C-334/02

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nationals from purchasing the services I I— The disputed tax provisions provided by such operators, is, in principle, contrary to that freedom. 4

6. Paragraph I of Article 125 A of the Code general des impôts (General Tax Code) provides that:

'... natural persons who receive interest, 5. Free movement of capital, which is laid accumulated interest and any kind of down in Article 56 EC (formerly proceeds from Government securities, Article 73 b of the EC Treaty), precludes bonds, equities, bills and other debt instru- Member States from adopting measures ments, deposits, indemnity bonds and which dissuade their residents from making current accounts, where the debtor is investments in the territory of other Mem- resident or established in France, may elect ber States 5and, therefore, prohibits tax- for them to be subject to a fixed levy of ation provisions which produce such an income tax on the income concerned. effect. 6

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8. Paragraph II of Article 125-0 A lays IV — The claims of the parties and the down the same rule for income arising from proceedings before the Court of Justice bills or investment contracts and other similar investments. In those cases, the rate varies between 7.5% and 60%.

11. On 10 December 2002, the Commis- sion brought this action, in which it seeks a declaration from the Court that the tax regime in question constitutes a restriction on freedom to provide services and free movement of capital, contrary to Articles 49 and 56 EC, in that the rate of the fixed levy, which is generally more favourable, is III— The administrative procedure not applicable to income collected by French residents from a debtor which is not resident or established in France.

V — The breach the rate of tax is sometimes more attractive than the rate of the fixed levy and that the time at which each is paid makes it more advantageous to opt to pay income tax.

A — The difference in treatment

13. Taxable persons subject to personal 1. The rate of the fixed levy and the rate of income tax, whose residence for tax pur- tax poses is in France, and who receive any of the types of income referred to in Articles 125 A and 125-0 A of the Code general des impôts, may pay income tax or, alterna- 15. The French Government 10 and the tively, may fulfil the obligation to do so by Commission 11 have exchanged argument means of a fixed levy, which must be as to whether the rate of income tax applied by the debtor and deposited into imposed is more advantageous than the Treasury funds. That right to choose only rate applied in respect of the fixed levy. arises if the debtor is resident or established Neither has adopted a comprehensive in France, or, in the event that he is not, if approach and, naturally, they have failed the instruments which give rise to the to reach agreement. The parameters to be income were issued in that Member State. 8 taken into consideration are so many and so varied 12 that it is impossible to give a single, all-encompassing reply. What is certain, as the defendant Member State acknowledges, 13 is that there are always

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situations in which the rate of the fixed levy 2. The time of payment and the effect on is more favourable than the rate of income public funds tax. Furthermore, tax analysts take the view that 'the fixed levy generally benefits the taxpayer, in that, in the absence of choice, his taxable income (or part of it) is liable ... to be subject to income tax at a rate which is effectively higher than the rate of the 17. The fact that the fixed levy is deducted fixed levy'. 14 by the person or undertaking which pays the income on the taxpayer's investments at the time such payment is effected, whereas payment of income tax occurs in September of the year following the tax year in which the income was collected, with the result that liquid assets are available in the latter case which are not available in the former, is not in itself a tax advantage which it is possible to measure in objective terms.

14 — Mémento pratique Francis Lefebvre, Fiscal 1998, para- graph 2158. 15 — See paragraph 2 of the reply. 16 — In Case C-34/98 Commission v France [2000] ECR I-995, 19. In any event, even if the defendant were paragraph 49, and Case C-169/98 Commission v France [2000] ECR I-1049, paragraph 46, the Court made a correct in its view and it were possible to similar observation in relation to the argument advanced by the French Government in each case to the effect that assert that, in terms of liquidity, it is more the social debt repayment contribution, the application of advantageous for an individual to be which was claimed to contravene Community law, affected only a limited number of workers, and that the rate of the subject to income tax than to pay the fixed contested levy was minimal. In Case C-49/89 Corsica Ferries France [1989] ECR 4441, paragraph 8, the Court levy, there would still be a restriction of free adopted the same approach. movement of capital and freedom to

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23. There appears to be no doubt that the 21. To my mind, that argument is mani- decision of the French legislature to assess festly without foundation. The dispute in and collect tax in September of the year these proceedings does not concern whether following the tax year in which the taxable some individuals are subject to the fixed income concerned is received is uncon- levy and some to payment of tax, with the nected to the right to opt for the fixed levy result that the former are in a more under Articles 125 A and 125-0 A of the advantageous position than the latter. The Code general des impôts. Moreover, the question which has arisen is very different: stipulation that the levy must be applied at some individuals are entitled to choose and source by the body paying the income is not some are not, so that taxpayers who collect intended to place persons who choose that system at a disadvantage vis-à-vis persons for whom payment of income tax is compulsory and unavoidable. Indeed, the 17 — Paragraph 21 of the reply. defendant government states that the aim of 18 — Paragraph 16 of the rejoinder. that stipulation is to control financial 19 — See Verkooijen, paragraph 61, and the cases referred to therein. savings instruments and to ensure that it is

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possible for the Treasury to collect that do not have the means to guarantee the form of public revenue, an aim which conditions for the application of the fixed academic writers have also stated includes levy, especially if the undertaking con- 'encouraging savers to invest their wealth in cerned is established in a Member State French securities rather than foreign which practises banking secrecy or whose ones'. 20 legislation restricts the scope of procedures for the exchange of information.

B — General interest considerations which would justify the difference in treatment: the need to safeguard the effectiveness of fiscal supervision 27. That general interest objective does not, however, give Member States carte 25. The French Republic claims that the system complained of by the Commission is justified by the need to ensure payment of 21 — Paragraphs 18 to 20. tax and to safeguard fiscal controls. It 22 — See Case 120/78 Rene [1979] ECR 649, paragraph 8; Case argues that, where the debtor has its seat C-250/95 Futura Participations and Singer [1997] ECR I-2471, paragraph 31; Case C-254/97 Baxter ami Others outside French territory, the tax authorities [19991 ECR I-4809, paragraph 18; and Commission v Belgium, paragraph 39. 23 — See the judgmenr in Commission v Belgium, paragraphs 38 and 39, winch cites the findings of the Court i nJoined Cases C-358/93 and C-416/93 Bordasti and Others [1995] 20 — Grosclaude, J., and Marchessou, P., Droit fiscal général, ECR I-361, paragraphs 21 and 22, and Joined Cases Dalloz, second edition, 1999, p. 167, paragraph 230 in C-163/94, C-165/94 and C-250/94 Sanz de Lera and fine. Others [1995] ECR I-4821, paragraph 22.

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blanche to curtail the fundamental free- justified under Community law if it is doms, and is instead, like any exception to a essential in order to ensure effective fiscal cardinal principle of the Community, to be supervision. interpreted restrictively and applied in compliance with the requirements of the principle of proportionality. 24 Accordingly, difficulties inherent in the tasks of tax administration and tax inspection are not sufficient to render lawful measures which impose an outright restriction on funda- mental freedoms and which disregard other means of achieving the same outcome that are not only less expeditious but also less onerous. 25 A restriction may only be

in Bachmann, paragraph 20). Also in relation to income tax (in this case the legislation was Danish), the Court has and who collect income from undertakings stated that, for the purposes of deducting, as operating resident or established outside France are costs, expenditure incurred in taking part in training courses, the need to guarantee effective fiscal supervision does not justify the introduction of a general presumption not entitled to opt for the fixed levy scheme that expenditure relating to courses held in ordinary tourist is not justified by the need to guarantee the resorts located in other Member States is not to be treated as such when the same presumption does not exist in effectiveness of fiscal controls, and, in relation to training courses undertaken in ordinary tourist resorts located in Denmark, because there is nothing to particular, by the difficulties inherent in prevent the tax authorities from requiring from the ascertaining whether all the conditions taxpayer the proof necessary to assess whether or not the deduction should be applied (judgment in Case C-55/98 necessary for the application of a specified Vestergaard [1999] ECR I-7641, paragraphs 25 and 26). A rate of levy have been met (nature of the similar criticism was levelled at a special French tax imposed on undertakings exploiting one or more proprie- product, duration of the contract, date of tary medicinal products, under which it was only possible to deduct from the amount payable expenditure on issue, interest payment period).

19 and 20). The Court has criticised Luxembourg income tax legislation, which was also applicable to collective bodies and which made the carrying forward of the losses to the application of a specified rate by way of taxpayers which were not resident in the Grand Duchy of a fixed levy instead of being subject to but had a branch there subject to the condition that they must have kept and held in that Member State accounts income tax. Thus, fiscal supervision, which relating to their activities carried on there which complied with its relevant national rules.

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1. Difficulties in tax administration methods of collection, such as self-assess- ment, which allow its application to income paid by foreign undertakings. 28

It is paradoxical of the French Government to advance such an argument in view of its defence of a wider restriction on that freedom, which does not simply impose certain obligations on the taxpayer, aimed at confirming whether he fulfils the conditions entitling him to make the choice provided for in the legislation, but actually denies him any right of choice at all, and consequently has an even stronger deterrent effect. The conditions at issue in Safir were wholly unconnected to the duty of taxpayers to 31. The defendant Government acknow- provide certain information to the tax authorities in order ledges that it would be possible to counter to be entitled to a tax benefit; holders of life assurance policies taken out with companies not established m Sweden had to fulfil much more stringent conditions linier such practical problems in relation to the alia, registration with and declaration of premium pay- fixed levy by allowing self-assessment of ments to a central body; the fact that surrender of policies after a short period was more costly; duty to provide income collected from undertakings estab- information concerning the tax to which the insurance company was subject in order for the policyholder to be lished in other Member States, which would entitled to an exemption from or reduction of tax on the take place annually at the same time as

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goes on to claim that such a process would would pay the same rate at the same time. upset the balance of the scheme and, as That assertion is based on two conse- regards liquidity, that it would discriminate quences which, to my mind, are not against individuals who have invested in inevitable, because self-assessment, for the financial products offered by national purposes of the fixed levy, does not undertakings, since such persons would necessarily have to take place at the same have the fixed levy deducted at source. 29 time as the filing of income tax returns, and, However, that argument is unfounded even if the two procedures were simultan- because, as the system of choice currently eous, it would not automatically mean that stands, the interval between the deduction the rate imposed would be the same in both of the fixed levy and the assessment and cases. payment of income tax is not an essential attribute of the scheme but a consequence of the way it is administered. In other words, the fact that persons who are excluded from the right to choose fulfil 33. In fact, it follows from a careful read- their obligation later is not determined by ing of Articles 125 A and 125-0 A of the the need to compensate them for paying a Code général des impôts, bearing in mind higher rate because they are compulsorily the views of academic writers, that, irre- subject to income tax; instead, it is a means spective of the ultimate objective of the of circumventing the difficulties involved in provisions and the reasons for not accord- supervising payments made abroad, 30 ing individuals who invest in other coun- which, as I have already stated, do not tries the right to choose, the outcome is that justify a restriction of the free movement of it is more attractive for French taxpayers to capital and the freedom to provide services invest their savings in financial products of the kind I described above. offered by companies established in France.

36. The second difficulty, that mutual assistance is ineffective vis-à-vis Member States which practise banking secrecy, is immaterial to the aims pursued by the defendant Member State for two reasons. The first is that Community legislation already provides that certain information does not have to be disclosed, 36 and, notwithstanding that, the Court has acknowledged the usefulness of mutual assistance as a tool enabling effective fiscal supervision. 37 The second reason is that a 35. However, the French Government cites blanket exclusion from the system of choice three obstacles to the application of that established by the French legislature of case-law. First of all, it claims that Directive individuals who collect income from com- 77/799/EEC, and Community legislation on panies established in other Member States is mutual assistance in general, 35 is of limited not justified by the fact that, in some use when it comes to obtaining proof that situations, it is not possible to cross-check the conditions for the application of the information. As I have already observed, fixed levy have been fulfilled, because that effect is out of proportion to the aim of punctual recourse to ex post assistance the measure, particularly in view of the fact cannot replace the current scheme which that there is nothing to preclude the French involves systematic ex ante supervision. I tax authorities from seeking from taxpayers who choose the fixed levy such proof as may be necessary in order to determine 34 — Vestergaard, paragraphs 26 and 28. 35 — For example. Council Directive 76/308/EEC of 15 March 1976 on mutual assistance for the recovery of claims resulting from operations forming part of the system of 36 — See Article 8(1) and (2) of Directive 7 7 / 7 9 9 and Article 4(3) financing the European Agricultural Guidance and Guar- (a) and (b) of Directive 76/308. antee Fund, and of the agricultural levies and customs 37 — In particular, in Case C-300/90 Commission v Belgium duties (OJ 1976 L 73, p. 18), which, following amendment [1992] ECR I-305, the Court noted that the impossibility by Council Directive 2001/44/EC of 15 June 2001 (OJ of obtaining collaboration from another Memner State, 2001 L 175, p. 17), changed its title to 'Council Directive whose laws or administrative practices prevent the ... on mutual assistance for the recovery of claims relating competent authorities from carrying out enquiries or from to certain levies, duties, taxes and other measures' and collecting or using the information for its own purposes, applies, inter alia, to taxes on income and capital (Article I cannot justify a failure to apply a tax benefit to income ( 1 )and (2)(g)). obtained in that Member State (paragraph 13).

38. In short, I consider that the arguments advanced by the defendant Government do not justify the French legislation com- plained of by the Commission. 37. The third and final difficulty invoked by the French Republic is that, as concerns income arising from life assurance, in order to determine whether the fixed levy may be applied and, where appropriate, the rate, it is necessary to take into account not only 39. Accordingly, in my opinion, by impos- the amount payable but also the conditions ing an absolute prohibition to the effect that for taking out the policy, which are not individuals who collect income on the always available to the authorities of all the financial products referred to in Articles Member States. That claim is the same as 125 A and 125-0 A of the Code general des the general claim set out above, for this impôts are not entitled to choose between specific class of financial product. The fact payment of income tax and the application that there may be difficulties in collecting of a fixed levy, where the debtor of such the necessary information, and any short- income is not resident or established in comings which may arise in collaboration France, the French Republic has failed to between Member States, are not capable of fulfil its obligations under Articles 49 and rendering lawful measures restricting fun- 56 EC. damental freedoms which have been pro- claimed absolute and binding. At this juncture, I should like to recall the wise words of Advocate General Jacobs in the Opinion he delivered in Danner, in which he referred to the need for cooperation between the Member State of taxation and insurance undertakings established abroad, VI— Costs which, it must be assumed, will act in good faith because they are 'undertakings of some standing and permanence closely supervised by their State of establish- ment'. 39 A presumption or risk of fraud 40. In accordance with Article 69(2) of the Rules of Procedure, the costs must be borne by the defendant Member State. 38 — See Bachmann, paragraph 20; Case C-300/90 Commission v Belgium, paragraph 13; Danner, paragraph 50; and Skandia and Ramstedt, paragraph 43. 39 — Paragraph 74. 40 — Case C-478/98 Commission v Belgium, paragraph 45.

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