Case C-9/02

Hughes de Lasteyrie du Saillant

v

Ministère de l’Économie, des Finances et de l’Industrie

(Reference for a preliminary ruling from the Conseil d’État (France))

(Freedom of establishment – Article 52 of the EC Treaty (now, after amendment, Article 43 EC) – Tax legislation – Transfer of tax residence to another Member State – Methods of taxing increased value of securities)

Summary of the Judgment

Freedom of movement for persons – Freedom of establishment – Tax legislation – Taxation of unrealised capital gains where tax residence transferred to another Member State – Not permissible – Justification – None

(EC Treaty, Art. 52 (now, after amendment, Art. 43 EC))

The principle of freedom of establishment laid down by Article 52 of the Treaty (now, after amendment, Article 43 EC) must be interpreted as precluding a Member State from establishing, in order to prevent a risk of tax avoidance, a mechanism for taxing latent, i.e. not yet realised, increases in value of company shares, where a taxpayer transfers his tax residence outside that State.

A taxpayer wishing to transfer his tax residence in exercise of the right guaranteed to him by that provision is subjected to disadvantageous treatment in comparison with a person who maintains his residence in that State where he becomes liable, simply by reason of such a transfer, to tax on income which has not yet been realised and which he therefore does not have, whereas, if he remained in that State, increases in value would become taxable only when, and to the extent that, they were actually realised.

That difference in treatment cannot be justified by the aim of preventing tax avoidance, since tax avoidance or evasion cannot be inferred generally from the fact that the tax residence of a physical person has been transferred to another Member State.

(see paras 38, 46, 50-51, 58, 69, operative part)

JUDGMENT OF THE COURT (Fifth Chamber) 11 March 2004 (1)

(Freedom of establishment – Article 52 of the EC Treaty (now, after amendment, Article 43 EC) – Tax legislation – Transfer of residence for tax purposes to another Member State – Methods of taxing increased value of securities)

In Case C-9/02,

REFERENCE to the Court under Article 234 EC by the Conseil d'État (France) for a preliminary ruling in the proceedings pending before that court between

and

on the interpretation of Article 52 of the EC Treaty (now, after amendment, Article 43 EC),

THE COURT (Fifth Chamber),,

composed of: C.W.A. Timmermans (Rapporteur), acting for the President of the Fifth Chamber, A. La Pergola and S. von Bahr, Judges,

Advocate General: J. Mischo,

after considering the written observations submitted on behalf of:

after hearing the oral observations of Mr de Lasteyrie du Saillant, represented by E. Ginter and B. Michaud, avocat, the French Government, represented by P. Boussaroque and J.-L. Gautier, acting as Agents, the Netherlands Government, represented by S. Terstal, acting as Agent, and the Commission, represented by R. Lyal and C. Giolito, at the hearing on 13 February 2003,

having heard the Opinion of the Advocate General at the hearing on 13 March 2003,

gives the following

‘I.

II:

“Article 167a

I. – 1.

2.Losses may not be offset against increases in value of the same kind occurring elsewhere.

3.II.– 1.

Suspension of payment is subject to the condition that the taxpayer shall declare the amount of the increase in value determined in accordance with the conditions in I above, applies for the benefit of suspension, designates a representative established in France authorised to receive communications concerning the basis of assessment, collection of the tax and any disputes relating thereto, and, before his departure abroad, constitutes with the official responsible for collection guarantees sufficient to ensure recovery of the debt by the Treasury.

The suspension of payment provided for in this article has the effect of suspending the commencement of the statutory period within which to bring a recovery action until the date of the event causing it to expire. It is analogous to the suspension of payment 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.

The tax in respect of which suspension of payment is applied for pursuant to this article shall not be taken into account in relation to the award or repayment of tax credits or to the withholding or deduction of tax other than by way of discharge.

2.

3.However, the tax of which payment has been suspended may be demanded only up to the limit of its amount 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 hand, their price or acquisition value used for the application of I, 2 above. Exoneration is granted automatically in respect of the remainder. In that case, the taxpayer shall provide the calculations used, in support of the declaration referred to in 2 above.

The tax paid locally by the taxpayer and relating to the increase in value actually realised outside France may be set off against the income tax established in France provided it is comparable with that tax.

4.III.

IV.

V.

‘Where, during the life of a company, a partner, shareholder or holder of beneficial interests transfers all or part of his securities, the excess of the transfer price over the acquisition price – or the value as at 1 January 1949 if higher – is charged exclusively to income tax at the rate of 16%. In the case of transfer of one or more securities belonging to a series of securities acquired at different prices, the acquisition price to be used shall be the weighted average acquisition value of those securities. In the case of a transfer of securities after the closure of a share savings plan defined in Article 163d D or their withdrawal after the eighth year, the acquisition price shall be deemed to be equal to their value at the date on which the transferor ceased to benefit, in respect of those securities, from the advantages referred to in paragraphs 5a and 5b of Article 157 and in IV of Article 163d D.

The taxation of the increase in value thus realised is subject to the sole condition that the rights held directly or indirectly in company profits by the transferor or the 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 those company securities are not resold to a 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.

…

Diminutions in value suffered in the course of a year may be offset only against increases in value of the same kind realised during the same year or the five years following.

…

Increases in value which are taxable pursuant to this article and diminutions in value must be declared under the conditions specified in paragraph 1 of Article 170 in accordance with rules to be established by decree.’

‘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 Général des Impôts in respect of increases in value taxable pursuant to paragraph 1a of Article 167 and I of Article 167a of that code, and also the special form referred to in Article 91j of Annex II to the Code Général des Impôts.’

‘Taxpayers wishing to benefit from the suspension of payment referred to in II of Article 167a of the Code Général des Impôts must send to the official at the Treasury with responsibility for non-residents draft guarantees in the forms specified in the second paragraph of Article R.277-1 not later than eight days before the date of the transfer of residence for tax purposes outside France. A receipt will be issued therefor.

The provisions of the third paragraph of Article R.277-1, of Articles R.277-2 to R.277-4, and of Article R.277-6 apply.’

‘The responsible official shall request the taxpayer who has applied for the suspension of tax to set up the guarantees referred to in Article L.277. The taxpayer has a period of 15 days from receipt of the official’s request to give notification of the guarantees which he undertakes to set up.

Such guarantees may take the form of a cash payment into a Treasury suspense account, an acknowledgement of indebtedness in favour of the Treasury, the lodging of a deposit, securities, goods deposited at State-approved warehouses and subject to a warrant endorsed in favour of the Treasury, by mortgage charges, by pledging of business assets.

If the official considers that the guarantees offered by the taxpayer cannot be accepted because they do not meet the conditions laid down in the second paragraph, he shall notify his decision by registered letter.’

‘Should the guarantees set up depreciate in value or be found insufficient, the administration may at any time, under the same conditions as laid down in Articles L.277 and L.279, request the taxpayer by registered letter with advice of receipt, to top up the guarantee to ensure recovery of the contested sum. Should the taxpayer not satisfy that request within a month, proceedings for recovery of the tax shall be resumed.’

‘Where guarantees other than those referred to in Article R.277-1 are offered, they may be accepted, on the proposition of the official with responsibility for recovery, only by the Paymaster-General or the Collector-General of taxes for the Paris region in the case of direct taxes collected via the register, or by the Director of Tax Services or the Regional Director of Customs and Indirect Taxes, as the case may be, in the case of other taxes.’

‘The taxpayer may be permitted by the official with responsibility for recovery, at any time, to replace the guarantee he has set up with one of the other guarantees referred to in Article R.277-3, of at least equal value.’

‘A decree of the minister responsible for finance shall determine the conditions under which securities may be used as a guarantee, and in particular the nature of those securities and the amount for which they are allowed, that amount being calculated in accordance with the most recent value quoted on the day of deposit.’

‘Does the principle of freedom of establishment laid down in Article 52 of the EC Treaty (now, after amendment, Article 43 EC) preclude the introduction by a Member State, for the purpose of preventing the risk of tax avoidance, of arrangements for taxing capital gains in the case of transfer of tax residence, such as described above [?]’

On those grounds,

THE COURT (Fifth Chamber),

in answer to the question referred to it by the Conseil d’État by decision of 14 December 2001, hereby rules:

Timmermans

La Pergola

von Bahr

Delivered in open court in Luxembourg on 11 March 2004.

R. Grass

V. Skouris

Registrar

President