EEA countries

Unlike third countries in general, the EEA Member States enjoy protection not only under the free movement of capital, but under all fundamental freedoms. The EEA Member States comprise the EU Member States and the three EFTA countries, namely Iceland, Liechtenstein, and Norway. The EEA Agreement provides for the same fundamental freedoms as the TFEU and the ECJ has held in settled case law that the provisions should be given the same meaning.787 Thus, while EEA countries are technically third countries, they are equal to the EU Member States as far as protection under the fundamental freedoms in concerned. Nevertheless, despite the analogous interpretation of the freedoms provisions, differences can be found between the relation among the EU Member States and the relation of the EU Member States with the three other EEA Member States. Above all, the harmonizing measures taken within the EU – also in the field of direct taxation788 – are not extended to the EFTA countries. Those are, for example, the Parent-Subsidiary Directive and the Directives on administrative assistance.

As a consequence, the ECJ might achieve different outcomes in its comparability analysis. If the ECJ finds an intra-EU cross-border situation to be comparable with an internal situation, this is due to the equal legal provisions applied to both situations. As far as the EFTA countries are concerned, the same might not hold true. Therefore, the same cross-border situation, however, occurring between an EU Member State and an EEA Member State might turn out not to be comparable with an internal situation.

784

ECJ 3 June 2010, C-487/08, Commission v. Spain [2010] not yet published, para. 42.

785 _{ECJ 3 June 2010, C-487/08, Commission v. Spain [2010] not yet published, para. 7.} 786

ECJ 3 June 2010, C-487/08, Commission v. Spain [2010] not yet published, paras. 50 et seq.

787

See chapter III.4.2.

131 The ECJ had to deal with the EEA freedoms in several infringement procedures on withholding taxes.789 In Commission v. Netherlands the Dutch taxation of dividends distributed to companies in Iceland and Norway was under scrutiny.790 According to Dutch law, dividends paid from a Dutch company to another Dutch company were tax-exempt if the shareholding amounted to at least 5%. The same treatment was extended to parent companies resident in other EU Member State as a result of a letter of formal notice sent and a reasoned opinion issued by the Commission.791

However, as far as the EEA Member States Iceland and Norway were concerned, there remained a difference in treatment which the Commission thought to infringe the free movement of capital in Art. 40 EEA Agreement.792 While internal and intra-EU dividends were tax-exempt above a shareholding of 5%, the same was only true for dividends paid to an Icelandic parent with a share of more than 10% and for dividends paid to a Norwegian parent with a share of more than 25%.793

In the Commission v. Netherlands case, the same legal provision as in the Amurta case was challenged before the Court.794 While the Amurta case concerned a dividend payment from the Netherlands to Portugal, the infringement procedure was about dividend payments to Iceland and Norway. In the Amurta case, the ECJ had affirmed the comparability of resident and non-resident shareholders as far as the avoidance of economic double taxation was concerned.795 Concerning the comparability of non-resident shareholders of the EEA countries the Commission and the Netherlands, obviously, had different opinions. The Commission affirmed the comparability:

The Commission maintains, but the Kingdom of the Netherlands denies, that the situation of Icelandic and Norwegian companies is objectively comparable to that of Netherlands companies with regard to the risks of double taxation on the profits of Netherlands companies of which they hold part of the capital.796

The Netherlands, in contrast, denied the comparability of a cross-border situation involving the EFTA Member States:

The Kingdom of the Netherlands argues that the obligations which flow from the free movement of capital between Member States of the Community cannot be purely and simply

789

In the infringement procedure against Spain the freedoms of the EEA Agreement were brought forward. The ECJ, however, did not consider them due to lack of information on the legal treatment of dividends paid to the EEA countries under Spanish law. ECJ 3 June 2010, C-487/08, Commission v. Spain [2010] not yet published.

790

ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873.

791

ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873, paras. 10 et seq.

792 _{ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873, para. 14.} 793

This treatment was due to the tax treaties concluded between the Netherlands and Iceland, and the Netherlands and Norway, respectively; ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I- 04873, para. 9.

794

ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873, para. 19.

795

ECJ 8 November 2007, C-379/05, Amurta [2007] ECR I-09569, paras. 37-38.

132

transposed to the relations between the latter and the EFTA Member States of Iceland and Norway. That, it argues, follows from the fact that, in those two latter States, Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15; ‘Directive 77/799’) does not apply.797

The Netherlands argued that a company must fulfill certain criteria in order to benefit from the tax exemption, which could not be verified for parent companies resident in Iceland and Norway, because the Mutual Assistance Directive was not applicable and the exchange of information under the respective tax treaties could not be enforced.798 The Court did not explicitly dismiss the Netherlands’ argument, but it did not take account of it due to the specifics of the case:

It should, however, be noted that, even if such a difference in the system of legal obligations of the States in question in the tax area, in comparison with those of the Member States of the Community, is capable of justifying the Kingdom of the Netherlands in making the benefit of exemption from deduction at source of the tax on dividends subject, for Icelandic and Norwegian companies, to proof that those companies do in fact fulfil the conditions laid down by Netherlands legislation, it does not justify that legislation in making the benefit of that exemption subject to the holding of a higher stake in the capital of the distributing company. *…+ Therefore, the Court cannot accept the argument of the Kingdom of the Netherlands based on the different situations of, on the one hand, companies having their seat in Member States of the Community and, on the other hand, Icelandic and Norwegian companies in order to justify the requirement that the latter companies hold a higher stake in the capital of the Netherlands companies distributing the dividends in order for them to benefit, like the former companies, from exemption from the deduction of tax at source on the dividends which they receive from Netherlands companies.799

From this statement it can be deduced that the ECJ would consider denying the comparability of a cross-border situation involving one of the EFTA Member States with an intra-EU situation,800 due to the lack of obligations present within the EU. However, in the specific case, the Court could not find a connection between the need for administrative assistance and the size of the shareholding. Thus, the alleged non-comparability was not supported by the Court.

In the case Commission v. Italy described in chapter 4.1. the ECJ not only examined the Italian dividend taxation under the free movement of capital of Art. 63 TFEU, but also under the free

797 _{ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873, para. 25.} 798

ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873, paras. 27-28.

799

ECJ 11 June 2009, C-521/07, Commission v. Netherlands [2009] ECR I-04873, paras. 47 and 50.

133 movement of capital of Art. 40 EEA and the freedom of establishment of Art. 31 EEA.801 For the intra- EU cases the Court ascertained the comparability to internal situations. For situations involving the EFTA Member States, the Court held the following:

Consequently, and for the reasons set out when examining the action in the light of Article 56(1) EC, the less favourable treatment which the Italian legislation accords to dividends distributed to companies established in States party to the EEA Agreement constitutes a restriction on the free movement of capital for the purposes of Article 40 of the EEA Agreement.802

Thus, the ECJ simply transferred its findings on comparability of non-resident and resident shareholders within the EU to the scenario within the EEA. In contrast to the decision in Commission v. Netherlands, the ECJ does not seem to apply another standard for the comparability analysis for a cross-border situation involving an EEA Member State than between two EU Member States.