Case C-334/02

Commission of the European Communities

v

French Republic

(Failure of a Member State to fulfil obligations – Freedom to provide services – Free movement of capital – Tax on income arising from investments – Debtor not resident or established in France – Exclusion of the fixed levy as the rate – National legislation contrary to the terms of the Treaty)

Summary of the Judgment

Freedom to provide services – Free movement of capital – Restrictions – Tax legislation – Fixed levy on certain income arising from investments – Condition of residence or establishment of the debtor in the Member State concerned – Not permissible – Justification – Absence

(Arts 49 EC and 56 EC)

A Member State has failed to fulfil its obligations under Articles 49 and 59 EC where it excludes altogether the application of the rate of the fixed levy to income arising from certain investments where the debtor is not resident or established in that Member State.

Apart from having the effect of discouraging taxpayers who are resident in a Member State from entering into contracts generating such income with companies which are established in another Member State, such legislation also has a restrictive effect as regards those companies as it prevents them from raising capital in the Member State concerned.

The need to ensure payment of taxes and effective fiscal supervision does not justify such a restriction on the freedom to provide services and the free movement of capital. While the prevention of tax avoidance and the need for effective fiscal supervision may be relied upon to justify restrictions on the exercise of fundamental freedoms guaranteed by the Treaty, a general presumption of tax avoidance or fraud is not, however, sufficient to justify a fiscal measure which compromises the objectives of the Treaty.

Furthermore, the restrictive measure in question does not comply with the principal of proportionality, in that it is not appropriate for securing the attainment of the objective it pursues and it goes beyond what is necessary to attain it.

(see paras 23-24, 27-28, 34, operative part)

JUDGMENT OF THE COURT (Fifth Chamber) 4 March 2004 (1)

(Failure of a Member State to fulfil its obligations – Freedom to provide services – Free movement of capital – Tax on income arising from investments – Debtor not resident or established in France – Exclusion of the fixed levy as the rate – National legislation contrary to the terms of the Treaty)

In Case C-334/02,

applicant,

v

defendant,

APPLICATION for a declaration that by excluding altogether application of the rate of the fixed levy to income arising from the investments and contracts referred to in Articles 125-0 A and 125 A of the Code général des impôts where the debtor is not resident or established in France, the French Republic has failed to fulfil its obligations under Articles 49 and 56 EC,

THE COURT (Fifth Chamber),,

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

Advocate General: D. Ruiz-Jarabo Colomer,

after hearing the oral observations of the parties at the hearing on 10 September 2003,

after hearing the Opinion of the Advocate General at the sitting on 16 October 2003,

gives the following

‘I.

In the event that deduction at source is applied to such income, it will be imputed to the levy in discharge [fixed levy].

The levy is to be deducted by the debtor or the person responsible for payment of the income. …’

‘I.

…

II.

On those grounds,

THE COURT (Fifth Chamber)

hereby:

Jann

Timmermans

von Bahr

Delivered in open court in Luxembourg on 4 March 2004.

R. Grass

V. Skouris

Registrar

President