14It should be recalled at the outset that, according to settled case-law, while direct taxation falls within their competence, Member States must none the less exercise that competence in accordance with European Union law (Case C-334/02 Commission v France [2004] ECR I-2229 , paragraph 21; Case C-155/09 Commission v Greece [2011] ECR I-65 , paragraph 39; and Case C-10/10 Commission v Austria [2011] ECR I-5389 , paragraph 23).

15It is also established case-law that the measures prohibited by Article 63(1) TFEU, as restrictions on the movement of capital, include those which are such as to discourage non-residents from making investments in a Member State or to discourage that Member State’s residents from doing so in other States (Case C-370/05 Festersen [2007] ECR I-1129 , paragraph 24; Case C-101/05 A [2007] ECR I-11531 , paragraph 40; and Joined Cases C-436/08 and C-437/08 Haribo Lakritzen Hans Riegel and Österreichische Salinen [2011] ECR I-305 , paragraph 50).

17That difference in the tax treatment of dividends according to the UCITS’ place of residence may discourage, on the one hand, non-resident UCITS from investing in companies established in France and, on the other, investors resident in France from acquiring shares in non-resident UCITS.

18Accordingly, such legislation constitutes a restriction on the free movement of capital, in principle prohibited by Article 63 TFEU.

21In so far as Article 65(1)(a) TFEU is a derogation from the fundamental principle of the free movement of capital, it must be interpreted strictly. It cannot therefore be interpreted as meaning that all tax legislation which draws a distinction between taxpayers on the basis of their place of residence or the State in which they invest their capital is automatically compatible with the Treaty (see Case C-11/07 Eckelkamp and Others [2008] ECR I-6845 , paragraph 57; Case C-510/08 Mattner [2010] ECR I-3553 , paragraph 32; and Haribo Lakritzen Hans Riegel and Österreichische Salinen , paragraph 56).

22The derogation in that provision is itself limited by Article 65(3) TFEU, which provides that the national provisions referred to in Article 65(1) ‘shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63’.

23The differences in treatment authorised by Article 65(1)(a) TFEU must therefore be distinguished from discrimination prohibited by Article 65(3) TFEU. The case-law shows that, for national tax legislation such as that at issue in the main proceedings to be capable of being regarded as 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 an overriding reason in the public interest (Case C-35/98 Verkooijen [2000] ECR I-4071 , paragraph 43; Case C-319/02 Manninen [2004] ECR I-7477 , paragraph 29; and Case C-250/08 Commission v Belgium [2011] ECR I-12341 , paragraph 51).

28Moreover, only the relevant distinguishing criteria established by the legislation in question must be taken into account in determining whether the difference in treatment resulting from that legislation reflects situations which are objectively different. Accordingly, where a Member State chooses to exercise its tax jurisdiction over dividends distributed by resident companies on the sole basis of the place of residence of the recipient UCITS, the tax situation of the latter’s shareholders is irrelevant for the purpose of determining whether or not that legislation is discriminatory.

31It should be noted in that regard that, where UCITS capitalise dividends received, there will be no redistribution of dividends which may give rise to their shareholders being subject to further taxation. The legislation at issue in the main proceedings therefore establishes no link between the tax treatment of nationally-sourced dividends received by UCITS which then go on to capitalise them — be they resident or non-resident — and the tax situation of their shareholders.

32Nor does the legislation at issue take account of the tax situation of the shareholders in UCITS which distribute dividends received.

33It should be noted in that regard that the French Government’s argument is based on the premiss that shareholders in resident UCITS are themselves resident for tax purposes in France, whereas the shareholders in non-resident UCITS are resident for tax purposes in the State in which the UCITS concerned is established. Bilateral conventions on the avoidance of double taxation concluded between the French Republic and the Member State or non-Member State concerned thus ensure, according to the French Government, that shareholders in resident and non-resident UCITS receive similar tax treatment.

34However, to the extent that it is based on a generalisation, that premiss is incorrect. It is, in fact, not unusual for a shareholder in a UCITS which is not resident in France to be resident for tax purposes in France or for a shareholder in a UCITS resident in France to be resident for tax purposes in another Member State or in a non-Member State.

35It is clear from the legislation at issue in the main proceedings that nationally-sourced dividends paid to a resident distributing UCITS are exempt from tax even in cases in which the French Republic does not exercise its tax jurisdiction over the dividends redistributed by such a UCITS, in particular when they are paid to shareholders who are resident for tax purposes in another Member State or in a non-Member State.

36Moreover, nationally-sourced dividends paid to non-resident distributing UCITS are taxed at a rate of 25%, irrespective of the tax situation of their shareholders.

37As regards non-resident shareholders in such UCITS, while some bilateral conventions on the avoidance of double taxation concluded between the French Republic and the Member State or non-Member State concerned provide that the State of residence of such shareholders is to take account of the withholding tax applied in France, it cannot be inferred from this that the tax situation of such shareholders will be taken into account under the legislation at issue in the main proceedings. On the contrary, it is the shareholders’ State of residence that, under such conventions, is to take account of the tax treatment of the dividends in France in respect of the UCITS.

38Even though, as the French Government claims, there is an administrative practice which enables a holder resident in France of shares in a non-resident UCITS to obtain, in certain cases, a tax credit for the withholding tax levied in respect of the non-resident UCITS, the fact remains that the legislation at issue in the main proceedings provides that nationally-sourced dividends distributed to a non-resident UCITS are to be taxed at a rate of 25% on the sole basis of the latter’s place of residence and, therefore, irrespective of the tax situation of the shareholders in such UCITS.

39In the light of the distinguishing criterion established by that legislation, based solely on the UCITS’ place of residence, the situations must be compared only at the level of the investment vehicle in order to determine whether that legislation is discriminatory.

41On the other hand, in the cases in the main proceedings, the distinguishing criterion for determining the tax treatment applicable, established by the national legislation at issue, is not the tax situation of the shareholder but solely the status of the UCITS, namely whether or not it is resident.

42Next, as pointed out by the tribunal administratif de Montreuil with regard to national legislation such as that at issue in the main proceedings, which seeks to prevent dividends distributed by resident companies being subject to a series of charges to tax, the situation of a resident recipient UCITS is comparable to that of a non-resident recipient UCITS (see Aberdeen Property Fininvest Alpha , paragraphs 43 and 44, and Commission v Germany , paragraph 58).

43The argument of the French Government relying on the judgment in Case C-282/07 Truck Center [2008] ECR I-10767 , paragraph 74, to the effect that the different treatment of resident UCITS and non-resident UCITS simply reflects the difference between the situations in which those undertakings find themselves with regard to tax collection, must be rejected. It should be noted that, in the case which gave rise to the judgment in Truck Center , the national legislation at issue provided that both resident recipient companies and non-resident recipient companies were to be taxed in respect of certain nationally-sourced income. That legislation simply laid down different procedures for charging tax, depending on the place where the recipient company had its registered office, which were justified on account of an objective difference in the situations in which resident and non-resident companies found themselves. However, in the cases in the main proceedings, the legislation at issue does not simply provide for different procedures for charging tax depending on the place of residence of the recipient of nationally sourced dividends. On the contrary, it provides that only non-resident UCITS are to be taxed on such dividends.

44Accordingly, the different treatment of resident UCITS, which are exempt from tax on nationally-sourced dividends received by them, and non-resident UCITS, which are subject to withholding tax in respect of such dividends, cannot be justified by a relevant difference in their situations.

47It must be recalled that the need to safeguard the balanced allocation between the Member States of the power to tax may be accepted, in particular, where the system in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried out in its territory (see Case C-231/05 Oy AA [2007] ECR I-6373 , paragraph 54; Case C-379/05 Amurta [2007] ECR I-9569 , paragraph 58; Aberdeen Property Fininvest Alpha , paragraph 66; and Commission v Germany , paragraph 77).

48However, where a Member State has chosen not to tax resident UCITS in receipt of nationally-sourced dividends, it cannot rely on the argument that there is a need to ensure a balanced allocation between the Member States of the power to tax in order to justify the taxation of non-resident UCITS in receipt of such income (see Amurta , paragraph 59; Aberdeen Property Fininvest Alpha , paragraph 67; and Commission v Germany , paragraph 78).

49Nor can the legislation at issue in the main proceedings be justified by the need to guarantee the effectiveness of fiscal supervision. As indeed the referring court itself observes, the effectiveness of fiscal supervision cannot justify taxation which affects solely and specifically non-residents.

50As regards the argument concerning the need to preserve the coherence of the French tax system, the Court has previously held that the need to safeguard such coherence may justify rules that are liable to restrict fundamental freedoms (see Case C-204/90 Bachmann [1992] ECR I-249 , paragraph 21; Case C-157/07 Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt [2008] ECR I-8061 , paragraph 43; and Commission v Belgium , paragraph 70).

51However, for an argument based on such a justification to succeed, a direct link must be established, according to settled case-law, between the tax advantage concerned and the compensating of that advantage by a particular tax levy ( Commission v Belgium , paragraph 71 and the case-law cited), with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question (Case C-418/07 Papillon [2008] ECR I-8947 , paragraph 44, and Aberdeen Property Fininvest Alpha , paragraph 72).

52As is apparent from paragraph 30 above, the exemption from withholding tax on dividends is not conditional on redistribution by the UCITS of the dividends received by it and on the shareholders in that UCITS being taxed in respect of the dividends as a means of compensating for the exemption from withholding tax.

56When presenting oral argument, the French Government asked the Court to limit the temporal effects of this judgment, in the event that it ruled that national legislation such as that at issue in the main proceedings is incompatible with Articles 63 TFEU and 65 TFEU.

57In support of its request, that government, first, drew the Court’s attention to the grave financial consequences which a judgment giving such a ruling would have. Second, it argued that, in the light of the conduct of the European Commission and that of other Member States, the French Republic was entitled to take the view that the legislation at issue in the main proceedings complied with European Union law.

58In that connection, regard must be had to the settled case-law of the Court to the effect that the interpretation which, in the exercise of the jurisdiction conferred on it by Article 267 TFEU, the Court gives to a rule of European Union law clarifies and defines the meaning and scope of that rule as it must be or ought to have been understood and applied from the time of its entry into force. It follows that the rule as thus interpreted may, and must, be applied by the courts even to legal relationships which arose and were established before the judgment ruling on the request for interpretation, provided that in other respects the conditions for bringing a dispute relating to the application of that rule before the competent courts are satisfied (see, in particular, Case C-347/00 Barreira Pérez [2002] ECR I-8191 , paragraph 44; Joined Cases C-453/02 and C-462/02 Linneweber and Akritidis [2005] ECR I-1131 , paragraph 41; and Case C-292/04 Meilicke and Others [2007] ECR I-1835 , paragraph 34).

59It is only exceptionally that the Court may, in application of the general principle of legal certainty inherent in the legal order of the European Union, decide to restrict for any person concerned the right to rely on a provision which it has interpreted with a view to calling in question legal relationships established in good faith. Two essential criteria must be fulfilled before such a limitation can be imposed, namely that those concerned should have acted in good faith and that there should be a risk of serious difficulties (see, inter alia, Case C-402/03 Skov and Bilka [2006] ECR I-199 , paragraph 51, and Case C-2/09 Kalinchev [2010] ECR I-4939 , paragraph 50).

60More specifically, the Court has taken that step only in quite specific circumstances, where there was a risk of serious economic repercussions owing in particular to the large number of legal relationships entered into in good faith on the basis of rules considered to be validly in force and where it appeared that individuals and national authorities had been led to adopt practices which did not comply with European Union law by reason of objective, significant uncertainty regarding the implications of European Union provisions, to which the conduct of other Member States or the Commission may even have contributed (see, inter alia, Case C-423/04 Richards [2006] ECR I-3585 , paragraph 42, and Kalinchev , paragraph 51).

61As regards the French Government’s argument concerning the objective, significant uncertainty regarding the implications of European Union provisions, that government has failed to specify how the conduct of the Commission and other Member States may have contributed to such uncertainty. In any event, any argument alleging objective, significant uncertainty regarding the implications of European Union provisions cannot be accepted in the actions in the main proceedings. According to the established case-law of the Court cited at paragraph 27 above, for the purpose of determining whether legislation such as that at issue in the main proceedings is compatible in the light of Articles 63 TFEU and 65 TFEU, the assessment as to whether situations are comparable must be carried out at the level chosen by the Member State itself, namely, in the present case, at the level of the UCITS. Moreover, as stated by the referring court, no particular problem arises in assessing whether legislation such as that at issue in the main proceedings is compatible in the light of Article 63 TFEU and 65 TFEU if the situations must be compared at UCITS level.

62As regards the French Government’s reference to the far-reaching budgetary consequences of the Court’s present judgment, it is settled case-law that the financial consequences which might ensue for a Member State from a preliminary ruling do not in themselves justify limiting the temporal effects of the ruling (Case C-184/99 Grzelczyk [2001] ECR I-6193 , paragraph 52; Case C-209/03 Bidar [2005] ECR I-2119 , paragraph 68; and Kalinchev , paragraph 52). In the present case, the French Republic, which requested only at the hearing that the temporal effects of the present judgment be limited, failed to put forward any data at the hearing which would have enabled the Court to consider whether the French Republic actually risks incurring serious economic repercussions.

63Accordingly, there is no need to limit the temporal effects of this judgment.

64Since these 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. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.