Avis juridique important

Judgment of the Court of 28 April 1998. - Jessica Safir v Skattemyndigheten i Dalarnas Län, formerly Skattemyndigheten i Kopparbergs Län. - Reference for a preliminary ruling: Länsrätten i Dalarnas Län - Sweden. - Freedom to provide services - Free movement of capital - Taxation of savings in the form of life assurance - Legislation of a Member State establishing different tax regimes according to the place of establishment of the undertaking providing the services. - Case C-118/96. European Court reports 1998 Page I-01897

Summary Parties Grounds Decision on costs Operative part

Freedom to provide services - Restrictions - Taxation of savings in the form of life assurance - National legislation providing for different tax regimes according to the place of establishment of the insurance companies - Not permissible

(EC Treaty, Art. 59)

Although direct taxation does not as such fall within the purview of the Community, the powers retained by the Member States must nevertheless be exercised consistently with Community law.

As regards freedom to provide services, Article 59 of the Treaty precludes the application of legislation in a Member State which provides for different tax regimes for capital life assurance policies, depending on whether they are taken out with companies established in that Member State or with companies established elsewhere, where that legislation contains a number of elements liable to dissuade individuals from taking out capital life assurance with companies established in other Member States and liable to dissuade those insurance companies from offering their services on the market in that Member State.

In Case C-118/96,

REFERENCE to the Court under Article 177 of the EC Treaty by Länsrätten i Dalarnas Län, formerly Länsrätten i Kopparbergs Län (Sweden), for a preliminary ruling in the proceedings pending before that court between

Jessica Safir

and

Skattemyndigheten i Dalarnas Län, formerly Skattemyndigheten i Kopparbergs Län

on the interpretation of Articles 6, 59, 60, 73b and 73d of the EC Treaty,

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, C. Gulmann, H. Ragnemalm, M. Wathlelet and R. Schintgen (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de Almeida (Rapporteur), P.J.G. Kapteyn, J.L. Murray, D.A.O. Edward, J.-P. Puissochet, G. Hirsch and P. Jann, Judges,

Advocate General: G. Tesauro,

Registrar: H.A. Rühl, Principal Administrator,

after considering the written observations submitted on behalf of:

- Jessica Safir, by J.-M. Bexhed and G. Lundsten, Advocates, Stockholm,

- the Swedish Government, by L. Nordling, Rättschef in the Legal Service (EU) of the Ministry of Foreign Affairs, acting as Agent,

- the Danish Government by P. Biering, Head of Division in the Ministry of Foreign Affairs, acting as Agent,

- the United Kingdom Government, by J.E. Collins, Assistant Treasury Solicitor, acting as Agent, and C. Vajda, Barrister,

- the Commission of the European Communities, by A. Caeiro, Legal Adviser, and K. Simonsson, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Jessica Safir, represented by J.-M. Bexhed and G. Lundsten; of the Swedish Government, represented by L. Nordling; of the Danish Government, represented by P. Biering; of the United Kingdom Government, represented by J.E. Collins and C. Vajda; and of the Commission, represented by K. Simonsson and H. Michard, a member of the Legal Service, at the hearing on 10 June 1997,

after hearing the Opinion of the Advocate General at the sitting on 23 September 1997,

gives the following

Judgment

1 By judgment of 22 March 1996, received at the Court on 12 April 1996, Länsrätten i Dalarnas Län, formerly Länsrätten i Kopparbergs Län (County Administrative Court, County of Kopparberg), referred to the Court for a preliminary ruling under Article 177 of the EC Treaty a question on the interpretation of Articles 6, 59, 60, 73b and 73d of that Treaty.

2 The question was raised in proceedings between Jessica Safir, domiciled in Sweden, and Skattemyndigheten i Dalarnas Län, formerly Skattemyndigheten i Kopparbergs Län (County of Kopparberg Tax Authority, hereinafter `Skattemyndigheten'), concerning payment of tax on capital life assurance premiums which she paid in 1995 to Skandia Life Assurance Company Ltd (hereinafter `Skandia Life'), a British insurance company operating on the Swedish market and wholly owned by the Swedish insurance company Skandia.

The Swedish legislation

3 In Sweden, taxation of savings in the form of capital life assurance (K-assurance) taken out with companies established in that country affects both companies and policyholders.

4 Insurance companies established in Sweden must pay tax under Law 1990: 661 on Yield Tax on Pension Funds. That tax takes the form of a tax on the yield from capital insurance levied on the insurer. This is calculated according to a standard method which is based on the capital of the company as it stood at the end of the year preceding the assessment to tax, less the company's financial liabilities existing at that time, then multiplied by the average government bond yield in the year before the tax year. The yield thus obtained is taxed at 27%.

5 Persons who have taken out life assurance policies with companies established in Sweden may not deduct premiums from their taxable income. On the other hand, proceeds from policies are not subject to tax.

6 The same applies in relation to persons taking out insurance with companies established abroad.

7 Savings in the form of capital life assurance taken out with companies established abroad are taxed pursuant to the Premium Tax Law (1990: 662) (hereinafter `the Premium Tax Law'), which entered into force on 1 January 1991.

8 According to the judgment making the reference, the purpose of the Premium Tax Law is to ensure competitive neutrality between savings in the form of capital life assurance taken out with insurance companies established in Sweden and savings in the form of like policies taken out with companies established abroad.

9 Article 1 of the Premium Tax Law provides that natural or legal persons domiciled or permanently resident in Sweden who have taken out life assurance with companies not established in Sweden must pay to the State a tax on the premiums paid. Under Paragraph 3 of the Premium Tax Law, the tax is to be 15% of the amount of the premium.

10 Furthermore, these taxpayers must register themselves and declare the payment of premiums to a central body, Skattemyndigheten.

11 Finally, Paragraph 5 of the Premium Tax Law provides that this body may, at the request of the policyholder, grant an exemption from payment of tax or reduce the tax by half if the company with which the insurance was taken out is subject, in the State in which it is established, to revenue tax comparable to that payable by insurance companies established in Sweden. The tax on premiums may be reduced by half if the foreign tax is at least one quarter of the tax applicable in Sweden and not be payable at all if the foreign tax is at least one half of the tax applicable in Sweden.

12 According to Länsrätten i Dalarnas Län, that possibility of granting exemption from tax or reducing the tax payable is intended to prevent the saver who takes out capital life assurance with a company established abroad from being subject to taxation higher than that applicable to a person taking out such insurance with a company established in Sweden.

The facts

13 Having taken out capital life assurance with Skandia Life at the beginning of 1995, Jessica Safir applied to the tax authority for exemption from payment of tax on the insurance premiums, pursuant to Paragraph 5 of the Premium Tax Law.

14 By decision of 12 April 1995, the tax authority reduced the amount of the tax by one half, setting it at 7.5% of the amount paid by way of premiums to Skandia Life in 1995, the resulting sum being SKR 75.

15 Jessica Safir then appealed against that decision to the body empowered to grant exemptions, Riksskatteverket, which, on 3 July 1995, rejected her appeal by final decision.

16 On 4 January 1996, she accordingly declared to Skattemyndigheten the premium payments made but she still maintained that she was not obliged to pay tax on the premiums on the ground that the tax was incompatible with Community law.

18 By applications of 22 January and 13 February 1996, Jessica Safir then brought proceedings in Länsrätten i Kopparbergs Län for annulment of Skattemyndigheten's tax assessment.

`Where in a Member State, the taxation of savings policies issued by domestic life assurance companies and foreign life assurance companies conducting insurance business in the Member State through an establishment takes the form of a tax on yield from insurance capital calculated in a standard way and levied on the insurer, is it contrary to Articles 6, 59, 60 or 73b and 73d of the Treaty of Rome for tax to be charged - with the aim of maintaining competitive neutrality between domestic and foreign savings policies - on insurance premiums paid by policyholders resident in the Member State under life assurance policies contracted with insurers who are established in another Member State and who are operating in the firstmentioned Member State in accordance with the rules on cross-border insurance activities, if the tax on the aforementioned insurance premiums can, upon application to the tax administration, be reduced to zero or by 50% in the event that the insurance company established abroad is subject to revenue tax in the State in which it is domiciled that is comparable to the tax charged on domestic savings policies in the other Member State?'

31 It must be added that, although the legislation in issue in the main proceedings allows account to be taken of the tax applicable in another Member State in order, according to the Swedish Government, to satisfy the principle of equal treatment laid down by Community law, there is nevertheless, as Jessica Safir points out, a threshold effect since payment of such tax is not taken into consideration where it does not amount to at least one quarter of the tax applicable in Sweden. The tax applicable in another Member State must amount to at least one quarter of the Swedish tax on insurance premiums in order to be capable of being reduced by half, and to at least a half of that tax in order to be reduced to zero. As a result of that threshold effect, the taxation of savings in the form of capital life assurance taken out with companies not established in Sweden is in most cases liable to be higher than the taxation of like savings with companies established in that State.

32 Moreover, legislation such as the Swedish legislation makes it difficult, if not impossible, for the national court called upon to determine whether the tax regime is discriminatory to compare, on the one hand, the yield tax on insurance policies taken out with companies established in Sweden and, on the other hand, the tax on insurance premiums paid to companies not established in Sweden.

33 Other systems which are more transparent and are also capable of filling the fiscal vacuum referred to by the Swedish Government, whilst being less restrictive of the freedom to provide services, are conceivable, in particular a system for charging tax on the yield on life assurance capital, calculated according to a standard method and applicable in the same way to all insurance policies, whether taken out with companies established in the Member State concerned or with companies established in another Member State.

36 The reply to be given to the national court must therefore be that Article 59 of the Treaty precludes the application of national legislation relating to the taxation of capital life assurance such as the legislation in question in the main proceedings.

Costs

37 The costs incurred by the Swedish, Danish and United Kingdom Governments, and by the Commission, which have submitted observations to the Court, are not recoverable. Since the proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT

in answer to the question referred to it by Länsrätten i Dalarnas Län, formerly Länsrätten i Kopparbergs Län, by judgment of 22 March 1996, hereby rules:

Article 59 of the EC Treaty precludes the application of national legislation relating to the taxation of capital life assurance such as the legislation in question in the main proceedings.