Posts Tagged Free movement of capital

Fremoluc: CJEU adopts a lenient (from MS standpoint) view on ‘purely internal’ measures. (External element easy to engineer, though).

In C-343/17 Fremoluc the CJEU held last week. It features as counsel no less than 4 fellow faculty at Leuven Law: 5 if one counts prof Elke Cloots whom we foolishly let escape to elsewhere – and who was the most vociferous (and, it would seem, persuasive) at the hearing, I understand. Had we had either one of my two collegae proximi who serve as judges on the CJEU assigned to the case, there would have been more residents of Collegium Falconis at Kircherg on the day of the hearing then there have recently been at Faculty meetings. But I digress.

The case essentially concerns services of general economic interests (SGEIs), as applied to the social housing sector: what kind of measures may a Member State roll-out to support the provision of such housing, in light of the free movement of not just persons but also services and capital. By extension, the case-law is also relevant to property rights restrictions across the EU.

In the case at issue applicant had seen a purchase of land torpedoed by the right of pre-emption of a relevant agency, relating to building land situated in areas earmarked for house renovation and house-building in 26 municipalities in its operating area. Fremoluc suggested the condition in the underlying decree that ‘as regards the provision of homes or land in a social housing project…, absolute priority must be given, at any stage of the project, to prospective tenants, leaseholders or buyers who have strong social, economic or socio-cultural ties with the operating area in question’, constitute an illegal condition under EU law. Consequently, it argued, the right of pre-emptive purchase itself was illegal.

The CJEU however, with reference to relevant case-law (please refer to the text of the judgment for same), held that the case was inadmissible, for it is purely internal: at 28-29: ‘it is not sufficient for the referring court to state that it is not inconceivable that nationals established in other Member States were or are interested in making use of Union provisions on fundamental freedoms to carry out activities in the territory of the Member State which enacted the national legislation in question and, consequently, that that legislation, applicable without distinction to nationals and to nationals of other Member States, is capable of producing effects which are not confined to that Member State.’ ‘The request for a preliminary ruling must clearly set out specific factors, that is, not hypothetical considerations but specific evidence, such as complaints or applications brought by operators situated in other Member States or involving nationals of those Member States, on the basis of which the required connecting link may be positively established. More particularly, the referring court may not merely submit to the Court evidence suggesting that such a link cannot be ruled out or which, considered in the abstract, could constitute evidence to that effect, and must, on the contrary, provide objective and consistent evidence enabling the Court to ascertain whether such a link exists.’

Such evidence of course in practice is easily engineered. A similar case therefore is bound to return to Luxembourg at some point soon.

Geert.

 

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A break on the Commission’s efforts to harmonise tax through the backdoor? Kokott AG in X

Postscript December 2014: the ECJ held on 18 december in favour of The Netherlands. Idem in Q.

Postscript 2 October 2014: the AG opined along similar lines in Q, with respect to a question also referred by the hoge Raad, as follows: ‘Does the importance of the conservation of national natural heritage and cultural heritage, as addressed in the Natuurschoonwet 1928 (Law on nature protection 1928), constitute an overriding reason in the public interest which justifies a scheme whereby the application of an exemption from gift tax (recovery facility) is limited to estates situated in the Netherlands?’

In X, Case C-87/13, the Hoge Raad of the Netherlands asked in essence whether  EU law, in particular the rules on freedom of establishment and on free movement of capital, preclude[s] a resident of Belgium who, at his request, is taxed in the Netherlands as a resident and who has incurred costs in respect of a castle, used by him as his own home, which is located in Belgium and is designated there as a legally protected monument and village conservation area, from deducting those costs in the Netherlands for income tax purposes on the grounds that the castle is not registered as a protected monument in the Netherlands?

Kokott AG opined on 4 September last (the Opinion at the time of writing was not yet available in English) and suggested The Netherlands should be allowed to go ahead with such distinction. She focussed her opinion on the free movement of establishment, suggesting the same analysis applies mutatis mutandis for free movement of capital.

A summary of the Court of Justice’s case-law on the main exceptions to the free movement of capital (and, also per Kokott AG, similarly applicable to free movement of establishment), may be found in par. 42 of Jaeger, Case C-256/06:

According to the case-law, in order for national tax legislation such as that at issue in the main proceedings, which, for the purposes of calculating inheritance tax, distinguishes between assets situated in another Member State and those situated in Germany, to be considered compatible with the provisions of the Treaty on the free movement of capital, the difference in treatment must concern situations which are not objectively comparable or be justified by overriding reasons in the general interest.

The Advocate General suggested the Court find the two situations objectively comparable, given that listed property in both countries is likely to be subject to various restrictions. Simply quoting budgetary reasons for limiting the possibility of tax offset to assets in the State of taxation is not enough under EU law. However she did find merit in the argument that the limitation to listed property in The Netherlands, is in the general interest: in contrast with other cases (e.g. Petersen C-544/11), the general interest identified by the Member State concerned, cannot be met by market participants in other Member States (at 41): allowing set-off for maintenance of listed property in another Member State, does not serve the goal of preserving Dutch national heritage, a relevant interest illustrated eg. by the references to national  heritage in Articles 36 and 167 TFEU.

If adopted by the Court, the AG’s Opinion in my view would be very welcome. The EC have been using an extensive interpretation of the free movement of capital essentially to skate around its limited progress in tax harmonisation (which is subject to national veto).

Geert.

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