(Reference for a preliminary ruling from the Cour administrative (Luxembourg))

(Free movement of capital – Income tax – Special relief for expenditure incurred on the acquisition of shares – Benefit of the advantage restricted to the acquisition of shares in companies established in the Member State concerned)

Summary of the Judgment

Free movement of capital – Restrictions – Income tax relief to natural persons for the acquisition of shares – Restriction to shares in companies established in the Member State concerned – Not permissible – Justification – None

(Arts 56(1) EC and 58(1)(a) EC)

Article 56(1) EC and Article 58(1)(a) EC preclude a legal provision of a Member State which denies the availability of income tax relief to natural persons for the acquisition of shares representing cash contributions in capital companies established in other Member States.

Such legislation is a restriction on the movement of capital prohibited by Article 56 EC, in that it has the effect of discouraging nationals of the Member State concerned from investing their capital in companies which have their seat in another Member State; it also has a restrictive effect in relation to companies established in other Member States, in that it constitutes an obstacle to the raising of capital in the Member State concerned.

In the absence of a direct link between the tax advantage in question and an offsetting fiscal levy, such as the taxation of dividends subsequently paid by the companies in which the investment was made, the need to guarantee the cohesion of the tax system cannot be relied on to justify such a restriction.

(see paras 13-15, 20-23, 28, operative part)

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

(Free movement of capital – Income tax – Special relief for expenditure incurred on the acquisition of shares – Benefit of the advantage restricted to the acquisition of shares in companies established in the Member State concerned)

In Case C-242/03,

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

Jean-Claude Weidert, Élisabeth Paulus,

on the interpretation of Article 56(1) EC and Article 58(1)(a) EC,

THE COURT (First Chamber),

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

Advocate General: J. Kokott, Registrar: R. Grass,

after considering the written observations submitted on behalf of:

– Waltham Abbey Residents Association, by J. Devlin, Senior Counsel, J. Kenny, Barrister-at-Law, and D. Healy, Solicitor,

– An Bord Pleanála, by. B. Foley, Senior Counsel, A. Carroll, Barrister-at-Law, and P. Reilly, Solicitor,

– Ireland, by M. Browne, Chief State Solicitor, S. Finnegan, K. Hoare and A. Joyce, acting as Agents, and by D. McGrath, Senior Counsel, F. Valentine, Senior Counsel, and E. O’Callaghan, Barrister-at-Law,

– the European Commission, by M. Noll-Ehlers and N. Ruiz García, acting as Agents,

having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,

gives the following

1 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’).

2 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.

ECLI:EU:C:2025:140

(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.

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

In those circumstances, it must be held that for a Member State to make the grant of tax relief to natural persons for the acquisition of shares representing cash contributions in capital companies conditional on the latter having their seat in that State is a restriction on the movement of capital prohibited by Article 56 EC.

16The documents annexed to the observations submitted to the Court by Mr and Mrs Weidert‑Paulus show that the Income Tax Law has been amended by a Law of 21 December 2001 to amend certain provisions relating to direct and indirect taxation (Mémorial A 2001, p. 3312), which progressively abolishes the tax relief during the period from 2002 until 2005. Regardless of those legislative developments, the Luxembourg Government is of the view that Article 129c of the Income Tax Law, in the version applicable to the facts in the main proceedings, is none the less justified. In its submission, Article 58(1)(a) EC allows Member States to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested, where those distinctions are objectively justified or may be justified by overriding reasons in the general interest, in particular relating to the cohesion of the tax system.

17Article 129c of the Income Tax Law aims precisely to guarantee that cohesion. The tax advantage represented by the tax relief for the acquisition of shares in companies established in Luxembourg is offset by the taxation of dividends subsequently paid by those companies. By contrast, where an investment is made in a company having its seat in Belgium, as in the main proceedings, tax on dividends would be reduced by 15% because of the withholding tax of that amount imposed by the Belgian tax authorities under the Double Taxation Convention. In such a case, the Grand Duchy of Luxembourg would thus forgo the right to part of the tax, which would not apply in the case of dividends distributed by companies having their seat in that Member State. There is thus a direct connection, involving one and the same taxpayer, between the grant of the tax advantage and the offsetting of that advantage by a subsequent fiscal levy, both of which relate to the same tax, exactly as in Bachmann.

18According to Mr and Mrs Weidert-Paulus and the Commission, that argument is without foundation. Article 58(1) EC must be read in conjunction with Article 58(3), which states that the measures and procedures in question are not to constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital. In the present case, there is clear discrimination between taxpayers, depending on which of the two Member States the seat of the companies concerned is located in.

19Moreover, relief under Article 129c of the Income Tax Law is linked only to the acquisition of shares and is independent of any subsequent distributions by way of dividend. In many cases, there will never be a distribution by way of dividend. Furthermore, in Luxembourg, during the tax periods at issue in the main proceedings, unearned income was exempt from tax up to LUF 120 000 and was taxed at a maximum of 50% only when it exceeded that amount, so that it was only when a very large investment was made that tax was payable. The return by way of dividends on an investment of an amount equivalent to the relief in question will in any event be extremely low; Mr and Mrs Weidert-Paulus received a dividend in 2002 of EUR 28, whereas the investment made by them amounted to LUF 267 743. For the Grand Duchy to forgo tax at 15% on the EUR 28 was thus of negligible significance compared with the amount of the tax relief.

20In that regard, while it is true that the need to safeguard the cohesion of the tax system can justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty (Bachmann, paragraph 28, and Case C-300/90 Commission v Belgium [1992] ECR I-305, paragraph 21), such an exception to the fundamental principle of the free movement of capital must none the less be construed strictly and subject to the limitations of the doctrine of proportionality. In the cases which led to the two judgments referred to above, there was a direct link between the deductibility of the contributions and the taxation of sums payable by insurers under pension and life insurance contracts, and that link had to be maintained to preserve the cohesion of the tax system concerned (see, inter alia, Case C-55/98 Vestergaard [1999] ECR I-7641, paragraph 24, and Case C‑436/00 X and Y [2002] ECR I-10829, paragraph 52).

21Where there is no such direct link, the argument based on the cohesion of the tax system cannot be relied upon (see Case C-251/98 Baars [2000] ECR I-2787, paragraph 40, and Case C-168/01 Bosal [2003] ECR I-0000, paragraph 30).

22There is in the main proceedings no direct link between the tax advantage in question, namely the tax relief granted to a taxpayer resident in Luxembourg for the acquisition of shares in companies established in that Member State, and an offsetting fiscal levy.

23Indeed, contrary to what the Luxembourg Government maintains, the tax advantage is not offset by the taxation of the dividends which those companies subsequently pay. First, there is no guarantee that the companies in which the investment giving rise to the tax benefit concerned is made will pay dividends, the taxation of which may offset the tax benefit granted. Secondly, as Mr and Mrs Weidert‑Paulus and the Commission have argued, even if dividends are paid to the recipients of the tax advantage by the companies concerned, the amount of that advantage will significantly exceed any benefit which may result from any subsequent taxation of the dividends.

24Similarly, the inability to take advantage of the Double Tax Convention cannot be regarded as disadvantageous to persons investing in companies established in Luxembourg. In that regard, the forgoing by the Grand Duchy of Luxembourg under that Convention of part of the tax on dividends, which the Luxembourg Government relies on to justify the relief in question, provides no benefit to the taxpayer concerned. The latter must account for the amount of that tax to the Belgian tax authorities in the form of a deduction at source. The Convention only precludes the amount of the dividends received by the taxpayer being taxed twice, but it does not provide for such an amount to be exempt from tax.

25In any event, even if a link were to exist under Luxembourg law between the tax advantage and the taxation of dividends, it must be held that the effect of the Double Taxation Convention concluded by the Grand Duchy of Luxembourg with the Kingdom of Belgium is to shift fiscal cohesion to the level of the reciprocity of the rules applicable in the Contracting States (see, inter alia, Wielockx, paragraph 24, and X and Y, paragraph 53). The Convention in question creates a fiscal reciprocity, insasmuch as in forgoing 15% of the net amount of dividends paid by companies established in Belgium to individuals subject to Luxembourg income tax, the Grand Duchy of Luxembourg may in return receive 15% of the dividends paid by companies having their seat in that Member State to individuals subject to income tax in Belgium.

26As the specific aim of the Double Taxation Convention is to secure fiscal cohesion, that Convention may not be invoked to justify an inconsistency as regards the taxpayer, which must be remedied by the introduction of the relief which is the subject of the main proceedings (see, by way of analogy, Wielockx, paragraph 25).

27The interpretation of the Luxembourg Government, founded on the need to maintain the cohesion of the tax system, is thus not well founded.

28The reply to the question referred must therefore be that Article 56(1) EC and Article 58(1)(a) EC preclude a legal provision of a Member State which denies the availability of income tax relief to natural persons for the acquisition of shares representing cash contributions in capital companies established in other Member States.

Costs

29The costs incurred by the Luxembourg Government and by the Commission, which have submitted observations to the Court, are not recoverable. Since 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.

On those grounds,

THE COURT (First Chamber),

in answer to the questions referred to it by the Cour Administrative by judgment of 3 June 2003, hereby rules:

Article 56(1) EC and Article 58(1)(a) EC preclude a legal provision of a Member State which denies the availability of income tax relief to natural persons for the acquisition of shares representing cash contributions in capital companies established in other Member States.

Delivered in open court in Luxembourg on 15 July 2004.

Registrar

President of the First Chamber

Language of the case: French.