription by Belgian residents other 5. The issue was expressed to be made in than banks, financial intermediaries and pursuance of the Royal Decree dated institutional investors referred to in the

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Art. 6. Our Finance Minister is responsible for execution of this Decree.

7. The Commission was unconvinced by those arguments and delivered a reasoned opinion to which Belgium made no reply. Issued in Brussels, 4 October 1994.' The Commission accordingly brought these proceedings.

1 — The full text is set out in paragraph 16 below. 6. The Commission considers that the pro- 2 — The French terms used are variously éluder, which is perhaps intended to be a neutral term, évasion fiscale (tax hibition on acquisition by Belgian residents avoidance) and, occasionally, fraude fiscale (tax evasion). Since the practice described is more evasion than avoidance, constitutes a restriction on the free move- I have tended to use that term. ment of capital incompatible with Arti- 3 — The full text is set out in paragraph 16 below.

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Articles 73b and 73d in their historical context 11. Those directives divided capital move- ments into four lists, each with a different level of liberalisation. List A comprised transactions or transfers for which Member 9. The predecessor of Article 73b was States were required to grant 'all foreign Article 67 of the EC Treaty, which provi- exchange authorisations'; they included ded: direct investments in undertakings, invest- ments in real estate, certain personal capital movements and commercial credits and transfers of moneys required for the provi- sion of services. The transactions and

' 1 . During the transitional period and to 4 — OJ, English Special Edition, 1959-1962, p. 49. the extent necessary to ensure the proper 5 — Council Directive 63/21/EEC, OJ, English Special Edition, functioning on the common market, Mem- 1963-64, p. 5.

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12. Article 5(1) of the First Directive pro- vided: 14. Directive 88/361, 7which came into force on 1 July 1990, finally established the basic principle of free movement of capital as a matter of Community law, requiring Member States to 'abolish restrictions on movements of capital taking place between persons resident in Member States'. 8 Annex I, 'Nomenclature of the capital 'The provisions of this Directive shall not restrict the right of Member States to verify 6 —Council Directive 86/566/EEC of 17 November 1986, the nature and genuineness of transactions OJ 1986 L 332, p. 22. or transfers, or to take all requisite mea- 7—Council Directive 88/361/EEC of 24 June 1988 for the sures to prevent infringements of their laws implementation of Article 67 of the Treaty, OJ 1988 L 178, and regulations.' p. 5. 8 —Article 1(1).

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movements referred to in Article 1 of the 15. Article 4 of Directive 88/361 provided: Directive', included the following:

'III — Operations in securities normally dealt in on the capital market...

'This Directive shall be without prejudice to the right of Member States to take all requisite measures to prevent infringements (a) Shares and other securities of a parti- of their laws and regulations, inter alia in cipating nature... the field of taxation and prudential super- vision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of admin- istrative or statistical information.

and g with effect from 1 January 1994. residence or with regard to the place Articles 73b and 73d read as follows: where their capital is invested;

'Article 73b (b) to take all requisite measures to pre- vent infringements of national law and regulations, in particular in the field of 1. Within the framework of the provisions taxation and the prudential supervision set out in this Chapter, all restrictions on of financial institutions, or to lay down the movement of capital between Member procedures for the declaration of capi- States and between Member States and tal movements for purposes of admin- third countries shall be prohibited. istrative or statistical information, or to take measures which are justified on grounds of public policy or public security.

2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. 2. 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.

3. The measures and procedures referred to Article 73d in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in 1. The provisions of Article 73b shall be Article 73b.' without prejudice to the right of Member States:

(a) to apply the relevant provisions of their 17. I would add that, with effect from tax law which distinguish between 1 May 1999, Articles 73b and 73d have taxpayers who are not in the same been re-numbered Articles 56 and 58 but situation with regard to their place of are unamended.

Overview of the relevant case-law site' within the meaning of Article 5 of the First Directive for the purposes of prevent- ing infringements of the requirement for a bank deposit lawfully imposed by the Italian legislation. 12 18. In the light of the legislative back- ground to Articles 73b and 73d, it is clear that the case-law of the Court on the interpretation of certain aspects of the earlier legislation has continued relevance to those articles. 10 The following cases in particular are helpful in the context of the present case. 20. Margetts and Addenbrooke 13 con- cerned the question whether purchases by residents of domestic securities on a foreign market were within the scope of the rules on the free movement of capital; the Court, 19. In Brugnoni, 11 the applicants in the while noting that such transactions had main proceedings, Italian residents, had been liberalised by Directive 86/566, ruled purchased DEM 5 000 worth of bonds that they were not liberalised at the mate- issued by the European Coal and Steel rial time since that Directive had not then Community and quoted on the German entered into force. In answer to a question stock exchange for foreign securities. put by the Court, the Commission Italian legislation provided that Italian explained that such transactions were not residents could hold shares or bonds issued liberalised under the First and Second or payable abroad only on condition that a Directives principally because of deposit was paid and the securities lodged with an approved bank. The applicants submitted that the legislation was unlaw- ful. The Court ruled that, although the requirement for a deposit was permissible, having been expressly authorised by a Commission decision, the requirement to lodge the securities was contrary to Arti- cle 67 of the Treaty and the First Directive 'the necessity, felt at the time, to ensure that unless it was indispensable for monitoring the floating of a loan abroad would result compliance with the conditions laid down in a net capital inflow and not simply result by the legislation of the Member State in a re-routing of national savings through concerned in conformity with Community the financial market of another country. It law. It was for the national court to was necessary to guard against that risk in ascertain whether the measure was 'requi- so far as a loan floated abroad, particularly by the State, very often carries conditions which are superior to those being offered on the domestic market. 10 — The relevance of earlier case-law was expressly recognised by the Court in Joined Cases C-163/94, C-165/94 and C-250/94 Sanz de Lera and Others [1995] ECR I-4821, paragraph 22 of the judgment, and Case C-222/97 Trüm- mer and Mayer [1999] ECR I-1661, paragraph 21. 12 — Paragraphs 24 and 25 of the judgment. 11 — Case 157/85 Brugnoni and Ruffinengo v Cassa di Rispar- 13 — Case 143/86 Margetts and Addenbrooke v Cuddy [1988] mio di Genova e Imperia [1986] ECR 2013. ECR 625.

21. In Bordessa 16 the Court considered the question whether national legislation mak- ing the export of coins, banknotes or bearer cheques conditional on a prior declaration or authorisation could be justified under 22. Sanz de Lera 19 concerned the same Article 4 of Directive 88/361. The Court national legislation as Bordessa; the rele- noted that authorisation had the effect of vant Community legislation was however suspending currency exports and making Articles 73b and 73d of the Treaty rather them conditional in each case upon the than Directive 88/361. The Court stated consent of the administrative authorities, to that Article 73d covered in particular mea- be sought by means of a special applica- sures designed to ensure effective fiscal tion: such a requirement would cause the supervision and to prevent illegal activities exercise of the free movement of capital to such as, inter alia, tax evasion. 20 The be subject to the discretion of the admin- restriction on the free movement of capital istrative authorities and thus be such as to resulting from the requirement of author- render that freedom illusory and might isation could be eliminated without thereby have the effect of impeding capital move- detracting from the effective pursuit of the ments carried out in accordance with aims of those rules: it would be sufficient to Community law, contrary to the second set up an adequate system of declarations paragraph of Article 4. A prior declaration, indicating the nature of the planned opera- on the other hand, may be one of the tion and the identity of the declarant,

24. Finally, in Konle 26the Court consid- ered inter alia the lawfulness of national legislation requiring prior authorisation of the acquisition of land. The Court accepted 23. More recently, Sandoz 23 concerned that the reasoning on which it had based its legislation imposing stamp duty on loans conclusions in Bordessa and Sanz de contracted in another Member State. The Lera — namely that a system of prior Court noted that such legislation deprived authorisation for currency exports could residents of a Member State of the possi- render the free movement of capital illusory bility of benefiting from the absence of and that an adequate system of declaration taxation which may be associated with would attain the same end without restrict- loans obtained outside the national terri- ing that freedom — could not be applied tory. It was accordingly likely to deter such directly to the case before it since a residents from obtaining loans from per- declaration procedure would not enable sons established in other Member States the aim of the legislation (to ensure that the and hence constituted an obstacle to the land was not used as a secondary residence) movement of capital within the meaning of to be achieved. It continued, however, by Article 73b. 24 Since however the effect of stating that an infringement of the national the legislation was to compel the borrowers legislation on secondary residences could to pay the duty, it prevented taxable be penalised by other means; in those persons from evading the requirements of circumstances, the authorisation procedure domestic tax legislation through the exer- constituted a restriction on capital move- cise of freedom of movement of capital ments which was not essential if infringe- ments of the national legislation on sec- ondary residences were to be prevented. 27 21 — Paragraphs 26 and 27. 22 — Paragraph 29. 23 — Case C-439/97 Sandoz v Finanzlandesdirektion für Wien, Niederösterreich und Burgenland, judgment of 14 October 25 — Paragraph 24. 1999. 26 — Case C-302/97 Konle v Austria [1999] ECR I-3099. 24 — Paragraphs 19 and 20 of the judgment. 27 — Paragraph 49 of the judgment.

The applicability of Article 73b 26. There are however two further ques- tions to be addressed in determining whe- ther Article 73b is applicable in the circum- stances of the present case. First, if a Member State prohibits its residents from acquiring Eurobonds issued by that State, 25. At issue in these proceedings is a does that amount to a restriction on the prohibition on the acquisition of Euro- movement of capital between Member bonds by the residents of a Member State. States within the meaning of Article 73b; It is undisputed that such a prohibition, in other words, is there a sufficient intra- unless justified, is in itself contrary to the Community element for the Treaty rules to rules on the free movement of capital if apply? Secondly, does the prohibition on imposed by a Member State: an outright restrictions on movement of capital in prohibition is clearly contrary to a Treaty Article 73b apply to the actions of Belgium provision prohibiting· restrictions. It is which have given rise to these proceedings moreover clear from the case-law of the or were those actions, as Belgium has Court that the Treaty rules on the free pleaded, not carried out in its capacity as movement of capital apply to restrictions a Member State, thus precluding any liabi- imposed by a Member State on the acquisi- lity for infringement? tion of non-domestic securities by its nationals. 28 It is also clear, as the Commis- sion points out, that rules imposed by a Member State which are liable to dissuade or deter the parties concerned from exer- cising a right which constitutes a compo- nent element of the free movement of capital, 29 or which require prior authorisa- tion therefor, 30 are in principle contrary to The intra-Community element

19 above. internal to Belgium, the Commission makes 29 — See Case C-484/93 Svensson and Gustausson v Ministre du several preliminary submissions in support Logement et de l'Urbanisme [1995] ECR I-3955, para- graph 10 of the judgment, Case C-222/97 Trummer and of the view that there is none the less a Mayer [1999] ECR I-1661, paragraph 26, and the cases there cited, and Sandoz, cited in note 23 and summarised sufficient intra-Community element for the

I fully endorse, and Another v The Prime Minister, ECR I-1335, judgment delivered on 14 March 2000, paragraph 14 of the however, the points that the principle of judgment. free movement of capital confers on natural

Is Belgium liable as a Member State for the 30. Secondly, Belgium submits that both conditions of issue? the Community legislature, in Directive 80/723 on the transparency of financial relations between Member States and pub- lic undertakings, 33 and the Court, in Pia- centino 34 and L TU v Eurocontrol, 35have 28. There are two connected aspects to drawn a distinction between the role of the Belgium's principal defence. State as public power and as private owner or operator. That distinction is important since actions by the State as private opera- tor vis-à-vis other private operators cannot be caught by Article 73b; that provision has no horizontal direct effect. That article 29. First, Belgium argues that the prohibi- accordingly does not apply to a provision tion on subscription which triggered these such as the impugned restrictions on sale proceedings is not a State measure of included in the conditions of a loan issued general application but a contractual term by a State on the same terms as a private negotiated in the context of a transaction borrower. entered into on the same terms as a private borrower. The Royal Decree of 4 October 33 — Commission Directive 80/723/EEC of 25 June 1980, OJ 1980 L 195, p. 35. 34 —Joined Cases 231/87 and 129/88 Ufficio Distrettuale delle 31 — A right which has existed since Council Directive 88/361 Imposte Dirette di Fiorenzuola d'Arda and Others v cited in note 7. Comune di Carpaneto Piacentino and Others [1989] ECR 32 — Brugnoni, cited in note 11 and summarised in paragrapf 3233, paragraph 16 of the judgment. 19 above. 35 — Case 29/76 [1976] ECR 1541.

34. Belgium's argument amounts to the proposition that the impugned measure, 32. The Commission adds that the exam- since it was not taken by the Belgian State ples given by Belgium cannot be extrapo- in its capacity as public authority, cannot lated to the present case. Directive 80/723 constitute an infringement within the concerns relations between Member States meaning of Article 169; indeed the argu- and public undertakings within each Mem- ment is expressed in this way in its ber State and has nothing to do with the rejoinder. free movement of capital between Member States. Piacentino is irrelevant since in this case it is manifest that Belgium did not act in the same legal conditions as private operators: no private investor has the same power as the Belgian State and no private investor can decide to waive withholding 35. Article 73b prohibits all restrictions on tax on interest payments or prohibit its the free movement of capital. The measure subjects (or other category of persons) from challenged by the Commission in these subscribing to an issue of Eurobonds. LTU proceedings is an outright prohibition on v Eurocontrol is similarly irrelevant to the the acquisition of certain Eurobonds by issue in the present case, concerning as it Belgian residents imposed by Royal Decree. does the interpretation of the phrase 'civil As mentioned above, 37 it is undisputed that and commercial matters' within the mean- such a prohibition, unless justified, is in ing of the Brussels Convention. 36 itself contrary to the rules on the free movement of capital; Belgium's argument 36 — Convention on jurisdiction and the enforcement of judg- ments in civil and commercial matters of 27 September 1968, OJ 1978 L 304, p. 36. 37 — See paragraph 25.

36. I cannot accept that argument. The prohibition is contained in the second paragraph of Article 3 of the Royal Decree. Belgium accepted at the hearing that the first paragraph of that article was a reg- ulatory measure. It cannot in my view be 38. The second case relied on by Belgium, maintained that a provision laid down in a LTU v Eurocontrol, 42 in which the Court Member State's legislation is not adopted gave an autonomous interpretation of the by that State in its capacity as Member concept of 'civil and commercial matters' State. Neither the case-law referred to by for the purposes of the Brussels Conven- Belgium nor Commission Directive tion, is also of no assistance. The Court 80/723 38 is relevant. stated: 'Although certain judgments given in actions between a public authority and a person governed by private law may fall within the area of application of the Convention, this is not so where the public authority acts in the exercise of its powers.' That proposition merely recognises that a 37. Piacentino 39 concerned a specific pro- public authority may sometimes act in the vision of Community legislation 40 which exercise of its powers and may sometimes provided for public bodies to be treated as act in another capacity. The public author- a taxable person in respect of activities or ity involved in the main proceedings in that transactions where treatment as a non- case was the European Organisation for the taxable person would lead to significant Safety of Air Navigation (Eurocontrol) and distortions of competition. No such provi- the activity at issue was the imposition of sion is at issue in the present case. In route charges on owners of aircraft for the Piacentino moreover the Court stated: 'In use of air safety services. A ruling by the so far as that provision makes such treat- Court that a judgment given in an action ment of bodies governed by public law brought by Eurocontrol seeking payment of conditional upon their acting "as public such charges is not within the scope of the authorities", it excludes therefrom activ- Convention cannot support the argument ities engaged in by them not as bodies that a Member State which by Royal governed by public law but as persons Decree imposes a prohibition on the acqui- sition of Eurobonds by its residents is not acting in violation of the freedom of move- 38 — Cited in note 33. ment of capital. 39 — Cited in note 34. 40 — Article 4(5) of Council Directive 77/388 of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value- added tax: uniform basis of assessment, OJ 1977 L 145, 41 — Paragraph 15 of the judgment. p. 1. 42 — Cited in note 35.

39. Finally, Directive 80/723 4 3 seeks to Possible grounds of justification for the ensure the effective application of the prohibition Treaty provisions on State aid without discrimination between public and private undertakings. More specifically, its purpose is to facilitate the monitoring function of the Commission, namely to enable the Commission to determine whether aid is involved when funds are provided, directly or indirectly, by public authorities to public undertakings. The context in which the 41. Belgium submits in the alternative that Directive was adopted is clearly wholly the impugned measure, if found to be different from the facts at issue in the imputable to the State, is within the scope present case, and I cannot see why the of a number of grounds of justification and distinction drawn by the Directive between is proportionate. the role of the State as public authority and its role as proprietor is relevant here. The Court has moreover stated that that dis- tinction 'flows from the recognition of the fact that the State may act either by exercising public powers or by carrying on economic activities of an industrial or commercial nature by offering goods and services on the market'; 44on the basis of that distinction a prohibition imposed by Royal Decree would in any event appear to 42. Belgium addresses the issues of grounds be an exercise of public powers rather than of justification and of proportionality sepa- the carrying on of commercial activities. rately. I shall first consider its arguments that there are grounds on which the prohibition on subscription is justified. There are three submissions to this effect, which appear to be presented as distinct grounds of justification. First, Belgium refers to Article 73d(l)(b), which permits Member States to take all requisite mea- sures to prevent infringements of national law and regulations, in particular in the field of taxation, provided that the mea- 40. I accordingly conclude that the measure sures do not constitute a means of arbitrary at issue in the present proceedings which discrimination or a disguised restriction on prohibits certain residents of Belgium from the free movement of capital and payments. acquiring Eurobonds issued by the King- Next, Belgium pleads two further grounds dom of Belgium in October 1994 infringes of justification for the measure not based Article 73b unless it is justified. on the Treaty but drawn by analogy from the Court's case-law on possible grounds of justification for fiscal restrictions on the 43 — Cited in note 33. freedom of establishment: it invokes the 44 — Case 118/85 Commission v Italy [1987] ECR 2599, paragraph 7 of the judgment. need to preserve fiscal coherence, such as

43. With regard to Article 73d(1)(b), Bel- gium notes that, since one of the essential conditions of the Eurobond market is that 44. The thrust of Belgium's argument no tax is levied by the issuer, all Eurobond appears thus to be that the prohibition on documentation must contain either a subscription is necessary in order to enable requirement that no tax is withheld by the Belgium to raise loan finance on the borrower when making interest payments international money markets. Whatever or a 'gross-up' clause. 48 The use by Bel- the economic validity of that argument, I gium of the Eurobond market thus involves do not see how in itself it can come within a fiscal difficulty: since exemption from the terms of Article 73d(1)(b). withholding tax is inherent in that market, steps must be taken to ensure that Belgian residents do not avoid tax by subscribing to loans issued abroad. Exclusion of Belgian residents from the issue is the only measure which will avoid discrimination between Belgian residents who subscribe to issues in Belgium, and are therefore subject to with- holding tax, and Belgian residents who are

45 — Case C-204/90 Bachmann v Belgium [1992] ECR I-249. 45. It may be however that Belgium is 46 — Case C-300/90 [1992] ECR I-305. 47 — Case C-250/95 futura Participations and Singer v Admin- seeking to repeat the argument it put istration des Contributions [1997] ECR I-2471. forward in the pre-litigation procedure, 48 — Presumably this means a requirement that the actual payment is sufficient to cover tax payable on the interest namely that the measure falls within Arti- element. cle 73d(1)(b) since it aims to prevent tax

49. The Court in Futura appeared to accept that even a discriminatory restriction on the freedom of establishment (in that case, a requirement that companies established outside Luxembourg with a branch in that State keep separate accounts for its 47. The Commission makes a further branch's activities complying with Luxem- point, raising the question whether a bourg tax accounting rules and hold such Member State may invoke Article 73d to accounts at the place of establishment of its justify a measure which purely and simply branch) could be justified by overriding prohibits the free movement of capital. requirements of general interest within the That argument however seems to me to go meaning of Cassis de Dijon, 52 which to the issue of proportionality, and I will include the effectiveness of fiscal super- accordingly consider it in that context. vision. Subsequently however it has been implied in several cases that that proposi- 49 — See in particular Sandoz, cited in note 23 and summarised in paragraph 23 above. 50 — See Brugnoni, cited in note 11 and summarised in 51 — The ground is in fact among those originally listed by the paragraph 19 above; Bordessa, cited in note 16 and Court in Cassis de Dijon (Case 120/78 Rewe v Bundes- summarised in paragraph 21; Sanz de Lera, cited in note monopolverwaltung für Branntwein (19791 ECR 649, 10 and summarised i nparagraph 22, and Sandoz, cited in paragraph 8 of the judgment). note 23 and summarised in paragraph 23. 52 — Cited in note 51.

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tion is incorrect, and that the effectiveness The need to preserve fiscal coherence of fiscal supervision can justify only mea- sures which are applicable without distinc- tion or, put another way, that measures which apply differently — such as a prohi- bition expressly directed at residents — may be justified only by express deroga- tions in the Treaty. 53

53 — See for example among many cases Case C-118/96 Safir v 5 7 — Cited in note 4 5 . Skattemyndigheten i Dalarnas Län [1998] ECR I-1897, 58 — Cited in note 46. paragraphs 34 to 36 of the Opinion of Advocate General 5 9 — By which for the purpose of this discussion I include Tesauro, Case C-311/97 Royal Bank of Scotland v Elliniko reference also to Belgium, since the issues and rulings in Dimosio (Creek State) [1999] ECR I-2651, paragraph 32 the two cases were for all practical purposes the same. of the judgment, and Case C-55/98 Skatteministeriet v Vestergaard, judgment of 28 October 1999, paragraph 25 60 — Cited in note 5 1 . See for example paragraph 33 et seq. of of the judgment and paragraph 30 of the Opinion of the Opinion of Advocate General Tesauro in Safir, cited in Advocate General Saggio. note 53, and paragraph 23 of the Opinion of Advocate General La Pergola delivered on 24 June 1999 in Case 54 — See paragraph 4 5 . C-35/98 Staatsecretaris van Financiën v Verkooijen, ECR 55 — Cited in note 10 and summarised at paragraph 22 above. I-4071. 56 — Cited in note 7. 61 — See paragraphs 8 and 9 of the judgment.

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not consider that the justification of fiscal the Court has rejected the argument on the coherence is applicable to the present case basis that there was no such direct link. 63 for the following reasons.

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indispensable condition of the State's being State to find a coherent solution to preserve able to raise funds on that international the interests of the Treasury without pro- market on terms reflecting the criteria for viding Belgian taxpayers with a means of the good management of public debt. tax evasion. That solution should not be Admittedly, when the State borrows on that the State abandons borrowing on the the domestic market tax can be deducted at Eurobond market. Nor can it be a system source. However, the State cannot be of certification such as that advocated by confined to such borrowing: that might the Commission, since such a mechanism is lead to a loss for State revenue because of generally refused by the market and by the less favourable market conditions; financial intermediaries and would thus moreover and above all, domestic borrow- seriously undermine the State's ability to ing cannot provide the State with the borrow on the Euro-market on favourable necessary finance, in particular where, as terms. Only prohibition of sale enables the here, debt must be refinanced in another two overriding requirements to be recon- currency. 64 The State must therefore be ciled. Accordingly, the coherence of the able first to ensure that the exemption from system of State issues and revenue is withholding tax does not become a means ensured by the disputed measure while of tax evasion and secondly to avoid the leaving the State the freedom to operate creation of both a domestic market subject on the Eurobond market. to withholding tax and a Eurobond market without withholding tax accessible to indi- viduals resident in Belgium. The prohibi- tion on sale enables those requirements to be reconciled and accordingly ensures coherence in issuing policy.

58. I accordingly conclude that the prohi- bition on the acquisition by residents of the Eurobonds in question cannot be justified on the ground of fiscal coherence. As indicated above, 66 however, I consider that 61. From an early stage in the pre-litigation the prohibition may be justified as a procedure Belgium has asserted that the measure designed to prevent tax evasion prohibition is compatible with Community within the meaning of Article 73d(1)(b), law since the exclusion of Belgian residents subject to its being proportionate. I shall from acquiring Government bonds issued accordingly now consider that issue. in deutschmarks prevents such persons from evading Belgian tax by not declaring the interest received thereon, the Belgian State having waived the withholding tax normally deducted from interest payable on securities. The Commission responds that, since Belgium itself chose to raise money by way of a Eurobond issue, of which it set the Is the prohibition proportionate? conditions, it cannot (in effect) plead necessity.

pally connected with the problems in the individually identified. Secondly, under EMS in 1993 which led to higher interest Directive 77/799/EEC 68 concerning mutual rates in Belgium than in Germany. More- assistance in direct taxation the authorities over, private issues raise much less money could always request the authorities of and are more difficult to place. The two another Member State to provide them types of borrowing are accordingly not with all the information enabling them to interchangeable. ascertain the correct amount of tax payable by a taxpayer. Belgium submits that neither measure would be a viable alternative. First, statistics show that only 0.5% of Belgian residents declare income on secu- rities paid abroad. Secondly, Belgium could not rely on Directive 77/799 for assistance since the Member State where the issue was made may be bound by banking secrecy 63. In any event, when a State chooses, for laws and hence by virtue of Article 8(1) of the above reasons, to raise money on the the Directive not be subject to the require- international market, it must respect the ment to provide information; even if that rules applying on that market. Community were not so, the fact that Belgium has law should not prevent a Member State banking secrecy laws would entitle other from taking account in managing its debt Member States to withhold information of budgetary and economic constraints and from Belgium on the ground of reciprocity from using to that end the most appropriate recognised in Article 8(3). financial instruments to which it may have access on the international market. Simi- larly, Community law should not limit a Member State's choice, in particular in comparison with the private operators with which it is in competition.

66. I am not convinced that the first not impose a prohibition on contracting proposition is relevant to an assessment of cross-border loans. 70 proportionality. What is at issue here is the lawfulness of the prohibition, not the law- fulness of Belgium's recourse to the Euro- bond market. In any event, I do not see how the latter can be regarded as 'neces- sary' as a matter of Community law. The Court has made it clear that it permits recourse to the Treaty derogations from the fundamental freedoms only where the con- 68. That brings me to Belgium's third ditions imposed by those derogations are proposition, that the prohibition was strictly satisfied. appropriate, since no alternative measure would have been effective. However, it seems to me manifest from Belgium's own assertions that a total prohibition is not apt to prevent tax evasion. As the Commission points out, the prohibition does not prevent Belgian residents from acquiring Euro- bonds issued by other borrowers, in respect of which they will also be exempt from withholding tax, and it has not been shown 71 that Belgian residents wishing to invest choose instead Belgian Government bonds issued on the domestic market which are subject to withholding tax. If indeed it is true that 99.5% of Belgian residents who 67. As for the second proposition, it is clear receive income on securities paid abroad that in principle a national measure which evade the payment of tax, it seems implau- has the effect of preventing taxable persons sible to say the least that they will have from evading the requirements of domestic responded to the prohibition on acquiring tax legislation through the exercise of free- the Eurobonds at issue by voluntarily dom of movement of capital guaranteed by investing in securities which were subject Article 73b(1) of the Treaty may be lawful to withholding tax when securities not so by virtue of Article 73d(1)(b). 69 In the only subject were equally available. Moreover, case where that argument has succeeded, as the Commission points out, the Court however, the measure at issue was simply stated in Leur-Bloem 72 that a general legislation imposing duty on loan agree- presumption of tax evasion could not ments wherever contracted, which deprived justify a general fiscal measure inconsistent residents of the Member State concerned of with the aims of a directive; that conclusion the possibility of benefiting from the absence of taxation which might be asso- ciated with loans contracted outside the 70 — Paragraph 31 of the Opinion of Advocate General Léger. national territory. The Advocate General 71 — The burden of proof is on the Member State whose expressly stressed that the legislation did measures are challenged: see by analogy Case 227/82 Van Bennekom [1983] ECR 3883, paragraph 40 of the judgment, in connection with Article 36 of the EC Treaty (now, after amendment, Article 30 EC). 72 — Case C-28/95 Leur-Bloem v Inspecteur der Belasting- 69 — See Sandoz, cited in note 23, paragraph 25 of the dienst/Ondernemingen Amsterdam 2 [1997] ECR I-4161, judgment. paragraphs 41 to 45 of the judgment.

(2) order the Kingdom of Belgium to pay the costs of these proceedings.

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