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ECJ: Netherlands refund regime for investment funds incompatible with EC free movement of capital


On 20 May 2008, the European Court of Justice (ECJ) gave its decision in the case of Staatssecretaris van Financiën v Orange European Smallcap Fund NV (Case C-194/06). The Netherlands Supreme Court (Hoge Raad der Nederlanden) had requested a preliminary ruling from the ECJ on 14 April 2006.

The ECJ held that Arts. 56 and 58 of the EC Treaty do not preclude legislation of a Member State, such as the legislation at issue in the main proceedings, which grants a concession to fiscal investment enterprises established in that Member State on account of tax deducted at source in another Member State from dividends received by those enterprises, and restricts that concession to the amount which a natural person resident in the first Member State could have had credited, on account of similar deductions,on the basis of a double taxation convention concluded with that other Member State.

In addition, the ECJ decided that Arts. 56 and 58 of the EC Treaty preclude legislation of a Member State, such as the legislation at issue in the main proceedings, which grants a concession to fiscal investment enterprises established in that Member State on account of tax deducted at source in another Member State or third country from dividends received by those enterprises, and reduces that concession where and to the extent to which the shareholders of those enterprises are natural or legal persons resident or established in other Member States or in third countries, since such a reduction adversely affects all the shareholders of those enterprises without distinction.

In that respect, it is irrelevant whether the foreign shareholders of a fiscal investment enterprise are resident or established in a State with which the Member State of establishment of that enterprise has concluded a convention providing for reciprocal crediting of tax deducted at source from dividends.

Finally, the ECJ held that a restriction is covered by Art. 57(1) of the EC Treaty as being a restriction on the movement of capital involving direct investment in so far as it relates to investments of any kind undertaken by natural or legal persons and which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity.

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