(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 principle 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*

(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,

Commission of the European Communities, represented by R. Lyal and C. Giolito, acting as Agents, with an address for service in Luxembourg,

applicant,

French Republic, represented by G. de Bergues and P. Boussaroque, acting as Agents,

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, Registrar: M. Múgica Arzamendi, Principal Administrator,

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

This request for a preliminary ruling concerns the interpretation of Directive 2011/92/EU of the European Parliament and of the Council of 13 December 2011 on the assessment of the effects of certain public and private projects on the environment (OJ 2012 L 26, p. 1), as amended by Directive 2014/52/EU of the European Parliament and of the Council of 16 April 2014 (OJ 2014 L 124, p. 1) (‘Directive 2011/92’).

The request has been made in proceedings between, on the one hand, Waltham Abbey Residents Association and, on the other hand, An Bord Pleanála (Planning Board, Ireland; ‘the Board’), Ireland and the Attorney General (Ireland), concerning authorisation granted by the Board for a strategic residential housing development.

Legal context

European Union law

Directive 2011/92

Recitals 7 to 9 of Directive 2011/92 state:

‘(7) Development consent for public and private projects which are likely to have significant effects on the environment should be granted only after an assessment of the likely significant environmental effects of those projects has been carried out. …

(8) Projects belonging to certain types have significant effects on the environment and those projects should, as a rule, be subject to a systematic assessment.

(9) Projects of other types may not have significant effects on the environment in every case and those projects should be assessed where the Member States consider that they are likely to have significant effects on the environment.’

Article 2(1) of that directive provides:

‘Member States shall adopt all measures necessary to ensure that, before development consent is given, projects likely to have significant effects on the environment by virtue, inter alia, of their nature, size or location are made subject to a requirement for development consent and an assessment with regard to their effects on the environment. Those projects are defined in Article 4.’

Under Article 3(1) of that directive:

‘The environmental impact assessment shall identify, describe and assess in an appropriate manner, in the light of each individual case, the direct and indirect significant effects of a project on the following factors:

…

(b) biodiversity, with particular attention to species and habitats protected under [Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (OJ 1992 L 206, p. 7), as amended by Council Directive 2013/17/EU of 13 May 2013 (OJ 2013 L 158, p. 193) (“Directive 92/43”)] and Directive 2009/147/EC [of the European Parliament and of the Council of 30 November 2009 on the conservation of wild birds (OJ 2010 L 20, p. 7)];

…’

Article 4 of Directive 2011/92 provides:

‘1. Subject to Article 2(4), projects listed in Annex I shall be made subject to an assessment in accordance with Articles 5 to 10.

(a) a case-by-case examination;

(b) thresholds or criteria set by the Member State.

Member States may decide to apply both procedures referred to in points (a) and (b).

Where a case-by-case examination is carried out or thresholds or criteria are set for the purpose of paragraph 2, the relevant selection criteria set out in Annex III shall be taken into account. Member States may set thresholds or criteria to determine when projects need not undergo either the determination under paragraphs 4 and 5 or an environmental impact assessment, and/or thresholds or criteria to determine when projects shall in any case be made subject to an environmental impact assessment without undergoing a determination set out under paragraphs 4 and 5.

Where Member States decide to require a determination for projects listed in Annex II, the developer shall provide information on the characteristics of the project and its likely significant effects on the environment. The detailed list of information to be provided is specified in Annex IIA. The developer shall take into account, where relevant, the available results of other relevant assessments of the effects on the environment carried out pursuant to Union legislation other than this Directive. The developer may also provide a description of any features of the project and/or measures envisaged to avoid or prevent what might otherwise have been significant adverse effects on the environment.

The competent authority shall make its determination, on the basis of the information provided by the developer in accordance with paragraph 4 taking into account, where relevant, the results of preliminary verifications or assessments of the effects on the environment carried out pursuant to Union legislation other than this Directive. The determination shall made available to the public and:

(a) where it is decided that an environmental impact assessment is required, state the main reasons for requiring such assessment with reference to the relevant criteria listed in Annex III; or

(b) where it is decided that an environmental impact assessment is not required, state the main reasons for not requiring such assessment with reference to the relevant criteria listed in Annex III, and, where proposed by the developer, state any features of the project and/or measures envisaged to avoid or prevent what might otherwise have been significant adverse effects on the environment.

Member States shall ensure that the competent authority makes its determination as soon as possible and within a period of time not exceeding 90 days from the date on which the developer has submitted all the information required pursuant to paragraph 4. In exceptional cases, for instance relating to the nature, complexity, location or size of the project, the competent authority may extend that deadline to make its determination; in that event, the competent authority shall inform the developer in writing of the reasons justifying the extension and of the date when its determination is expected.’

Annex II.A of that directive contains the list of ‘information to be provided by the developer on the projects listed in Annex II’. That list reads as follows:

‘1. A description of the project, including in particular:

(a) a description of the physical characteristics of the whole project and, where relevant, of demolition works;

(b) a description of the location of the project, with particular regard to the environmental sensitivity of geographical areas likely to be affected.

(a) the expected residues and emissions and the production of waste, where relevant;

(b) the use of natural resources, in particular soil, land, water and biodiversity.

Annex III to that directive sets out the ‘criteria to determine whether the projects listed in Annex II should be subject to an environmental impact assessment’.

Directive 2014/52

Recitals 11 and 29 of Directive 2014/52 state:

‘(11) The measures taken to avoid, prevent, reduce and, if possible, offset significant adverse effects on the environment, in particular on species and habitats protected under [Directive 92/43] and Directive 2009/147 …, should contribute to avoiding any deterioration in the quality of the environment and any net loss of biodiversity, in accordance with the [European] Union’s commitments in the context of the [United Nations Convention on Biological Diversity, signed in Rio de Janeiro on 5 June 1992,] and the objectives and actions of the Union Biodiversity Strategy up to 2020 laid down in the [Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions] of 3 May 2011 entitled ‘Our life insurance, our natural capital: an EU biodiversity strategy to 2020’ [(COM(2011) 244 final)]

…

(29) When determining whether significant effects on the environment are likely to be caused by a project, the competent authorities should identify the most relevant criteria to be considered and should take into account information that could be available following other assessments required by Union legislation in order to apply the screening procedure effectively and transparently. In this regard, it is appropriate to specify the content of the screening determination, in particular where no environmental impact assessment is required. Moreover, taking into account unsolicited comments that might have been received from other sources, such as members of the public or public authorities, even though no formal consultation is required at the screening stage, constitutes good administrative practice.’

Directive 92/43

Article 6(3) of Directive 92/43 provides:

‘Any plan or project not directly connected with or necessary to the management of the site but likely to have a significant effect thereon, either individually or in combination with other plans or projects, shall be subject to appropriate assessment of its implications for the site in view of the site’s conservation objectives. In the light of the conclusions of the assessment of the implications for the site and subject to the provisions of paragraph 4, the competent national authorities shall agree to the plan or project only after having ascertained that it will not adversely affect the integrity of the site concerned and, if appropriate, after having obtained the opinion of the general public.’

Article 12(1) of that directive provides:

‘Member States shall take the requisite measures to establish a system of strict protection for the animal species listed in Annex IV(a) in their natural range, prohibiting:

(a) all forms of deliberate capture or killing of specimens of these species in the wild;

(b) deliberate disturbance of these species, particularly during the period of breeding, rearing, hibernation and migration;

(c) deliberate destruction or taking of eggs from the wild;

(d) deterioration or destruction of breeding sites or resting places.’

Point (a) of Annex IV to that directive mentions ‘all species’ of bats belonging to the suborder of ‘microchiroptera’.

Irish law

It should be noted at the outset that although direct taxation falls within the competence of the Member States, they must exercise that competence consistently with Community law and therefore avoid any overt or covert discrimination by reason of nationality (see, inter alia, Case C-385/00 <i>de Groot </i>[2002] ECR I-11819, paragraph 75, and Case C-209/01 <i>Schilling and Fleck-Schilling </i>[2003] ECR I-0000, paragraph 21).

It is not disputed in the present case that the fixed levy may, in certain cases, offer a significant fiscal advantage over the normal system for taxing income. That advantage is not affected by the fact that, in other cases, the advantage to the taxpayer is relatively minor, or offset by the fact that the levy is deducted at source, whereas income tax will normally be payable at a later date. Furthermore, the fixed levy only operates when the taxpayer himself so elects, an option which he will only generally exercise where it is to his advantage.

As the application of the fixed levy is restricted under Article 125 A I of the CGI to investment or life assurance contracts where the debtor is resident or established in France, it has the effect of discouraging taxpayers who are resident in France from entering into contracts of this type with companies which are established in another Member State. Article 49 EC precludes the application of any national legislation which has the effect of making the provision of services between Member States more difficult than the provision of services exclusively within one Member State (see, inter alia, Case C-118/96 <i>Safir </i>[1998] ECR I‑1897, paragraph 23).

The legislation in question also has a restrictive effect as regards companies established in other Member States as it prevents them from raising capital in France, given that the proceeds of contracts taken out with those companies are treated less favourably from a tax point of view than proceeds payable by a company which is established in France. This means that their contracts are less attractive to investors residing in France than those of companies which are established in that Member State (for a similar situation, see Case C-35/98 <i>Verkooijen </i>[2000] ECR I-4071, paragraph 35, and Case C-478/98 <i>Commission </i>v <i>Belgium </i>[2000] ECR I-7587, paragraph 18).

In those circumstances, it should be held that the rule in question constitutes a restriction both on the freedom to provide services under Article 49 EC, and on the free movement of capital under Article 56 EC.

It is accordingly necessary to establish whether these restrictions are justified on the grounds put forward by the French Government.

The latter relies on the need to ensure payment of taxes and effective fiscal supervision. It is true that the Court has repeatedly held that 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 (see Case C-254/97 <i>Baxter and Others </i>[1999] ECR I‑4809, paragraph 18, and <i>Commission </i>v <i>Belgium</i>, cited above, paragraph 39). However, a general presumption of tax avoidance or fraud is not sufficient to justify a fiscal measure which compromises the objectives of the Treaty (see, to that effect, the judgment in <i>Commission </i>v <i>Belgium</i>, cited above, paragraph 45).

Furthermore, for a restrictive measure to be justified, it must comply with the principle of proportionality, in that it must be appropriate for securing the attainment of the objective it pursues and must not go beyond what is necessary to attain it (<i>Commission </i>v <i>Belgium</i>, cited above, paragraph 41). Compliance with that principle is especially important where national legislation excludes cross-border transactions from national rules altogether.

In the present case, deduction at source, operated directly by debtors resident in France, will admittedly be a straightforward process for the tax authorities. Where debtors are resident in other Member States, it may prove more difficult to ascertain whether all the conditions necessary for the application of a particular rate of levy have been met. However, that involves disadvantages of a purely administrative nature which are not, as the Advocate General has noted at points 29 and 30 of his Opinion, sufficient to justify a restriction on the freedom to provide services and on the free movement of capital of the type which the legislation in question gives rise to.

As regards less restrictive solutions that may be available, the French Government has itself recognised that the practical difficulties could be avoided by, for example, providing for a voluntary annual declaration of income received from companies established in other Member States to be included in tax returns, for the purpose of the operation of the fixed levy. A solution of that kind would fully resolve issues of supervision and, for the reasons given at point 31 of the Advocate General’s Opinion, it would not affect the stability of the tax system in question.

As regards effective fiscal supervision, the Commission has rightly referred to Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15), which can be invoked by a Member State in order to check whether payments have been made in another Member State, or to obtain all necessary information, where those payments and that information must be taken into account in determining the correct amount of income taxes (see <i>Bachmann</i>, cited above, paragraph 18, and Case C‑55/98 <i>Vestergaard</i> [1999] ECR I-7641, paragraphs 26 and 28). Member States are free to resort to these arrangements when it appears appropriate to them to do so.

The French Government’s argument that this directive does not have effect in Member States which practise banking secrecy has already been rejected by the Court in its judgment in Case C‑300/90 <i>Commission </i>v <i>Belgium </i>[1992] ECR I-305, paragraph 13. Accordingly, the impossibility of requesting cooperation of that kind does not justify the failure to make a tax advantage available to income received from those States.

Lastly, as regards the obstacles which the French Government claims exist in relation to the opportunities which Directive 77/799 provides, reference should be made to the analysis of these arguments and their rebuttal which are set out at points 34 to 36 of the Advocate General’s Opinion.

The French Government has therefore failed to justify the measure in question. The Commission’s application should accordingly be granted, and it should be held 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.

Costs

Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs, if they have been applied for in the successful party’s pleadings. Since the Commission has applied for costs and the French Republic has been unsuccessful, the latter must be ordered to pay the costs.

On those grounds,

THE COURT (Fifth Chamber) hereby:

Declares 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;

Orders the French Republic to pay the costs.

Delivered in open court in Luxembourg on 4 March 2004.

Registrar

President of the Chamber

ECLI:EU:C:2025:140

Language of the case: French.