CJEC, January 31, 1984, No 286-82

THE COURT,

1. By orders of 12 July and 22 November 1982, which were received at the Court on 27 October 1982 and 21 February 1983 respectively, the Tribunale di Genova (district Court, Genoa) referred to the Court for a preliminary ruling under article 177 of the EEC treaty a number of questions on the interpretation of article 106 of the treaty in order to enable it to decide whether the Italian legislation relating to transfers of foreign currency is compatible with that article.

2. The questions arose in proceedings instituted by two Italian residents against decisions of the Ministro del Tesoro (minister for the treasury) imposing fines upon them for purchasing various foreign currencies for use abroad in an amount whose exchange value in Italian lire exceeded the maximum permitted by Italian law, which at that time was lit 500 000 per annum for the export of foreign currency by residents for the purposes of tourism, business, education and medical treatment.

3. Before the national Court the plaintiffs contested the validity of the provisions of Italian legislation on which the fines were based, on the ground that those provisions were incompatible with community law. In case 286-82 the plaintiff in the main proceedings, Mrs Luisi, stated that she had exported the currency in question for the purpose of various visits to France and the federal republic of Germany as a tourist and in order to receive medical treatment in the latter country. In case 26-83 the plaintiff in the main proceedings, Mr Carbone, stated that the foreign currency purchased by him had been used for a stay of three months in the federal republic of Germany as a tourist. Both plaintiffs submitted that the restrictions on the export of means of payment in foreign currency for the purpose of tourism or medical treatment were contrary to the provisions of the EEC treaty relating to current payments and the movement of capital.

4. In its first order, dated 12 July 1982 (case 286-82), the Tribunale di Genova stated that the transactions for which Italian law imposed a ceiling on transfers of foreign currency, namely tourism and travel for the purposes of business, education and medical treatment, fell within the invisible transactions listed in annex iii to the treaty. Payments made in connection with such transactions therefore fell within the first subparagraph of article 106 (3) of the treaty, which required member states to refrain from introducing any new restrictions between themselves, notwithstanding which the contested Italian legislation was adopted in 1974. It appeared appropriate, however, to determine the exact scope of that provision in relation to those governing movements of capital, in particular as regards the extent to which the latter provisions apply to physical transfers of bank notes.

5. Seeking information on that point, the tribunale submitted the following question to the Court for a preliminary ruling :

"In the case of exportation by residents travelling abroad for the purpose of tourism, business, education or medical treatment of foreign state and bank notes and credit instruments in foreign currency, do persons subject to community law have the benefit of rights which member states are obliged to respect by virtue of the ' standstill ' provisions contained in the first subparagraph of article 106 (3) of the EEC treaty, regard being had to the fact that the transaction in question is one of the invisible transactions listed in annex iii to the said treaty?

Or, by virtue of the reference made in the second subparagraph of article 106 (3) of the treaty, do the abovementioned circumstances, which, from an objective point of view, constitute a transfer of currency in cash, fall within the definition of the movements of capital which, pursuant to the provisions of articles 67 and 68 of the treaty and the related directives adopted by the council on 11 May 1960 and 18 December 1962, are not subject to compulsory liberalization, with the result that control measures and penalties imposed by a member state, in this case administrative penalties, are lawful?

"

6. In its second order, dated 22 November 1982 (case 26-83), the tribunale considered only transfers of foreign currency for the purpose of tourism. It raised the question whether tourism, although constituting an invisible transaction within the meaning of article 106 (3) of the treaty, should not at the same time be regarded as falling within the scope of the movement of services and therefore be governed by the provisions of article 106 (1) on the liberalization of payments connected with the provision of services.

7. The tribunale therefore submitted a further question to the Court :

"In the case of exportation, by resident travellers going abroad for the purpose of tourism, of foreign bank notes, or credit instruments in foreign currency, do community nationals benefit from rights which the member states are bound to respect by virtue of the directly applicable provision contained in article 106 (1) of the EEC treaty, on the assumption that tourism is to be regarded as falling within the scope of the movement of services and that transfers of currency to cover tourist expenses are to be treated as current payments which must therefore be deemed to be liberalized in the same way as the services with which they are connected ;

Or, if the transaction in question falls within the category of invisible transactions listed in annex III to the EEC treaty and, by virtue of the reference made by the second subparagraph of article 106 (3), the transaction constitutes a transfer of cash, does it fall within the category of movements of capital which under the provisions of articles 67 and 68 of the treaty and of the relevant directives adopted by the council on 11 May 1960 and 18 December 1962, need not necessarily be liberalized, with the result that in that sphere member states May impose controls and penalties of an administrative nature?

"

8. It is apparent from the wording of the questions submitted for a preliminary ruling and from the statement of reasons contained in the two orders for reference that the problems of interpretation of community law arising in these cases are:

(a) whether tourism and travel for the purposes of business, education and medical treatment fall within the scope of services, or of invisible transactions within the meaning of article 106 (3) of the treaty, or of both those categories at once ;

(b)whether the transfer of foreign currency for those four purposes must be regarded as a current payment or as a movement of capital, in particular when bank notes are transferred physically ;

(c) what degree of liberalization of payments relating to those four purposes is provided for in article 106 of the treaty ;

(d) what control measures regarding transfers of foreign currency member states are entitled to take in relation to the payments so liberalized.

(a) "services" and "invisible transactions"

9. According to article 60 of the treaty, services are deemed to be "services" within the meaning of the treaty where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons. Within the context of title iii of part two of the treaty ("free movement of persons, services and capital"), the free movement of persons includes the movement of workers within the community and freedom of establishment within the territory of the member states.

10. By virtue of article 59 of the treaty, restrictions on freedom to provide such services are to be abolished in respect of nationals of member states who are established in a member state other than that of the person for whom the service is intended. In order to enable services to be provided, the person providing the service May go to the member state where the person for whom it is provided is established or else the latter May go to the state in which the person providing the service is established. Whilst the former case is expressly mentioned in the third paragraph of article 60, which permits the person providing the service to pursue his activity temporarily in the member state where the service is provided, the latter case is the necessary corollary thereof, which fulfils the objective of liberalizing all gainful activity not covered by the free movement of goods, persons and capital.

11. For the implementation of those provisions, title ii of the general programme for the abolition of restrictions on freedom to provide services (Official journal, English special edition, second series ix, p. 3), which was drawn up by the council pursuant to article 63 of the treaty on 18 December 1961, envisages inter alia the repeal of provisions laid down by law, regulation or administrative action which in any member state govern, for economic purposes, the entry, exit and residence of nationals of member states, where such provisions are not justified on grounds of public policy, public security or public health and are liable to hinder the provision of services by such persons.

12. According to article 1 thereof, council directive 64-221-EEC of 25 February 1964 on the coordination of special measures concerning the movement and residence of foreign nationals which are justified on grounds of public policy, public security or public health (Official journal, English special edition 1963-1964, p. 117) applies inter alia to any national of a member state who travels to another member state "as a recipient of services". Council directive 73-148-EEC of 21 May 1973 on the abolition of restrictions on movement and residence within the community for nationals of member states with regard to establishment and the provision of services (Official journal 1973, l 172, p. 14) grants both the provider and the recipient of a service a right of residence co-terminous with the period during which the service is provided.

13. By basing the general programme for the abolition of restrictions on the freedom to provide services partly on article 106 of the treaty, its authors showed that they were aware of the effect of the liberalization of services on the liberalization of payments. In fact, the first paragraph of that article provides that any payments connected with the movement of goods or services are to be liberalized to the extent to which the movement of goods and services has been liberalized between member states.

14. Among the restrictions on the freedom to provide services which must be abolished, the general programme mentions, in section c of title III, impediments to payments for services, particularly where, according to section d of title iii and in conformity with article 106 (2), the provision of such services is limited only by restrictions in respect of the payments therefor. By virtue of section b of title v of the general programme, those restrictions were to be abolished before the end of the first stage of the transitional period, subject to a proviso permitting limits on "foreign currency allowances for tourists" to be retained during that period. Those provisions were implementd by council directive 63-340-EEC of 31 May 1963 on the abolition of all prohibitions on or obstacles to payments for services where the only restrictions on exchange of services are those governing such payments (Official journal, English special edition 1963-1964, p. 31). Article 3 of that directive also refers to foreign exchange allowances for tourists.

15. However, both the general programme and the aforesaid directive reserve the right for member states to verify the nature and genuineness of transfers of funds and of payments and to take all necessary measures in order to prevent contravention of their laws and regulations, "in particular as regards the issue of foreign currency to tourists".

16. It follows that the freedom to provide services includes the freedom, for the recipients of services, to go to another member state in order to receive a service there, without being obstructed by restrictions, even in relation to payments and that tourists, persons receiving medical treatment and persons travelling for the purpose of education or business are to be regarded as recipients of services.

17. Article 106 (3) provides for the progressive abolition of restrictions on transfers connected with the "invisible transactions" listed in annex iii to the treaty. As the national Court correctly stated, that list includes, inter alia, business travel, tourism, private travel for the purpose of education and private travel on health grounds.

18. However, since that paragraph is merely subordinate to paragraphs (1) and (2) of article 106, as is apparent from the second subparagraph thereof, it cannot be applied to the four types of transaction in question.

(b) "current payments" and "movements of capital"

19. The national Court has pointed out that the physical transfer of bank notes is included in list d in the annexes to the two directives which the council adopted pursuant to article 69 of the treaty in relation to the movement of capital (Official journal, English special edition 1959-1962, p. 49, and 1963-1964, p. 5). List d enumerates the movements of capital for which the directives do not require the member states to adopt any liberalizing measure. The question therefore arises whether the reference in that list to the physical transfer of bank notes implies that such a transfer itself constitutes a movement of capital.

20. The treaty does not specify what is to be understood by the movement of capital. However, in the annexes to the two above-mentioned directives a list is given of the various movements of capital, together with a nomenclature. Although the physical transfer of financial assets, in particular bank notes, is included in that list, that does not mean that any such transfer must in all circumstances be regarded as a movement of capital.

21. The general scheme of the treaty shows, and a comparison between articles 67 and 106 confirms, that current payments are transfers of foreign exchange which constitute the consideration within the context of an underlying transaction, whilst movements of capital are financial operations essentially concerned with the investment of the funds in question rather than remuneration for a service. For that reason movements of capital May themselves give rise to current payments, as is implied by articles 67 (2) and 106 (1).

22. The physical transfer of bank notes May not therefore be classified as a movement of capital where the transfer in question corresponds to an obligation to pay arising from a transaction involving the movement of goods or services.

23. Consequently, payments in connection with tourism or travel for the purposes of business, education or medical treatment cannot be classified as movements of capital, even where they are effected by means of the physical transfer of bank notes.

(c) the extent to which the payments referred to in article 106 of the treaty have been liberalized

24. As regards the movement of services, article 106 (1) provides that payments relating thereto must be liberalized to the extent to which the movement of services itself has been liberalized between member states in accordance with the treaty. By virtue of article 59 of the treaty, restrictions on the freedom to provide services within the community were to be abolished during the transitional period. As from the end of that period, any restrictions on payments relating to the provision of services must therefore be abolished.

25. Consequently, payments relating to tourism and travel for the purposes of business, education or medical treatment have been liberalized since the end of the transitional period.

26. This interpretation finds confirmation in article 54 of the act of accession of 1979, by virtue of which the Hellenic Republic is authorized to maintain restrictions on transfers relating to tourism, but only within certain limits and only until 31 December 1985. That article implies that without that derogation the transfers in question would have had to be liberalized immediately.

(d) control measures in respect of transfers of foreign currency

27. The last aspect of the problem raised in these cases concerns the question whether, and if so to what extent, member states have retained the power to subject liberalized transfers and payments to control measures applicable to the transfer of foreign currency.

28. In that respect, it should be noted in the first place that the liberalization of payments provided for in article 106 compels member states to authorize the payments referred to in that provision in the currency of the member state in which the creditor or beneficiary resides. Payments made in the currency of a third country are not therefore covered by that provision.

29. It should also be noted that article 2 of directive 63-340, cited above, states that the liberalization measures provided for in the directive do not limit the right of member states to "verify the nature and genuineness of payments". This proviso appears to be inspired by the fact that, at that time, payments relating to the movements of goods and services and movements of capital were not yet fully liberalized.

30. However, even though the transitional period has ended that liberalization has not yet been fully accomplished. The council directives provided for in article 69 of the treaty with a view to attaining the free movement of capital have not yet in fact abolished all the restrictions in that area, whilst article 67, which provides for that freedom, must, as the Court held in its judgment of 11 November 1981 (case 203-80 Casati (1981) ECR 2595), be interpreted as meaning that even after the expiry of the transitional period restrictions on the export of foreign currency May not be regarded as having been abolished, irrespective of the terms of the directives adopted pursuant to article 69.

31. In those circumstances, member states have retained the power to impose controls on transfers of foreign currency in order to verify that transfers do not in fact constitute movements of capital, which have not been liberalized. That power is particularly important since it is bound up with the responsibility which member states have in relation to monetary matters under articles 104 and 107 of the treaty, a responsibility which implies that appropriate measures May be adopted in order to prevent the flight of capital or other speculation of that kind against their currencies.

32. Articles 108 and 109 of the treaty provide for the measures to be taken and the procedures to be followed where a member state is in difficulties or is seriously threatened with difficulties as regards its balance of payments. However, those provisions, which are to remain operative even after the free movement of capital has been fully achieved relate only to periods of crisis.

33. In the absence of any crisis and until the free movement of capital has been fully achieved, it must therefore be acknowledged that member states are empowered to verify that transfers of foreign currency purportedly intended for liberalized payments are not diverted from that purpose and used for unauthorized movements of capital. In that connection, member states are entitled to verify the nature and genuineness of the transactions or transfers in question.

34. Controls introduced for that purpose must, however, be kept within the limits imposed by community law, in particular those deriving from the freedom to provide services and to make payments relating thereto. Consequently, they May not have the effect of limiting payments and transfers in connection with the provision of services to a specific amount for each transaction or for a given period, since in that case they would interfere with the freedoms recognized by the treaty. For the same reason, such controls May not be applied in such a manner as to render those freedoms illusory or to subject the exercise thereof to the discretion of the administrative authorities.

35. These findings do not preclude a member state from fixing flat-rate limits below which no verification is carried out and from requiring proof, in the case of expenditure exceeding those limits, that the amounts transferred have actually been used in connection with the provision of services, provided however that the flat-rate limits so determined are not such as to affect the normal pattern of the provision of services.

36. It is for the national Court to determine in each individual case whether the controls on transfers of foreign currency which are at issue in proceedings before it are in conformity with the limits thus defined.

37. On the basis of all the foregoing considerations, it May be stated in reply to the questions submitted for a preliminary ruling that article 106 of the treaty must be interpreted as meaning that :

Transfers in connection with tourism or travel for the purposes of business, education or medical treatment constitute payments and not movements of capital, even where they are affected by means of the physical transfer of bank notes ;

Any restrictions on such payments are abolished as from the end of the transitional period ;

Member states retain the power to verify that transfers of foreign currency purportedly intended for liberalized payments are not in reality used for unauthorized movements of capital;

Controls introduced for that purpose May not have the effect of limiting payments and transfers in connection with the provision of services to a specific amount for each transaction or for a given period, or of rendering illusory the freedoms recognized by the treaty or of subjecting the exercise thereof to the discretion of the administrative authorities ;

Such controls May involve the fixing of flat-rate limits below which no verification is carried out, whereas in the case of expenditure exceeding those limits proof is required that the amounts transferred have actually been used in connection with the provision of services, provided however that the flat-rate limits so determined are not such as to affect the normal pattern of the provision of services.

Costs

38. The costs incurred by the Belgian Government, the Government of the federal Republic of Germany, the French Government, the Italian Government, the Netherlands Government and the Commission, which have submitted observations to the Court, are not recoverable; as these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the actions pending before the national Court, the decision on costs is a matter for that Court.

On those grounds,

THE COURT,

In reply to the questions submitted to it by the Tribunale di Genova by orders of 12 July and 22 November 1982, hereby rules:

Article 106 of the treaty must be interpreted as meaning that:

Transfers in connection with tourism or travel for the purposes of business, education or medical treatment constitute payments and not movements of capital, even where they are effected by means of the physical transfer of bank notes ;

Any restrictions on such payments are abolished as from the end of the transitional period ;

Member states retain the power to verify that transfers of foreign currency purportedly intended for liberalized payments are not in reality used for unauthorized movements of capital ;

Controls introduced for that May not have the effect of limiting payments and transfers in connection with the provision of services to a specific amount for each transaction or for a given period, or of rendering illusory the freedoms recognized by the treaty or of subjecting the exercise thereof to the discretion of the administrative authorities ;

Such controls May involve the fixing of flat-rate limits below which no verification is carried out, whereas in the case of expenditure exceeding those limits proof is required that the amounts transferred have actually been used in connection with the provision of services, provided however that the flat-rate limits so determined are not such as to affect the normal pattern of the provision of services.