Case C-315/02

Anneliese Lenz

v

Finanzlandesdirektion für Tirol

(Reference for a preliminary ruling from the Verwaltungsgerichtshof (Austria))

(Free movement of capital – Tax on revenue from capital – Revenue from capital of Austrian origin: tax rate of 25% with discharging effect or tax at half the rate applicable to the whole of the revenue – Revenue from capital originating in another Member State: normal rate of tax)

Summary of the Judgment

Free movement of capital – Restrictions – Taxes on revenue from capital – Tax rate of 25% with discharging effect or ordinary tax rate reduced by half – Limitation to revenue from capital of national origin – Revenue from capital of foreign origin subject to ordinary tax without reduction – Not permissible – Justification – None

(EC Treaty, Arts 73b and 73d(1) and (3) (now Arts 56 EC and 58(1) and (3) EC))

Articles 73b and 73d(1) and (3) of the Treaty (now, respectively, Articles 56 EC and 58(1) and (3) EC) preclude legislation of a Member State which allows only the recipients of revenue from capital of national origin to choose between a tax with discharging effect at the rate of 25% and ordinary income tax with the application of a rate reduced by half, while providing that revenue from capital originating in another Member State must be subject to ordinary income tax without any reduction in the rate.

Such tax legislation constitutes a prohibited restriction on the free movement of capital in that it has the effect of deterring taxpayers living in the Member State concerned from investing their capital in companies established in another Member State; it also produces a restrictive effect in relation to companies established in other Member States in that it constitutes an obstacle to their raising capital in the Member State concerned.

That legislation cannot be justified by an objective difference in situation of such a kind as to justify a difference in tax treatment, in accordance with Article 73d(1)(a) of the Treaty. In relation to a tax rule designed to attenuate the effects of double taxation – corporation tax and then a tax on income – of the profits distributed by the company in which the investment is made, shareholders who are fully taxable in the Member State concerned and receive revenue from capital from a company established in another Member State are in a situation comparable with that of shareholders who are likewise fully taxable in that Member State but receive revenue from capital from a company established in that same Member State.

Moreover, in the absence of a direct link between the obtaining of the tax advantages at issue enjoyed by taxpayers resident in the Member State concerned on their domestic revenue from capital and the taxation of the companies’ profits by way of corporation tax, tax on the income of physical persons and corporation tax being in any case two distinct taxes which affect different taxpayers, and having regard to the fact that the aim pursued, namely the attenuation of an instance of double taxation, would not be affected in any way if one were also to give the benefit of that legislation to persons deriving revenue from capital originating in another Member State, it cannot be justified by the need to ensure the coherence of the tax system in question.

Furthermore, in the absence of such a link, refusal to grant those tax advantages to the recipients of revenue from capital originating in another Member State cannot be justified by the fact that revenue from companies established in another Member State is subject to low taxation in that State. Nor can unfavourable tax treatment contrary to a fundamental freedom be justified by the existence of other tax advantages, even supposing that such advantages exist.

A reduction in tax receipts cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is in principle contrary to a fundamental freedom.

(see paras 20-22, 28, 31-32, 34-36, 38, 40, 42-43, 49, operative part 1-2)

JUDGMENT OF THE COURT (First Chamber) 15 July 2004 (1)

(Free movement of capital – Tax on revenue from capital – Revenue from capital of Austrian origin: tax rate of 25 % in discharge or rate equal to half of the average tax rate on aggregate income – Income from capital originating in another Member State: normal tax rate)

In Case C-315/02,

REFERENCE to the Court under Article 234 EC by the Verwaltungsgerichtshof (Austria) for a preliminary ruling in the proceedings pending before that court between

and

on the interpretation of Articles 73b et 73d of the EC Treaty (now Articles 56 EC and 58 EC),

THE COURT (First Chamber),,

composed of: P. Jann, President of the Chamber, A. Rosas, S. von Bahr, R. Silva de Lapuerta and K. Lenaerts (Rapporteur), Judges,

Advocate General: A. Tizzano,

after considering the observations submitted on behalf of:

after hearing the oral observations of A. Lenz, represented by R. Leitner and G. Toifl, tax advisers, of the Austrian Government, represented by J. Bauer, acting as Agent, of the United Kingdom Government, represented by M. Hoskins, and of the Commission, represented by K. Gross and R. Lyal, at the hearing on 29 January 2004,

after hearing the Opinion of the Advocate General at the sitting on 25 March 2004,

gives the following

‘1.

2.

3.On those grounds,

THE COURT (First Chamber),

in answer to the questions referred to it by the Verwaltungsgerichtshof by order of 27 August 2002, hereby rules:

Jann

Rosas

von Bahr

Silva de Lapuerta

Lenaerts

Delivered in open court in Luxembourg on 15 July 2004.

R. Grass

P. Jann

Registrar

President of the First Chamber