European Business Law, the fourth volume in our series, shows how the European authorities simultaneously abolish all restrictions on access to and exercise of economic activities and support the growth of domestic markets, through the harmonization the internal legislation or the enactment of genuinely unified regulations.

European Business Law

Paragraph 1 of Article 65 TFEU sets out three exceptions to the unreserved application of the free movement of capital principle concerning differences in tax laws between taxpayers who are not in the same situation, the effectiveness of fiscal supervision and prevention of illegal activities, and public policy and public security measures. Paragraph 2 also permits limits on the right of establish …

Legal exceptions

Paragraph 1 of Article 65 TFEU sets out three exceptions to the unreserved application of the free movement of capital principle concerning differences in tax laws between taxpayers who are not in the same situation, the effectiveness of fiscal supervision and prevention of illegal activities, and public policy and public security measures. Paragraph 2 also permits limits on the right of establishment insofar as they are compatible with the Treaty. 

The objectively different situation of taxpayers can justify a difference in treatment. A situation that is not comparable with regard to the place of residence or where the capital is invested is held to be an objective distinction . This exception is interpreted strictly . Thus, non-resident pension funds and resident pension funds the specific purpose of which is to accumulate capital, by way of investments producing, in particular, an income in the form of dividends in order to meet their future obligations under insurance contracts, are in an objectively comparable situation, which precludes the instituting and maintaining in force of a discriminatory tax system as regards dividends paid to non-resident pension funds . All tax laws making a distinction between taxpayers according to their place of residence or the Member State in which they invest their capital would be automatically compatible with the Treaty . Thus, national legislation which applies the exemption method to nationally-sourced dividends and the imputation method to foreign-sourced dividends constitutes a restriction on freedom of establishment where, in the light of this tax rule which seeks to prevent the economic double taxation of distributed profits, the difference in the treatment of the two categories is not justified by a relevant difference in situation, as the situation of a corporate shareholder receiving foreign-sourced dividends is comparable to that of a corporate shareholder receiving nationally-sourced dividends, insofar as in each case the profits made are, in principle, liable to be subject to a series of taxes . The objective difference can relate to the source of revenues  or the situation of taxpayers .

2) Effectiveness of fiscal supervision/fight against unlawful activities 

According to the terms of Article 65(1)(b) TFEU, the Member States may, “take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information”. Although the provision only specifically refers to taxation and prudential supervision, the use of the expression “in particular” has meant that the ECJ could apply it to all national measures taken for the prevention of illegal activities of comparable gravity such as money laundering, drug trafficking and terrorist activities. Consequently, a national regulation may make the export to non-member countries of coins, banknotes and cheques payable to the bearer subject to a prior declaration (not prior administrative authorization) indicating the nature of the transaction and the identity of the declarant, which would require the competent authorities to proceed with a rapid examination of the declaration and enable them, if necessary, to carry out in due time the investigations necessary to determine whether capital was being unlawfully transferred and to impose the requisite penalties , or may only grant an exemption from tax on dividends distributed in the form of shares in a subsidiary by a company established in a Member State of the EEA or a country that has concluded a tax convention containing a provision on exchange of information, where compliance with the conditions for exemption require the obtaining of information from the authorities of the country of establishment of the company . The same applies to the measure which prohibits a credit institution from entering into business relations with any natural person who has no link with the Member State in which the institution is established and whose monthly credit movements exceed EUR 15,000, or with any legal person whose economic activity has no link with that Member State and whose monthly credit movements exceed EUR 50,000, and requires it to put an end to such business relations entered into after the adoption of this measure . But a Member State but may not prohibit its residents from acquiring securities of a loan issued by it on the Eurobond market . It also cannot, on the grounds of the need to combat tax evasion and avoidance, adopt measures directed, generally, at any situation in which the losses derive from immovable property in another Member State .

Member States may as justification for a restriction to the free movement of capital, rely on public policy grounds if there is a genuine and sufficiently serious threat to a fundamental interest of society. Such is the case for the ensuring a minimum supply of petroleum products in a time of crisis , supplies of electricity and gas , and telecommunications services . In principle, prior authorization systems are held to be disproportionate by the Court of Justice which favors systems of ex post facto opposition . Public security requirements must be interpreted strictly  and only justify a derogation from the fundamental principle of free movement of capital if the principle of proportionality is observed .  

Case C-35/98 Staatssecretaris van Financiën v BGM Verkooijen [2000] ECR I-4071, LawLex200700001589JBJ.

Case C-256/06 Jäger [2008] ECR I-123, LawLex200900001001JBJ.

Case C-478/98 Commission v Belgium [2000] ECR I-7587, LawLex200700001664JBJ.

Case C-322/11 K, Judgment of 7 November 2013, LawLex201300001506JBJ.

Case C-483/99 Commission v France [2002] ECR I-4781, LawLex200900000972JBJ.

Case C-503/99 Commission v Belgium [2002] ECR I-4809, LawLex200900001009JBJ; Case C-174/04 Commission v Italy [2005] ECR I-4933, LawLex200900000729JBJ; Case C-274/06 Commission v Spain [2008] ECR I-26, Summ.pub.

Case C-463/00 Commission v Spain [2003] ECR I-4581, LawLex200900000911JBJ.

On this issue see Case C-282/04 Commission v Netherlands [2006] ECR I-9141, LawLex200900001404JBJ: concerning the “golden share”.

Case C-423/98 Albore [2000] ECR I-5965, LawLex200700001647JBJ.

Case C-342/10 Commission v Finland, Judgment of 8 November 2012,  LawLex201200002408JBJ.

See especially Case C-265/04 Bouanich v Skatteverket [2006], LawLex200900001312JBJ.

Case C-35/11 Test Claimants in the FII Group Litigation, Judgment of 13 November 2012, LawLex201200002313JBJ.

Case C-311/97 Royal Bank of Scotland v Greece [1999] ECR I-2651, LawLex200900001461JBJ, on the difference of treatment in the calculation of tax on the profits of companies depending on whether they have their seat in Greece or outside that Member State; Case C-319/02 Manninen [2004] ECR I-7477, LawLex200900001473JBJ: the place of establishment of companies from which taxpayers receive dividends is not an objectively different situation; Case C-315/02 Lenz [2004] ECR I-7063, LawLex200900001464JBJ.

Case C-512/03 Blanckaert v Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen [2005] ECR I-7685, LawLex200900001018JBJ: a national law which, by making entitlement to reductions in social security contributions only to persons liable to pay them, prevents non-residents not insured under that system from benefitting, is justified.

Case C-163/94 Criminal proceedings against Sanz de Lera and others [1995] ECR I-4821, LawLex200900000644JBJ; Case C-358/93 Bordessa [1995] ECR I-361, LawLex200500005902JBJ: by contrast, a system of prior authorization will usually be considered as disproportionate.

Case C-101/05 Skatteverket [2007] ECR I-11531, LawLex200900000305JBJ; Case C-478/98 Commission v Belgium [2000] ECR I-7587, LawLex200700001664JBJ: however, the prohibition on residents from acquiring securities of a public loan issued by a Member State on the Eurobond market cannot be justified by the need to prevent tax evasion.

Case C-78/21 AS “PrivatBank” and Unimain Holdings LTD, Judgment of 2 March 2023, LawLex202300002860JBJ, Europe 2023, n° 168, obs. MICHEL, who states that the prohibition measure must, firstly, be justified by the objective of preventing money laundering and the financing of terrorism, or adopted as an essential measure to prevent infringements of national laws and regulations on the prudential supervision of financial institutions, or justified on grounds of public policy, as referred to in Article 65(1)(b) TFEU; secondly, it must be suitable for implementing these objectives; thirdly, it must not go beyond what is necessary to achieve them; and fourthly, it must not excessively prejudice the rights and interests protected under Articles 56 and 63 TFEU of the credit institution concerned and its customers.

European Business Law

159. Legal exceptions

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159. Legal exceptions

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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