delivered on 27 September 2018 (1)

Case C‑581/17

Martin Wächtler

Finanzamt Konstanz

(Request for a preliminary ruling from the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany))

(Reference for a preliminary ruling — Taxation — Agreement between the European Community and its Member States, of the one part, and the Swiss Confederation, of the other, on the free movement of persons — Transfer of domicile to Switzerland — Rules of a Member State under which, in such a case, unrealised capital gains on company shareholdings are to be taxed)

1.This request for a preliminary ruling concerns the interpretation of the Agreement between the European Community and its Member States, of the one part, and the Swiss Confederation, of the other, on the free movement of persons, signed in Luxembourg on 21 June 1999 (2) (‘the AFMP’), which entered into force on 1 June 2002.

2.The request has been made in the context of a dispute between Martin Wächtler and the Finanzamt Konstanz (Tax Office, Konstanz, Germany; ‘the tax authority’) concerning the decision of the tax authority, at the time of the transfer of Mr Wächtler’s domicile from Germany to Switzerland, to tax the unrealised capital gain with respect to the shares that he owns in a Swiss company of which he is also the managing director.

II. Legal framework

The AFMP

3.According to the preamble to the AFMP, the contracting parties ‘resolved to bring about the free movement of persons between them on the basis of the rules applying in the European [Union]’.

Article 1 of the AFMP provides that:

‘The objective of this Agreement, for the benefit of nationals of the Member States of the [European Union] and Switzerland, is:

(a)to accord a right of entry, residence, access to work as employed persons, establishment on a self-employed basis and the right to stay in the territory of the Contracting Parties.

…’

5.Article 4 of the AFMP, headed ‘Right of residence and access to an economic activity’, states that the right of residence and access to an economic activity is to be guaranteed … in accordance with the provisions of Annex I.

Article 16 of the AFMP, headed ‘Reference to [EU] law’, provides that:

‘1. In order to attain the objectives pursued by this Agreement, the Contracting Parties shall take all measures necessary to ensure that rights and obligations equivalent to those contained in the legal acts of the European [Union] to which reference is made are applied in relations between them.

Article 21(2) and (3) of the AFMP, that article being headed ‘Relationship to bilateral agreements on double taxation’, provides:

‘2. No provision of this Agreement may be interpreted in such a way as to prevent the Contracting Parties from distinguishing, when applying the relevant provisions of their fiscal legislation, between taxpayers whose situations are not comparable, especially as regards their place of residence.

3. No provision of this Agreement shall prevent the Contracting Parties from adopting or applying measures to ensure the imposition, payment and effective recovery of taxes or to forestall tax evasion under their national tax legislation or agreements aimed at preventing double taxation between Switzerland, of the one part, and one or more Member States of the European [Union], of the other part, or any other tax arrangements.’

8.Annex I to the AFMP is devoted to free movement of persons.

Article 2 of Annex I to the AFMP, headed ‘Residence and economic activity’, provides:

‘1. Without prejudice to the provisions for the transitional period, which are laid down in Article 10 of this Agreement and Chapter VII of this Annex, nationals of a Contracting Party shall have the right to reside and pursue an economic activity in the territory of the other Contracting Party under the procedures laid down in Chapters II to IV. ...’

Article 9(2) of Annex I to the AFMP, that article being headed ‘Equal treatment’, provides as follows:

‘An employed person and the members of his family … shall enjoy the same tax concessions and welfare benefits as national employed persons and members of their family.’

Chapter III of Annex I to the AFMP, which concerns self-employed persons, contains Articles 12 to 16 of that annex. Article 12 of that annex, headed ‘Rules regarding residence’, is worded as follows:

‘1. A national of a Contracting Party wishing to become established in the territory of another Contracting Party in order to pursue a self-employed activity (hereinafter referred to as a “self-employed person”) shall receive a residence permit valid for a period of at least five years from its date of issue, provided that he produces evidence to the competent national authorities that he is established or wishes to become so.

…’

Article 15 of Annex I to the AFMP, headed ‘Equal treatment’, provides:

‘1. As regards access to a self-employed activity and the pursuit thereof, a self-employed worker shall be afforded no less favourable treatment in the host country than that accorded to its own nationals.

The Agreement between the Swiss Confederation and the Federal Republic of Germany for the avoidance of double taxation with respect to taxes on income and capital

13.On 11 August 1971, the Swiss Confederation and the Federal Republic of Germany concluded an agreement for the avoidance of double taxation with respect to taxes on income and capital (‘the German-Swiss DTA’). (3)

Article 4 of the German-Swiss DTA provides:

‘1. For the purposes of this Agreement, the expression “person who is a resident of a Contracting State” means any person who, under the law of that State, is there subject to unlimited tax liability.

…’

Article 13 of the German-Swiss DTA provides:

‘1. Gains accruing from the disposal of immovable property, as defined in Article 6(2), shall be taxable in the Contracting State where that property is situated.

3. Gains from the disposal of any property other than that referred to in paragraphs 1 and 2 shall be taxable only in the Contracting State in which the transferor is resident.

4. Notwithstanding the provisions of paragraph 3, gains from the full or partial disposal of a substantial shareholding in a company shall be taxable in the Contracting State in which the company is resident, if the transferor is a natural person, resident in the other Contracting State,

There is a substantial holding where the transferor directly or indirectly owned more than a quarter of the company’s capital.

5. If a Contracting State, on the departure of a natural person who is a resident of that State, taxes the capital gains accruing from a substantial shareholding in a company which is resident in that State, the other Contracting State, when taxing the gain accruing from the subsequent disposal of the shareholding in accordance with the provisions of paragraph 3, shall in order to calculate the amount of the gain on disposal deem the cost of acquisition to be the amount that the first State accepted as the disposal proceeds at the time of departure.’

According to Article 27 of the German-Swiss DTA:

‘1. The competent authorities of the Contracting States shall exchange any information that may be reasonably required to apply the provisions of this Agreement or for the administration or enforcement of domestic legislation relating to taxes of any kind and description that are levied on behalf of the Contracting States or their “Länder”, cantons, districts, municipalities or groups of municipalities, in so far as the taxation imposed is not contrary to the Agreement. The exchange of information is not restricted by Articles 1 and 2.

…

3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:

4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information-gathering powers to obtain the requested information, even if it does not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3, unless those limitations are liable to prevent a Contracting State from supplying information solely because it has no domestic interest in such information.

5. In no case shall the provisions of paragraph 3 be construed so as to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because that information relates to ownership interests in a person. In order to obtain the information mentioned in this paragraph, notwithstanding paragraph 3 or any contrary provision of domestic law, the tax authorities of the Contracting State in which enforcement is sought shall have the procedural powers to allow them to obtain the information mentioned in this paragraph in so far as is necessary to fulfil their obligations under this paragraph.’

17.In accordance with Paragraph 1(1) of the Einkommensteuergesetz (Law on income tax; BGB1. 2009 I S., p. 3366 and 3862; ‘the EStG’), natural persons who have their permanent or habitual residence in national territory are subject to unlimited income tax liability.

Under Paragraph 17(1) and (2) of the EStG:

‘1. A gain from a disposal of shares in a company also constitutes income from a professional activity where the transferor has held, either directly or indirectly, at least a 1% share of the company’s capital within the preceding five years. …

Paragraph 6 of the Außensteuergesetz (Law on foreign transaction tax; ‘the AStG’) provides:

‘1. In the case of a natural person who has been subject to unlimited tax liability for at least ten years in total under Paragraph 1(1) of the [EStG] and where that person’s unlimited liability ends with the transfer of his permanent or habitual residence, Paragraph 17 of the [EStG] shall be applicable to the shares referred to in the first sentence of Paragraph 17(1) of the [EStG] when the unlimited liability comes to an end, including in the absence of disposal, if the requirements of that provision concerning those shares are also met at that time.

…

4. Subject to [Paragraph 6](5) of the [AStG], the income tax due under [Paragraph 6](1) of the [AStG] must, upon request, be deferred and paid in instalments at regular intervals over a maximum period of five years from the due date of first payment, subject to the provision of a bank guarantee, in so far as immediate recovery would have consequences which would be difficult for the taxpayer to bear. The deferral arrangement shall end if, during the deferral period, the shares are sold or covertly transferred to a company, as provided for in Paragraph 17(1) of the [EStG], or if one of the situations referred to in Paragraph 17(4) of the [EStG] arises. …’

if the taxpayer or his legal successor within the meaning of the third sentence of subparagraph 1, is no longer subject to tax liability within the meaning of the first sentence because he has transferred his domicile or habitual residence.

III. The dispute in the main proceedings and the question referred for a preliminary ruling

20.Mr Wächtler is a German national who works with an associate in the field of IT consultancy. Since 1 February 2008, he has been the managing director of the Swiss company MWK-Consulting GmbH, which has its headquarters in Switzerland and in which he has had a 50% shareholding since its creation in July 2007.

21.Mr Wächtler lived in the border town of Konstanz (Germany) but transferred his domicile to Switzerland on 1 March 2011 in order to be able to travel to work every day without crossing the border. In accordance with Paragraph 6 of the AStG and Paragraph 17 of the EStG, as a result of the transfer of his domicile to Switzerland, the unrealised capital gain with respect to his shareholding in MWK-Consulting was subject to income tax, even though no disposal of those assets had taken place.

22.In the context of the pre-litigation procedure before the tax authority, Mr Wächtler submitted that the tax was incompatible with the AFMP, which guarantees freedom of establishment for natural persons between the European Union and Switzerland. According to Mr Wächtler, the taxation of latent, and therefore unrealised, capital gains would deter a natural person from transferring his domicile to Switzerland, especially since, in the absence of any cash inflow from an actual disposal of his shareholding in MWK-Consulting, he lacks the liquidity to be able to pay the tax. Moreover, he claimed that taxing capital gains in this manner, without granting the right to deferral referred to in Paragraph 6(5) of the AStG, would go beyond what was necessary to prevent tax evasion.

23.According to the tax authority, whether a German taxpayer transfers his domicile to a Member State of the European Union or a State to which the EEA Agreement applies, capital gains should be taxed in the same way. In that regard, Paragraph 6(5) of the AStG provides for the payment of capital gains tax to be deferred, without interest and without the provision of a bank guarantee, until the actual disposal of the assets, on the condition that the new State of residence provides support and assistance in tax recovery matters. According to the tax authority, there is no agreement with Switzerland concerning tax recovery, so the disadvantageous treatment of taxpayers who have transferred their domicile to that State is justified. Finally, the tax authority considered that there would be no double taxation since Switzerland did not tax capital gains.

24.Mr Wächtler brought an action before the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany), which has doubts as to the compatibility of the national legislation at issue with Article 21(1), Article 45 and Article 49 TFEU and with the preamble and Articles 1, 2, 4, 6, 7, 16 and 21 of the AFMP and Article 9 of Annex I to the AFMP.

25.The Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg) therefore decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Must the provisions of the [AFMP], and in particular the preamble and Articles 1, 2, 4, 6, 7, 16 and 21 thereof and Article 9 of Annex I thereto, be interpreted as precluding the legislation of a Member State which, in order to prevent any loss of the tax base, prescribes the taxation (without deferral) of latent, unrealised capital gains with respect to company shares where a national of that Member State initially subject to unlimited tax liability in that Member State transfers his domicile from that Member State to Switzerland and not to a Member State of the European Union or to a State to which the European Economic Area Agreement [(EEA)] applies?’

26.This request for a preliminary ruling was lodged at the Court on 4 October 2017. Mr Wächtler, the German, Spanish and Austrian Governments and the European Commission have submitted written observations.

27.On 31 May 2018 the Court asked the Commission to produce, by 15 June 2018, all the travaux préparatoires for the AFMP and any other information pertaining to the negotiation of the agreement which would explain the meaning that the parties to the AFMP intended to confer on the concept of establishment, as used in Article 1(a) of the Agreement, especially after the end of the transitional period provided for in Article 10 of that agreement. The Commission complied with that request within the time limit set by the Court.

28.A hearing was held on 2 July 2018, at which Mr Wächtler, the German and Spanish Governments and the Commission presented oral argument.

29.By the question referred, the referring court asks whether Articles 1, 2, 4, 6, 7, 16 and 21, and Article 9 of Annex I to the AFMP, are to be interpreted as precluding legislation of a Member State under which latent, as yet unrealised capital gains in the value of company shares are charged to tax (without deferral) where a national of that Member State, with initially unlimited tax liability in that Member State, transfers his domicile from that State to Switzerland, whereas, in the case of a transfer of domicile to another Member State of the European Union or to a State to which the EEA Agreement applies, the payment of tax on such capital gains is deferred without interest and without the provision of a bank guarantee, subject to the condition that support and mutual assistance in tax recovery matters between the Federal Republic of Germany and that State are guaranteed.

30.Mr Wächtler considers that the AFMP grants him a right of establishment comparable to that guaranteed within the European Union by Article 49 TFEU. On that basis, he disputes the compatibility of the taxation of latent, unrealised capital gains, without the possibility of deferral, with the case-law of the Court in that regard.

31.In a similar vein, the Commission considers that Mr Wächtler is self-employed within the meaning of Article 12 of Annex I to the AFMP and that, therefore, taxing him constitutes a disproportionate restriction on the right of establishment conferred on him by that provision.

32.By contrast, the German Government, supported by the Spanish and Austrian Governments, considers that the AFMP extends the freedom of establishment, established by the FEU Treaty, to relations between the European Union and the Swiss Confederation only in part and within the bounds of the specific terms of the AFMP.

33.In that regard, the German Government is of the opinion that Mr Wächtler’s establishment and management of a Swiss company do not fall within the scope of the AFMP, since that activity does not constitute a self-employed activity within the meaning of Article 12 of Annex I to the AFMP.

34.Moreover, according to the German Government, the tax at issue in the case in the main proceedings has not infringed the rights which the AFMP confers on Mr Wächtler as an employed worker.

35.Article 1(a) of the AFMP accords to nationals of the EU and Switzerland a right of entry, residence, access to work as employed persons, establishment on a self-employed basis and the right to stay in the territory of the contracting parties.

36.It should therefore be established whether Mr Wächtler comes within the scope ratione personae of the AFMP as an employed person or a self-employed person. (4)

37.According to the referring court, his professional activity should be classified as employment, since, as managing director of his company, Mr Wächtler receives remuneration.

38.I do not agree with that premiss. On the contrary, like the Austrian Government and the Commission, I take the view that, despite the payment of remuneration in return for the management services he provides, Mr Wächtler is not in a relationship of subordination which characterises employment relationships. (5)

39.As is apparent from the request for a preliminary ruling, Mr Wächtler is a self-employed entrepreneur in the field of IT consultancy. The fact that he decided to structure his economic activity by establishing a company and receiving remuneration for managing that company does not alter the fact that he is a 50% shareholder in that company and does not have a relationship of subordination to it. (6)

40.Moreover, the German legislation at issue in the case in the main proceedings, on the basis of which the German tax authority taxed the unrealised capital gains with respect to his shareholding in his company, does not concern him as an employed person, but as a shareholder in that company.

41.However, according to the German Government, supported by the Spanish and Austrian Governments, the management of shareholdings in a company is not covered by the concept of ‘self-employed activity’ within the meaning of Article 12(1) of Annex I to the AFMP.

42.That government relies, in this connection, on points 67 to 71 of the Opinion of Advocate General Mengozzi, in Picart (C‑355/16, EU:C:2017:610), who takes the view that, as is apparent from the second paragraph of Article 49 TFEU, since the activity of setting up and managing undertakings is different from the pursuit of activities as a self-employed person, it does not follow from the context and the purpose of the AFMP that the contracting parties intended to confer on the concept of ‘self-employed’ person a meaning other than its ordinary meaning, namely a person pursuing a self-employed economic activity. (7)

43.In my opinion, that argument is ineffective, since the activity pursued by Mr Wächtler in Switzerland is not a shareholding-management activity such as that pursued by Mr Christian Picart. Unlike the latter, Mr Wächtler is not an investor or a mere silent shareholder, but a self-employed entrepreneur whose economic activity consists of the provision of IT consultancy services through a company.

44.That assessment is borne out by an interpretation of the AFMP in accordance with the rule of customary international law reflected by Article 31 of the Vienna Convention on the Law of Treaties, (8) which is binding on the EU institutions and is part of the EU legal order. (9) According to that rule, an international agreement must be interpreted in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose. (10) Moreover, according to that provision, a special meaning is to be given to a term if it is established that the parties so intended. (11)

45.Although Article 12(1) of Annex I to the AFMP states that a self-employed person is ‘a national of a Contracting Party wishing to become established in the territory of another Contracting Party in order to pursue a self-employed activity’, it is apparent from the preamble and from Articles 1(a) and 16(2) of the AFMP that the latter ‘is intended to achieve, in favour of EU nationals and those of the Swiss Confederation, the free movement of persons on the territory of the Contracting Parties to that agreement based on the rules applying in the European Union, the terms of which must be interpreted in accordance with the case-law of the Court of Justice’. (12)

46.As regards Article 49 TFEU, and before the AFMP was signed, the Court held that the expression ‘activity as a self-employed person’ had to be understood to include the activities of a natural person acting as director of a company of which he is the sole shareholder or a director of a company in which he does not own any shares. (13) I see no reason to depart from that approach as regards the activities of Mr Wächtler, who is the director of MWK-Consulting and holds 50% of its shares.

47.Moreover, an interpretation to the contrary, to the effect that Mr Wächtler is not ‘self-employed’ and is therefore excluded from the scope of the AFMP, is incompatible with the object and purpose of the AFMP and is not a good faith interpretation since it renders the AFMP redundant.

48.On the one hand, by making a distinction between employed persons, (14) self-employed persons, (15) persons providing services (16) and persons not pursuing an economic activity (17) and, on the other, by placing people into each of those broad categories, (18)

the AFMP seeks to include all the categories of natural persons covered by the right of free movement of persons and freedom of establishment under EU law. Refusing to recognise Mr Wächtler as a self-employed person excludes him from the four categories of persons covered by the AFMP.

49.That interpretation is borne out by the AFMP negotiation documents submitted by the Commission at the Court’s request.

50.As far as the Swiss Confederation is concerned, it is clear from its draft agreement of 21 April 1995 that the agreement applies to all gainful activities and accords to nationals of each contracting party the right to pursue such activities on the territory of the other contracting party. Those gainful activities were divided only into those of employed persons and those of self-employed persons, although at the start of the negotiations, the Swiss approach was more detailed, distinguishing between seasonal workers, frontier workers, other employed persons, self-employed persons, service providers and non-working persons; a distinction which the European Union accepted only as a ‘reflection point’.

51.On 31 October 1994, on behalf of the European Union and its Member States, the Council adopted a negotiating mandate for a bilateral agreement with Switzerland on the free movement of persons, which stated that that agreement was to provide for the enforcement of the acquis communautaire in full in the relevant field, including, inter alia, the free movement of workers and the right of establishment.

52.Indeed, during the negotiations, the terms ‘activité lucrative’ (‘gainful activity’) were gradually replaced by the terms ‘activité économique salariée et non salariée’ (‘work as employed and self-employed persons’) before the adoption of the terms ‘activité économique salariée’ (‘work as employed persons’) and ‘droit d’établissement en tant qu’indépendant’ (‘right of … establishment on a self-employed basis’) in Article 1(a) of the AFMP.

53.Moreover, the original definition of a self-employed person as ‘a national of a Contracting Party wishing to become established in the territory of another Contracting Party in order to pursue une activité indépendante’ was replaced by the definition ‘a national of a Contracting Party wishing to become established in the territory of another Contracting Party in order to pursue une activité non salariée’, which was ultimately used in Article 12(1) of Annex I to the AFMP.

54.In my opinion, those factors show that, although the parties defined activity pursued by indépendants as an activité non salariée, their common purpose was to cover all economic or gainful activities, with the exception of the provision of services, pursued by a natural person not covered by the concept of ‘salarié’ (employed person), which is why the wording ‘activité indépendante’ was replaced with the wording ‘activité non salariée’. In that sense, even an investor is covered by the scope of application of the AFMP as a person pursuing a self-employed activity.

55.It is therefore hardly surprising that, when submitting the AFMP to the Swiss Federal Assembly, the Federal Council described the content of that agreement concerning self-employed persons by reference to EU law, in the following terms:

‘The principles of the free movement of persons — as already applied in the [European Union] — will, in principle, also apply in Switzerland upon expiry of the transitional period …

The free movement of persons — already defined in Articles 48 [et seq.] [of the] EEC [Treaty] — applies both to employed persons and self-employed persons; in other words, all EU nationals may freely choose their place of work and residence in the European Union and enjoy the same rights in the European Union as EU nationals. The right of residence is, however, subject to the pursuit of a gainful activity on an employed or self-employed basis …

…

In the acquis communautaire, self-employed persons who establish themselves in a Member State or supply cross-border services are also entitled to freedom of movement. Freedom of establishment includes the right to take up and pursue a gainful activity on a self-employed basis, to create and to manage undertakings under the conditions laid down for its own nationals by the law of the country where such establishment is effected. Both employed persons and self-employed persons have a right to family reunification.

56.Finally, if the contracting parties wanted to exclude certain self-employed persons from the scope of the AFMP based on the activities they pursued or their organisation, I think that, given the broad view they adopted at the start of the negotiations, the documents presented by the Commission would have revealed that, at some point, a more restrictive approach was adopted. However, the documents submitted give no such impression.

57.Therefore, I take the view that Mr Wächtler comes within the scope of the AFMP as a self-employed person.

58.Under Article 1(a) of the AFMP, one of the objectives is to accord a right of establishment on a self-employed basis to nationals of the Member States and Switzerland. Article 4 of the AFMP provides that the detailed rules governing the exercise of that right are set out in Annex I to that agreement.

59.The first subparagraph of Article 2(1) of Annex I to the AFMP confers on the nationals of a contracting party the right to reside and pursue an economic activity in the territory of the other contracting party under the procedures laid down in Chapter III, as regards self-employed persons.

60.Article 15 of Annex I to the AFMP provides that, as regards access to a self-employed activity and the pursuit thereof, a self-employed worker is to be afforded no less favourable treatment in the host country than that afforded to its own nationals, and that the provisions of Article 9 of that annex concerning employed workers are to apply mutatis mutandis to self-employed persons. Under paragraph 2 of that article, a self-employed person is to enjoy, in the host country, the same tax advantages as self-employed persons pursuing their activity in that country and residing there.

61.The question is therefore whether the AFMP prohibits, in principle, any restriction on the freedom of establishment of self-employed persons, including restrictions imposed by the country of origin, despite the fact that the substantive provisions thereof, in particular Articles 9(2) and Article 15(1) of Annex I expressly mention only the host country.

62.It should be noted from the outset that, as the Court has pointed out, it is clear from the preamble and from Articles 1(a) and 16(2) of the AFMP that ‘the latter is intended to achieve, in favour of EU nationals and those of the Swiss Confederation, the free movement of persons on the territory of the Contracting Parties to that agreement based on the rules applying in the European Union, the terms of which must be interpreted in accordance with the case-law of the Court of Justice’.

63.Therefore, while the interpretation given to the provisions of EU law concerning the internal market of the European Union cannot automatically be applied to the interpretation of the AFMP, that is without prejudice to the express provisions to that effect laid down by the agreement itself, such as Article 16(2), according to which the concept of the ‘right of establishment’, which is referred to in Article 1(a) of the AFMP, is to be interpreted in accordance with the Court’s existing case-law at the time that agreement was signed.

64.As early as 1988, the Court had held, in relation to the provisions of the EEC Treaty guaranteeing freedom of establishment, that ‘even though those provisions are directed mainly to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals ...’.

65.In giving the AFMP the objective, inter alia, of guaranteeing the right of establishment as a self-employed person, the contracting parties were well aware that that right conferred rights which could be relied on both in the host State and against the country of origin, and did not expressly provide that the rights conferred by that agreement could be relied on only in the host country.

66.In that regard, if the AFMP is interpreted in conformity with Article 31 of the Vienna Convention on the Law of Treaties, namely, in good faith and taking into account not only the ordinary meaning to be given to its terms in their context, but also its object and purpose, this leads to the conclusion that the country of origin cannot adopt restrictive measures which deter the exercise of the right of establishment. Indeed, such measures would clearly undermine ‘the whole spirit’ of the AFMP.

67.Indeed, ‘[the free movement of persons established by the AFMP] would be impeded if a national of a Contracting Party were to be placed at a disadvantage in his country of origin solely for having exercised his right of movement’. If that applies to a person returning to his country of origin after having exercised that right, it applies a fortiori to a person who wishes to exercise that right in order to become established in another State, but is prevented from doing so by his State of origin.

68.Consequently, the principle of equal treatment, laid down in several provisions of the AFMP, including in particular Article 9(2) of Annex I, to which reference is made in Article 15(2) of that annex, may also be relied on by a self-employed person who is a national of a contracting party with regard to his State of origin.

69.It is therefore necessary to ascertain whether, by exercising his right of establishment in Switzerland as a self-employed person, Mr Wächtler suffered a tax disadvantage by comparison with other resident German nationals who are self-employed and own shares in Swiss companies, but, unlike Mr Wächtler, have not transferred their domicile outside German territory, or have transferred it to another EU Member State or to a State to which the EEA Agreement applies.

70.The case-law of the Court on the taxation of unrealised capital gains where the taxpayer transfers his domicile outside his country of residence post-dates the signature of the AFMP.

71.Article 16(2) of the AFMP provides that the Court’s case-law after the date of signature is to be brought to Switzerland’s attention and that the Joint Committee is to determine the implications of such case-law. However, the latter has not taken any action in the light of that case-law.

72.I concur with the view of the Commission that, in so far as the AFMP makes reference to concepts of EU law, it is necessary to take into account the relevant case-law of the Court which post-dates the signature of that agreement if that case-law does not depart from the principles laid down in the case-law already in existence at the date of signature of the AFMP.

73.In my view, the judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138) satisfies that condition.

74.Indeed, nothing in that judgment indicates a change in the case-law of the Court but, on the contrary, as the Commission maintains in paragraph 40 of its written observations, that judgment is based on principles laid down in the Court’s case-law prior to 1999. Moreover, the French Republic, defendant in the main proceedings, did not contest the applicability of freedom of establishment in respect of the country of origin, or even the existence of a restriction, but focused its analysis on the possible justifications for the restriction on that freedom. Furthermore, the case was assigned to a Chamber of three judges, which indicates that the significance of the issue was not such as to require the attention of an extended composition. Finally, in his Opinion, Advocate General Mischo had reached the same conclusion as the Court, which also suggests that the solution provided by the Court was not surprising.

75.Although the Court’s subsequent case-law on the taxation of unrealised capital gains has been more open in terms of justification, it has not changed as regards the finding of the existence of a restriction on a fundamental freedom of movement.

76.In the present case, there are two differences in treatment affecting German taxpayers who own shares in Swiss companies and who transfer their domicile to Switzerland; one relating to German taxpayers who own such shares but maintain their domicile in Germany, and the second relating to German taxpayers who also own such shares but transfer their domicile to another Member State or to a State to which the EEA Agreement applies.

In the first case, capital gains are taxable only once they have been realised, namely, upon the disposal of the assets. However, that difference in treatment is not the subject of the question referred for a preliminary ruling. On the contrary, the national court focuses on the second case, in which the payment of capital gains tax is deferred until the disposal of the assets, without interest and without the provision of a bank guarantee, provided that the taxpayer is, in the host State, subject to tax comparable to German income tax, and that administrative support and mutual assistance in tax recovery matters between the Federal Republic of Germany and that State are guaranteed, whereas that deferral is not possible where there has been a transfer of residence to a State other than those referred to in Paragraph 6(5) of the AStG, which, at the very least, gives rise to a cash flow disadvantage.

78.In that context, national legislation, such as the German legislation at issue in the case in the main proceedings, which provides for the immediate taxation of capital gains which have not yet been realised at the time of the transfer of residence, has a deterrent effect on taxpayers who wish to become established in Switzerland, and thus constitutes a restriction on the freedom of establishment conferred on them by the AFMP.

79.Article 21(2) of the AFMP provides that no other provision may be interpreted in such a way as to prevent the contracting parties from distinguishing, when applying the relevant provisions of their fiscal legislation, between taxpayers whose situations are not comparable, especially as regards their place of residence.

80.As regards the taxation of unrealised capital gains, the Court has, so far, addressed only the issue of whether the situation of a taxpayer who transfers his domicile from one Member State to another is comparable to that of a taxpayer who maintains his domicile in the first Member State, where capital gains are generated in the territory of the first Member State prior to the transfer of domicile.

81.According to the Court, ‘from the point of view of legislation of a Member State aiming to tax capital gains generated in its territory, the situation of a [taxpayer who] transfers [his residence] to another Member State is similar to that of a [taxpayer who] keeps [his] place of management in that Member State, as regards the taxation of the capital gains relating to the assets which were generated in the former Member State before the transfer of [residence]’.

82.It is necessary to establish, therefore, whether the same applies to taxpayers transferring their domicile from a Member State to Switzerland, but with respect to capital gains generated on Swiss territory prior to the transfer of domicile, where the comparison is made not with a taxpayer who retains his domicile in the Member State of taxation, but with a taxpayer who transfers his domicile to another EU Member State or to a State to which the EEA Agreement applies.

83.In my opinion, the problem arising from the national legislation at issue in the case in the main proceedings relates not to the place in which capital gains are generated, but to the time when they are generated.

84.The taxation of unrealised capital gains at issue does not relate to the fact that they were generated on the territory of the Federal Republic of Germany (which is not the case), but to the time they were generated, when, as a German resident, Mr Wächtler was subject to unlimited tax liability in that State, that is, tax on all his income, regardless of where that income was generated.

85.That is clear from a combined reading of Article 13(3) of the German-Swiss DTA and the first sentence of Paragraph 6(1) of the AStG.

86.Article 13(3) of the German-Swiss DTA confers on the State in which the transferor is resident, in this case Germany, the power to tax capital gains with respect to shareholdings in a company, since, according to the first sentence of Paragraph 6(1) of the AStG, the decisive time for the purpose of taxing capital gains is the time when the taxpayer gives up his German domicile. That is when unlimited liability comes to an end in Germany.

87.Therefore, in both cases, namely, the case of a German taxpayer who owns Swiss shares and transfers his domicile from Germany to Switzerland and the case of a German taxpayer who owns such shares but transfers his domicile from Germany to another EU Member State or to a State to which the EEA Agreement applies, the Federal Republic of Germany exercises its power of taxation on the same basis, namely, the first sentence of Paragraph 6(1) of the AStG, and subjects those capital gains to the same tax, calculated in the same way.

However, Paragraph 6(4) of the AStG does not provide for real, automatic deferral (without interest and without a bank guarantee), such as that provided for in Paragraph 6(5) of the AStG, for the following reasons. First, it is applicable only when the payment of the tax will have consequences which would be difficult for the taxpayer to bear, whereas the deferral provided for in Paragraph 6(5) of the AStG is automatic and is not dependent on the economic situation of the taxpayer. Secondly, the taxpayer is required to provide a bank guarantee, whereas there is no such requirement under Paragraph 6(5) of the AStG. Thirdly, and finally, payment of the tax in regular instalments will begin immediately and the tax must be paid within a maximum period of five years, even if there is no disposal during that period, whereas Paragraph 6(5) of the AStG provides for deferral until disposal.

109.In that context, the question of whether the German legislation at issue in the case in the main proceedings complies with the principle of proportionality rests, essentially, on making an assessment of the facts by examining whether, in the light of the amount of the capital gains tax charged to Mr Wächtler, the provision of an appropriate bank guarantee could ensure that the tax would be paid upon the disposal of his shares in MWK-Consulting.

110.In my opinion, it is for the referring court to carry out that examination.

VI. Conclusion

In the light of the foregoing considerations, I propose that the Court should answer the question referred for a preliminary ruling by the Finanzgericht Baden-Württemberg (Finance Court, Baden-Württemberg, Germany) as follows:

Article 1(a) of the Agreement between the European Community and its Member States, of the one part, and the Swiss Confederation, of the other, on the free movement of persons, and Articles 12 and 15 of Annex I thereto, must be interpreted as precluding legislation of a Member State under which latent, as yet unrealised, capital gains in the value of company shares are charged to tax (without deferral) where a national of that Member State with initially unlimited tax liability in that Member State transfers his domicile from that State to Switzerland.

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(1) Original language: French.

(2) OJ 2002 L 114, p. 6.

(3) Agreement between the Swiss Confederation and the Federal Republic of Germany for the avoidance of double taxation with respect to taxes on income and capital of 11 August 1971 (BGB1. 1972 II, p. 1022), as amended by the Protocol of 27 October 2010 (BGB1. 2011 I, p. 1092).

(4) Mr Wächtler is clearly neither a person without an economic activity nor a person providing services within the meaning of Article 5 of the AFMP. His provision of IT consultancy services through MWK-Consulting exceeds the threshold of 90 days of actual work in a calendar year, provided for in Article 5(1) of the AFMP. See judgment of 12 November 2009, Grimme (C‑351/08, EU:C:2009:697, paragraph 44).

(5) See judgments of 27 June 1996, Asscher (C‑107/94, EU:C:1996:251, paragraphs 25, 34, 37 and 38); of 20 November 2001, Jany and Others (C‑268/99, EU:C:2001:616, paragraphs 34, 37 and 38), and of 28 February 2013, Petersen and Petersen (C‑544/11, EU:C:2013:124, paragraph 32).

(6) See, to that effect, judgment of 27 June 1996, Asscher (C‑107/94, EU:C:1996:251, paragraphs 10, 11, 26 and 27).

(7) In its judgment, the Court held that it was unnecessary to rule on whether a shareholding-management activity amounted to a self-employed activity. See judgment of 15 March 2018, Picart (C‑355/16, EU:C:2018:184, paragraph 21).

(8) The Vienna Convention on the Law of Treaties was concluded in Vienna on 23 May 1969 (United Nations Treaty Series, Vol. 1155, p. 331).

(9) See judgment of 27 February 2018, Western Sahara Campaign UK (C‑266/16, EU:C:2018:118, paragraph 58).

(10) See judgment of 15 July 2010, Hengartner and Gasser (C‑70/09, EU:C:2010:430, paragraph 36 and the case-law cited).

(11) See judgment of 27 February 2018, Western Sahara Campaign UK (C‑266/16, EU:C:2018:118, paragraph 70).

(12) See judgment of 19 November 2015, Bukovansky (C‑241/14, EU:C:2015:766, paragraph 40). See also, to that effect, judgments of 15 July 2010, Hengartner and Gasser (C‑70/09, EU:C:2010:430, paragraph 37) and of 27 February 2014, United Kingdom v Council (C‑656/11, EU:C:2014:97, paragraph 55), and of 21 September 2016, Radgen (C‑478/15, EU:C:2016:705, paragraph 36).

(13) See judgment of 27 June 1996, Asscher (C‑107/94, EU:C:1996:251, paragraphs 10, 11, 26 and 27).

(14) See Articles 6 to 11 of Annex I to the AFMP.

(15) See Articles 12 to 16 of Annex I to the AFMP.

(16) See Articles 17 to 23 of Annex I to the AFMP.

(17) See Article 24 of Annex I to the AFMP.

See the summary of the EU-Switzerland meeting on the free movement of persons held on 15 February 1995.

(20) See Article 1 of the draft agreement of 11 April 1997 (including the changes proposed by the European Union).

(21) See Article 13(1) of Annex I to the draft AFMP on the free movement of persons as revised by the Swiss delegation on 11 July 1996 and by the EU delegation on 7 October 1996. Emphasis added.

(22) See Article 12(1) of the draft of Annex I to the AFMP of 11 April 1997. Emphasis added.

(23) Communication from the Federal Council of 23 June 1999 on the approval of sectoral agreements between Switzerland and the European Community (FF 1999 5440), p. 5617 and 5618. Emphasis added.

(24) See judgment of 28 February 2013, Ettwein (C‑425/11, EU:C:2013:121, paragraph 43).

(25) Judgment of 19 November 2015, Bukovansky (C‑241/14, EU:C:2015:766, paragraph 40 (emphasis added)). See also, to that effect, judgment of 21 September 2016, Radgen (C‑478/15, EU:C:2016:705, paragraph 36).

(26) See judgment of 15 March 2018, Picart (C‑355/16, EU:C:2018:184, paragraph 29 and the case-law cited).

(27) See judgment of 27 September 1988, Daily Mail and General Trust (81/87, EU:C:1988:456, paragraph 16). See also, to that effect, judgment of 16 July 1998, ICI (C‑264/96, EU:C:1998:370, paragraph 21).

(28) Here, I am employing the expression used by the International Court of Justice in its assessment of the activities of the United States of America in Nicaragua in the light of the Treaty of Friendship, Commerce and Navigation between the United States of America and the Republic of Nicaragua, signed at Managua on 21 January 1956 (United Nations Treaty Series, Vol. 367, p. 3), in its judgment of 27 June 1986, Military and Paramilitary Activities in and against Nicaragua, (Nicaragua v. United States of America) (I.C.J. Reports 1986, p. 14). Without identifying which specific provision of that agreement was infringed by the actions of the United States of America, the International Court of Justice held that ‘there are certain activities of the United States which are such as to undermine the whole spirit of a bilateral agreement directed to sponsoring friendship between the two States parties to it’ (paragraph 275, emphasis added). After listing the activities in question, it adds that it would be difficult to imagine any action less calculated to serve the purpose of the agreement as described in its preamble (see paragraph 275).

(29) See judgment of 15 December 2011, Bergström (C‑257/10, EU:C:2011:839, paragraph 28).

(30) See judgments of 19 November 2015, Bukovansky (C‑241/14, EU:C:2015:766, paragraph 36) and of 21 September 2016, Radgen (C‑478/15, EU:C:2016:705, paragraph 40).

(31) The AFMP was signed on 21 June 1999. The Court’s first judgment on that subject was delivered almost five years later (see judgment of 11 March 2004, de Lasteyrie du Saillant, C‑9/02, EU:C:2004:138).

(32) See judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138, paragraph 24).

(33) See Opinion of Advocate General Mischo in de Lasteyrie du Saillant (C‑9/02, EU:C:2003:159).

(34) See, inter alia, judgments of 7 September 2006, N (C‑470/04, EU:C:2006:525, paragraphs 35 to 39); of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785); of 23 January 2014, DMC (C‑164/12, EU:C:2014:20); of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979, paragraphs 43 to 47).

(35) See Paragraph 17 of the EStG.

(36) See Paragraph 6(5) of the AStG.

(37) The cash-flow disadvantage may have more far-reaching consequences. See point 106 of this Opinion.

(38) See, as regards natural persons, judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138, paragraphs 45 to 48); of 7 September 2006, N (C‑470/04, EU:C:2006:525, paragraphs 35 to 39), and of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979, paragraphs 43 to 47).

(39) See, to that effect, judgment of 28 February 2013, Ettwein (C‑425/11, EU:C:2013:121).

EU:C:2013:121, paragraph 45.

(40) Judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 38). Emphasis added. See also, to that effect, judgment of 14 September 2017, Trustees of the P Panayi Accumulation & Maintenance Settlements, (C‑646/15, EU:C:2017:682, paragraph 49).

(41) The capital gains generated on Swiss territory after the transfer of residence to Switzerland cannot prevent a person’s establishment in Switzerland because tax will be charged only after the transfer of residence to that State and independently of that transfer.

(42) In my opinion, at the hearing, the German Government wrongly identified Article 13(5) of the German-Swiss DTA as the legal basis for the taxation of the capital gains at issue in the case in the main proceedings, because that provision permits the Federal Republic of Germany to tax capital gains on a substantial shareholding in a company, at the time of the departure of a German resident, only if the company at issue is also resident in Germany. However, in this case, the company at issue is resident in Switzerland. See also, to that effect, paragraph 2 of the exchange of correspondence of 11 August 1971 which is an integral part of the German-Swiss DTA, according to which ‘the solution provided for in the Agreement is based on the principle that tax on capital gains is to apply to substantial shareholdings only in companies which are resident in the State of taxation’ (emphasis added).

(43) ‘In the case of a natural person who has been subject to unlimited tax liability for at least ten years in total under Paragraph 1(1) of the [EStG] and where that person’s unlimited liability ends with the transfer of his permanent or habitual residence, Paragraph 17 of the [EStG] shall be applicable to the shares referred to in the first sentence of Paragraph 17(1) of the [EStG] when the unlimited liability comes to an end, including in the absence of disposal, if the requirements of that provision concerning those shares are also met at that time’. Emphasis added.

(44) See, by analogy, judgments of 12 December 2006, Test Claimants in Class IV of the ACT Group Litigation (C‑374/04, EU:C:2006:773, paragraph 68); of 14 December 2006, Denkavit Internationaal and Denkavit France (C‑170/05, EU:C:2006:783, paragraph 35); of 8 November 2007, Amurta (C‑379/05, EU:C:2007:655, paragraph 38), and of 20 May 2008, Orange European Smallcap Fund (C‑194/06, EU:C:2008:289, paragraphs 78 and 79).

(45) See judgment of 14 February 1995, Schumacker (C‑279/93, EU:C:1995:31, paragraph 26 and the case-law cited).

(46) The Court acknowledged it for the first time only after the date of signature of the AFMP, in its judgment of 13 December 2005, Marks & Spencer (C‑446/03, EU:C:2005:763, paragraph 45). Moreover, it does not seem to me that that judgment was brought to Switzerland’s attention or that the Joint Committee determined the implications thereof.

(47) See judgments of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraphs 47 and 48), and of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979, paragraph 57).

(48) See judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 78).

(49) OJ 2008 L 150, p. 28. See also, to that effect, judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 78).

(50) OJ 2010 L 84, p. 1.

(51) Judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 74).

(52) European Treaty Series No 127.

(53) See judgments of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 74), and of 21 December 2016, Commission v Portugal (C‑503/14, EU:C:2016:979, paragraph 59). I note that, despite an initial reluctance, the Court ultimately accepted, at least in principle, the idea of the deferred payment of capital gains tax being subject to the provision of a bank guarantee. Compare judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138, paragraph 47) with judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 74).

(54) It is not clear whether those instalments bear interest. The wording of Article 6(4) of the AStG does not exclude such a possibility.