C-9/02

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OPINION OF MR MISCHO — CASE C-9/02

Losses may not be offset against statutory period within which to increases in value of the same kind bring a recovery action until the date occurring elsewhere. of the event causing it to expire. It is analogous to the suspension of pay- ment provided for in Article L. 277 of the Book on Tax Procedures for applying Articles L. 208, L. 255 and L. 279 of that book. 3. The increase in value determined shall be declared under the conditions laid down in paragraph 2 of Article 167.

The tax in respect of which suspension of payment is applied for pursuant to this article shall not be taken into II.- 1. Payment of the tax on the increase in account in relation to the award or value determined may be deferred repayment of tax credits or to the until the time of the transmission, withholding or deduction of tax other redemption, repayment or cancella- than by way of discharge. tion of the company securities con- cerned.

However, the tax of which payment in relation to company securities which, at has been suspended may be demanded that date, remain in the ownership of the only up to the limit of its amount taxpayer. applied to the difference between, on the one hand, the price in the event of transfer or redemption, or the value in other cases, of the securities concerned as at the date of the event causing the suspension to expire, and, on the other IV. The conditions for applying this article, hand, their price or acquisition value and in particular the rules for avoiding used for the application of I, 2 above. double taxation of the increases in value Exoneration is granted automatically determined, the obligations concerning in respect of the remainder. In that declarations by taxpayers, and the methods case, the taxpayer shall provide the of suspending payment, shall be determined calculations used, in support of the by a decree in the Conseil d'État." declaration referred to in 2 above.

The tax paid locally by the taxpayer V. The provisions of this article shall apply and relating to the increase in value to taxpayers who transfer their residence actually realised outside France may be for tax purposes outside France after 9 set off against the income tax estab- September 1998.' lished in France provided it is compar- able with that tax.

3. Article 160, I, of the Code general des 4. Failure to produce the declaration and impôts (General Tax Code; 'CGI'), in the the statement referred to in 2 above, or version in force at the date of Decree No the omission of all or part of the 99-590, is worded as follows: information that must be contained therein, results in the suspended tax becoming immediately payable.

Increases in value which are taxable pur- suant to this article and diminutions in The taxation of the increase in value thus value must be declared under the conditions realised is subject to the sole condition that specified in paragraph 1 of Article 170 in the rights held directly or indirectly in accordance with rules to be established by company profits by the transferor or the decree.' transferor's spouse, their ascendants and descendents, must together have exceeded 25% of those profits at some time during the previous five years. However, where the transfer is made for the benefit of one of the persons referred to in this paragraph, the increase in value is exempt if all or part of 4. The first paragraph of Article 3 of those company securities are not resold to a Decree No 99-590 is worded as follows: third party within five years. Otherwise, the increase in value is taxed in the name of the first transferor in respect of the year of resale of securities to third parties.

'Taxpayers who transferred their residence for tax purposes outside France between 9 September 1998 and 31 December 1998 are required before 30 September 1999 to sign the amending declaration referred to in paragraph 2 of Article 167 of the Code General des Impôts in respect of increases in value taxable pursuant to paragraph la of Article 167 and I of Article 167a of that code, and also the special form referred to Diminutions in value suffered in the course in Article 91j of Annex II to the Code of a year may be offset only against General des Impôts.'

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I I— The main proceedings they apply. Secondly, the Conseil d'État observes that Article 52 of the Treaty precludes the introduction by a Member State of rules which would have the effect of preventing some of its nationals from establishing themselves in another Member State. 8. Mr Hughes de Lasteyrie du Saillant ('the applicant in the main proceedings') left France on 12 September 1998 to live in Belgium. At that date he held or had held, at some time in the five years before he left France, directly or indirectly with members 11. The Conseil d'État goes on to note that of his family group, shares carrying rights Article 167a of the CGI provides that to more than 25% of the profits of a taxpayers about to transfer their tax company subject to corporation tax and residence outside France are, under the with its registered office in France. As the conditions it lays down, to be immediately market value of the shares was at that time assessed to tax on capital gains which have more than the acquisition price, the appli- not yet been realised and which therefore cant in the main proceedings was liable to would not be taxed if the taxpayers tax on the capital gains in accordance with concerned kept their residence in France. Article 167 a of the CGI and the provisions implementing it.

12. However, the Conseil d'État also observes that Article 167a of the CGI includes provisions ensuring that, in the case of deferred payment, those taxpayers will not ultimately have to bear a tax charge 9. Mr de Lasteyrie applied to the Conseil for which they would not have been liable, d'État for annulment of Decree No 99-590 or a tax charge greater than that for which on the ground that it was ultra vires, they would have been liable, if they had claiming that Article 167a of the CGI was kept their tax residence in France. In unlawful because that article was contrary addition, the provisions gave them, at the to Community law. end of a five-year period, the benefit of tax relief if the corporate rights showing capital gains continued to form part of their assets. Finally, the persons concerned could request deferment of the payment of tax until the end of that period.

'Does the principle of freedom of establish- ment laid down in Article 52 of the EC Treaty (now, after amendment, Article 43 EC) preclude the introduction by a Member 17. In the opinion of both Governments, it State, for the purpose of preventing the risk is likewise not known whether the appli- of tax avoidance, of arrangements for cant's professional activities, if any, are taxing capital gains in the case of transfer carried out in France or in the new State of of tax residence, such as described above residence. Nor does the order for reference [?]' indicate whether he moved for private or

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professional reasons. If he had merely 20. In any case, it must be observed, as the transferred his residence, the Werner 2 Commission also observes, that the fore- judgment showed that that would not bring going reasoning with regard to Article 43 him within the ambit of the Treaty. EC applies equally to Article 39 EC.

18. However, it must be said that, in the B — The existence of a restriction on the observations which he submitted to the freedom of establishment Court and which were not disputed at the hearing, the applicant states that he trans- ferred his tax residence to Belgium on 12 September 1998 in order to pursue his professional activity there. Therefore it 21. The French Government does not deny must be concluded that the reply to the that an obstacle exists and concentrates its question whether the transfer of residence observations on the question of justifica- which gave rise to the tax in question in the tion. The Danish and Netherlands Govern- main proceedings was within the ambit of ments consider that there is no restriction the Treaty is in the affirmative. on the freedom of establishment. Their reasoning is as follows.

28. Finally, it must be remembered that, as noted by all the interveners, the foregoing considerations are equally valid where the 25. Consequently these various arguments national measure in question is an act of the involve two kinds of considerations: the Member State of origin and not that of the measure in question does not prohibit a destination State of a businessman wishing French national from exercising his free- to exercise his freedom of establishment dom of movement and affects it only under Community law, which prohibits a slightly. Member State from hindering the establish- ment in another Member State of one of its nationals. 7

26. However, it must be borne in mind that the fact that the rules in question do not have the object or effect of prohibiting a 29. Therefore it is necessary to determine person from settling in another Member whether the tax provisions referred to by State cannot be decisive in the present case. It is clear from the Court's settled case-law that the freedom of establishment may be 5 — See, for example, the inclement in Case C-251/98 Baars [2000] ECR I-2787. 6 — Sec, l'or example, the judgment in Case C-55/00 Goliardo [2002] ECR I-413. 4 — See the judgment in Case C-266/96 Corsica Ferries France 7 — See the juidgment in Case 81/87 Daily Mail and General [1998] ECR I-3949, paragraph 31. Trust [1988] ECR 5483.

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the order for reference, which do not 33. Consequently there is no doubt that prohibit a businessman from exercising his such a system penalises taxpayers who freedom of movement, are nevertheless leave France, as compared with those who capable of restricting the exercise of that remain, and introduces a clear difference in freedom by deterring him from settling in treatment. As the Commission rightly another Member State. observes, this is a typical restriction on leaving France.

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ities. Furthermore, he has an annual obliga- 39. In this connection the Commission tion to send the tax authorities a statement observed, without being contradicted, that of changes in the capital gains in question, stocks and shares are accepted as security which by definition are unrealised. Any for 100% of their value if they qualify for delay in doing so may likewise lead to advances by the Banque de France, and for forfeiture of the deferment. 60% of their price if they are other stocks and shares listed on a French stock exchange. Stocks and shares not listed on a French stock exchange are not accepted without a bank guarantee for full payment of the tax due.

37. Finally, and most importantly, a tax- payer wishing to transfer his tax residence to another Member State must provide suitable security to ensure recovery of the 40. I agree with the Commission that such amount owed by the Treasury. As the a difference in treatment is manifestly applicant in the main proceedings observes, discriminatory from the viewpoint of invest- since the gains in question have, by defin- ors who are thus encouraged to hold shares ition, not yet been realised, the taxpayer in in companies listed on French stock question will not have a source of income exchanges and from the viewpoint of the for the tax which is being claimed from him companies themselves, which become more and he will therefore have to create the attractive to such investors as a result. security required by designating other sources of income for that purpose.

with the very existence of the obligation to sion of tax, together with repayment of the provide security, which does not depend on costs of providing security, unless he has in the practical arrangements for doing so. the meantime disposed of the shares giving rise to tax, is not in my opinion sufficient to outweigh the restrictive effect of the provi- sions in question because, during that entire period, the taxpayer will have lost the benefit of those of his assets which were pledged as security. That applies even here. 43. In any case, it appears that, although In this particular case, the restrictive effect deferment must be regarded as an alter- on the freedom of movement does not arise native and as a lesser penalty than the from being unable to sell or otherwise immediate payment of tax for taxpayers dispose of the shares, because that would wishing to transfer their tax residence to give rise to tax even if the taxpayer another Member State, this option is only remained in France, but from the fact that available subject to constraints which can- the shares are not available for other not be described as sufficiently uncertain purposes which the owner may have, for and indirect not to be regarded as being example, using them as a surety. capable of hindering the freedom of estab- lishment of such taxpayers.

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residence become immediately taxable pur- the public interest such as those already suant to Article 167a of the CGI. The same accepted by the Court in tax matters, four provision appears to exclude the benefit of arguments are put forward by the various deferred tax where shares are sold abroad. interveners.

47. However, I must agree with the French Government that the question from the national court does not refer to the provi- sions concerning capital gains tax which 50. First, the Danish Government observes qualifies for deferred payment. that the aim of the national rule in question is to prevent the fiscal erosion of the tax base of the Member State concerned, an objective which was recognised by the Court in the Safir judgment8 as an over- riding reason. The aim was said to be to 48. In any case, it must be concluded that prevent French taxpayers from deriving an the provisions mentioned by the order for advantage from the differences between the reference give rise to differences in treat- tax systems of the other Member States and ment for taxpayers with substantial share- that of France. holdings who wish to transfer their tax residence outside France, such differences being likely to restrict their freedom of establishment under the Treaty. Conse- quently it is necessary to determine whether there is any justification for those provi- sions which would remove them from the ambit of the prohibition laid down in 51. In this connection it must be observed Article 43 EC. that it has consistently been held that a diminution of tax revenue cannot be regarded as a matter of overriding public interest which may be relied upon in order to justify unequal treatment that is, in principle, incompatible with Article 43 EC. Such an aim is of a purely economic nature and therefore cannot constitute an C — Justification for the restriction overriding reason in the public interest. 10 It

53. The French Government, which put 56. How much weight should be attached forward the most detailed submissions on to these arguments? this point, explains that the contested provision aims to prevent what ought to be called an abuse of rights, namely, the fraudulent exercise by a taxpayer of his freedoms arising from Community law. On this point the French Government observes 57. There is no question that case-law has that a Member State is free to determine the recognised that the effectiveness of fiscal arrangements for the taxation of capital supervision constitutes an overriding gains as it thinks fit, particularly with requirement capable of justifying a restric- regard to the rate of tax. It was therefore tion on the exercise of fundamental free- perfectly legitimate for each Member State doms. 1 1This also applies to the prevention to take appropriate measures to prevent the of tax avoidance. 12 Regarding the latter taxation of capital gains being rendered point, it must however be observed that, as ineffective by conduct which was an abuse. the French Government itself points out, the same case-law shows that the only

11 — See, in particular, the judgment in Case C-250/95 Futura Participations and Singer [1997] ECR I-2471, paragraph 31. 12 — See the ICI and Metallgesellschaft judgments, cited above, 54. In the present case, such conduct and, to the same effect, the judgments in Case C-436/00 X appeared where a taxpayer temporarily and Y [2002] ECR I-10829, paragraph 61, and Case C-324/00 Lankhorst-Hohorst [2002] ECR I-11779, para- transferred his tax residence outside France graph 37.

58. There can be no doubt that the contested provision goes far beyond that limit. As the Commission rightly observes, also citing in this context the Leur-Bloem 61. The disproportionate nature of the and Centros 14 judgments, the national rule national rule also appears from the differ- in question is aimed generally at any ence in treatment of a taxpayer who situation where a taxpayer with substantial remains abroad for more than five years shareholdings in a company subject to after leaving France, without selling his French corporation tax transfers his tax shares, and a taxpayer who, while remain- residence outside France for any reason ing abroad for the same period, sells his whatever. shares before the end of the five years. Although they both leave France for the same long period, which tends to show that they are not necessarily motivated by an intention to escape tax, the first will pay no tax, unlike the second. As the Commission observes, there appears to be no difference, from the viewpoint of preventing artificial, and therefore temporary, relocation, 59. In this way, as the applicant in the between a person selling his shares after main proceedings observes, an 'irrefutable five years and one who sells them after four presumption of tax evasion' is created in years or even one year. relation to any such taxpayer. However, the establishment of a taxpayer abroad does not of itself entail tax evasion 15 and it is for the tax authorities of the Member State concerned to prove a risk of tax avoidance in each case. 62. However, the French Government asserts that a sale of shares shortly after leaving France is certain evidence of an 13 — Case C-28/95 [1997] ECR I-4161. 14 — Case C-212/97 [1999) ECR I-1459. intention to avoid tax. I do not agree. 15 — See the Lankhorst-Hohorst judgment, cited above, para- Leaving for another Member State with a graph 37, the ICI judgment, cited above, paragraph 26, and the Metallgesellschaft judgment, cited above, para- view to taking up a new professional graph 57. activity could entail considerable costs,

64. What measures could these be? I think it would be sufficient for the national 66. It follows that measures exist which are authorities to provide for tax on capital less restrictive of the fundamental freedoms gains realised by a taxpayer who, after a of Community law and which would make relatively short stay in another Member it possible to prevent tax evasion and to State, returns to France after having sold his maintain the effectiveness of fiscal super- shares. The return after a short stay would vision. show that it was temporary and would thwart exactly the conduct complained of by the French authorities, without affecting the situation of taxpayers whose only aim is to exercise in good faith their freedom of establishment in another Member State. By 67. With regard to the second objective in collecting the tax on the date of return, particular, for the sake of completeness I which would take place, by definition, must add the following observations. As we shortly after the sale of the shares in the have seen, the arrangements for providing

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security give rise to discrimination against 70. From all that has been said, it follows stocks and shares which are not listed on a that the national rule in question cannot be French stock exchange, and such discrimin- justified by the fight against tax evasion or ation is unjustified by reference to the the need for effective fiscal supervision. objective of effective fiscal supervision. Furthermore, the national rule in question takes no account of the existence of various means of facilitating the recovery of tax payable by a taxpayer who has transferred his tax residence to another Member State.

16 — See, for example, the judgment in Case C-279/93 Schumacker [1995] ECR I-225, paragraph 45. 17 — Case C-204/90 [1992] ECR I-249.

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73. There are several reasons why I do not Accordingly, in the Metallgesellschaft judg- accept this argument. ment cited above, the Court held that provisions requiring only non-resident com- panies to pay tax in advance were contrary to the Treaty.

74. First, it disregards the fact that, as we have just seen, the transfer of a taxpayer's fiscal residence to another Member State does not necessarily prejudice the recovery of tax. 78. Furthermore, the Commission con- tended at the hearing, without being challenged on this point, that, in so far as the provisions in question impose capital gains tax on taxpayers who are no longer resident, those provisions conflict with the 75. It also appears that the difference in the requirement of cohesion of the tax system treatment of residents and (future) non- because the system recognises the principle residents is not confined to the mere bring- of taxation of capital gains by the tax- ing forward of the date for payment of tax payer's State of residence, which is applied which would be due in any case. As a in particular in the Franco-Belgian double taxpayer who leaves France for more than taxation convention. five years is no longer liable to tax in any case, he cannot be said to have been required merely to pay tax in advance.

the tax system in question and cannot Member States is not at issue in this case. therefore be regarded as necessary for it. The subject-matter of the case is not the right of the French authorities to safeguard the tax on capital gains by acting against relocations made solely with a view to avoiding tax, but the question whether the measures adopted for that purpose are consistent with the requirements of the 80. Fourth, it is necessary to consider the freedom of establishment. German Government's argument that account must be taken of the fact that the tax system in question is at the same time a system for the distribution of taxation powers between the State of departure and the host State. According to the German Government, the object of the provision in question is to ensure the payment of tax on capital gains arising up to the date of the 83. Therefore the situation differs from taxpayer's departure. The right of the State that in the Gilly case 19 cited by the German of departure to tax such capital gains is due Government. In that case a criterion for the to the fact that they have lawfully origin- allocation of taxation powers, which could ated from the company's activity in that operate to the advantage or disadvantage of State. the taxpayers concerned, depending on their particular situation, was at issue. The present case, by contrast, relates to national rules which do not necessarily flow from the allocation of taxation powers between Member States and which are, furthermore, systematically to the disadvantage of tax- 81. However, it has consistently been held payers wishing to exercise their rights under that, although the Member States are free to Community law. determine the criteria for the distribution of taxation powers, they must nevertheless exercise their taxation powers consistently with Community law. 18

'Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes national legislation such as that at issue in the main proceedings which lays down rules, affecting all taxpayers who transfer their tax residence to another Member State, for the immediate taxation of capital gains which have not yet been realised'.

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