© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
A8. Treaty principles
FREE MOVEMENT OF GOODS​
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- Traders should not be in a less favourable position than before the abolition of frontier checks
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"[62] Secondly, it is also important to ensure, as the Commission correctly submits, that the position of economic operators should not be less favourable than it was prior to the abolition of frontier checks between the Member States, because such a result would run counter to the purposes of the internal market which is intended to facilitate trade between them." ​(Teleos C-409/04)
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- Requirements of proof of movement must comply with free movement of goods
"[63] Since it is no longer possible for taxable persons to rely on documents issued by the customs authorities, evidence of intra-Community supplies and acquisitions must be provided by other means. Whilst it is true that the regime governing intra-Community trade has become more open to fraud, the fact remains that the requirements for proof established by the Member States must comply with the fundamental freedoms established by the EC Treaty, such as, in particular, the free movement of goods." ​(Teleos C-409/04)
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- No obligations giving rise to formalities connected with the crossing of frontiers
"[64] In that regard, it is also important to point out that, under Article 22(8) of the Sixth Directive, the Member States may impose the obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers." ​(Teleos C-409/04)
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FREEDOM OF SERVICES​
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- Service defined broadly: anything for remuneration
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"[54] In the first place, the Court notes that, under Article 57 TFEU, activities are to be classified as ‘services’ 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 (see, to that effect, judgment of 9 July 2020, RL (Directive combating late payment), C‑199/19, EU:C:2020:548, paragraph 31).
[55] If follows that the FEU Treaty defines the concept of ‘service’ broadly, so as to include any supply which is not covered by the other fundamental freedoms, in order to ensure that all economic activity falls within the scope of the fundamental freedoms (see, to that effect, judgment of 9 July 2020, RL (Directive combating late payment), C‑199/19, EU:C:2020:548, paragraph 32 and the case-law cited)." ​​(Cartrans Preda C-461/21)
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- Both provider and recipient of services may have rights re freedom
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"[67] However, the Court has held that the provider and the recipient of the services are two distinct legal entities, each with its own interests and each entitled to claim the benefit of the freedom to provide services if their rights are infringed (judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 27)." ​​(Cartrans Preda C-461/21)
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PROHIBITION ON RESTRICTIONS​
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- Prohibition on national rules making provision of services between Member States more difficult than internal services
"[62] Article 56 TFEU precludes the application of any national rules which have the effect of making the provision of services between Member States more difficult than the provision of services purely within a Member State..." ​​(Cartrans Preda C-461/21)
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- No restriction on grounds that person providing service is established in another Member State
"[62] Article 56 TFEU precludes the application of any national rules which have the effect of making the provision of services between Member States more difficult than the provision of services purely within a Member State..." ​​(Cartrans Preda C-461/21)
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Restrictions (meaning of)
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- Restriction includes any measure which prohibits, impedes or renders less attractive the exercise of the freedom
"[62] Restrictions on the freedom to provide services are national measures which prohibit, impede or render less attractive the exercise of that freedom (judgment of 25 July 2018, TTL, C‑553/16, EU:C:2018:604, paragraph 46 and the case-law cited)." ​​(Cartrans Preda C-461/21)
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- Other potential advantages for non-resident does not mean there is no restriction
"[86] That conclusion is not called into question by the fact that a Danish service provider may, because the withholding at source of tax on gross income is only at a rate of 4% and despite it being impossible to deduct business expenses, pay lower income tax than the income tax paid by a resident service provider who, while able to deduct business expenses, has 16% of his, her or its net income taxed. The Court has repeatedly held that unfavourable tax treatment contrary to a fundamental freedom cannot be regarded as compatible with EU law because of the potential existence of other advantages (judgment of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraph 32 and the case-law cited)." ​​(Cartrans Preda C-461/21)
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Restrictions (examples)
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- Different collection mechanisms for residents v. non-residents not a restriction
""[66] While it is true that, as the Romanian Government submitted, in essence, in its written observations with reference to the judgment of 22 December 2008, Truck Center (C‑282/07, EU:C:2008:762), the Court has already accepted the application of different tax collection techniques to those deriving income from capital depending on whether they are resident or non-resident, that difference in treatment relates to situations which are not objectively comparable. As that difference in treatment does not, moreover, necessarily procure an advantage for resident recipients, the Court has ruled that it does not constitute a restriction of the freedom of establishment (judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 26 and the case-law cited)." ​​(Cartrans Preda C-461/21)
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- Different potential liabilities is a restriction
"[68] It follows that, as the Advocate General observed in point 37 of his Opinion, an obligation to withhold tax at source, such as the one described in paragraph 64 of the present judgment, inasmuch as it entails not only an additional administrative burden but also the risks concerning liability, may render cross-border services less attractive for resident recipients of services than services performed by providers that are also residents. Consequently, such an obligation is liable to deter those recipients from having recourse to non-resident service providers (see, to that effect, judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraphs 28 and 32), and it must be classified as a restriction on the freedom to provide services within the meaning of the case-law referred to in paragraph 63 of the present judgment." ​​(Cartrans Preda C-461/21)
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- Different levels of withholding tax is a restriction
"[64] In the present case, it is apparent, in essence, from the explanations provided by the referring court that, where a service is supplied to a Romanian resident by a non-resident provider, Romanian legislation requires the recipient of that service to withhold at source, by way of tax on the income of non-residents, 16% of the gross income paid to that operator. Where that operator is a resident of Denmark, the rate of that withholding tax is, however, reduced to 4% pursuant to the provisions of the double taxation convention. On the other hand, where the same services are supplied by a resident provider, no withholding is to apply.
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[68] Consequently, such an obligation is liable to deter those recipients from having recourse to non-resident service providers (see, to that effect, judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraphs 28 and 32), and it must be classified as a restriction on the freedom to provide services within the meaning of the case-law referred to in paragraph 63 of the present judgment." ​​(Cartrans Preda C-461/21)
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- Expense deduction rules different for non-residents is a restriction
"[85] In accordance with the case-law cited in paragraphs 63 of the present judgment, national legislation under which service providers that are resident in a Member State may deduct from the taxable amount of gross income received in return for a supply of services the business expenses connected with that provision, while non-resident service providers do not have the possibility to do so, constitutes a restriction on the freedom to provide services, within the meaning of Article 56 TFEU." ​​(Cartrans Preda C-461/21)
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JUSTIFICATION
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- Must pursue a legitimate objective and be proportionate
"[69] Such a restriction on the freedom to provide services is warranted only if it pursues a legitimate objective compatible with the FEU Treaty and is justified by overriding reasons in the public interest; if that is the case, it must be suitable for securing the attainment of the objective pursued and must not go beyond what is necessary in order to attain that objective (judgment of 27 October 2022, Instituto do Cinema e do Audiovisual, C‑411/21, EU:C:2022:836, paragraph 24 and the case-law cited)." ​​(Cartrans Preda C-461/21)
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- For the Member State to demonstrate specifically the existence of a reason relating to the public interest
"[89] In so doing, the Romanian Government does not, however, explain how such considerations may constitute a legitimate objective that is compatible with the FEU Treaty and which responds to overriding reasons in the public interest capable of justifying a restriction such as the one at issue in the present case.
[90] In that regard, it must be borne in mind that it is for a Member State which claims to have a reason justifying a restriction on one of the fundamental freedoms guaranteed by that treaty to demonstrate specifically the existence of a reason relating to the public interest (judgment of 16 December 2021, Prefettura di Massa Carrara, C‑274/20, EU:C:2021:1022, paragraph 38 and the case-law cited)." ​​(Cartrans Preda C-461/21)
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Effective collection of tax
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- Need to prevent fraud can justify restrictions on free movement of goods
"[61] As regards, fourthly, Teleos and Others’ argument that the measures adopted by the United Kingdom authorities interfere with the free movement of goods, first, it is clear from the Court’s case-law that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive (see Joined Cases C‑487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I‑5337, paragraph 76, and Kittel and Recolta Recycling , paragraph 54), which can, in certain circumstances, justify restrictions on the free movement of goods." ​(Teleos C-409/04)
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Effective collection of tax
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- Effective collection of tax is a justification
"[71] In that regard, the Court notes that, according to its case-law, the need to ensure the effective collection of tax constitutes an overriding reason of public interest capable of justifying a restriction on the freedom to provide services (see, to that effect, judgments of 3 October 2006, FKP Scorpio Konzertproduktionen, C‑290/04, EU:C:2006:630, paragraph 36, and of 13 July 2016, Brisal and KBC Finance Ireland, C‑18/15, EU:C:2016:549, paragraph 39)." ​​(Cartrans Preda C-461/21)
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- Withholding tax is legitimate and appropriate means of ensuring sum does not escape taxation
"[72] Thus, the Court has held that the procedure of retention at source and the liability rules supporting it constitute a legitimate and appropriate means of ensuring the tax treatment of the income of a person established outside the State of taxation and ensuring that the income concerned does not escape taxation in the State of residence and the State where the services are provided (judgments of 3 October 2006, FKP Scorpio Konzertproduktionen, C‑290/04, EU:C:2006:630, paragraph 36, and of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 39).
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[75] It also follows that the imposition, on the recipient of the supply of services, of an administrative burden and liability as a result of the obligation to withhold at source remuneration paid to the non-resident service provider appears to be specific and necessary in order to ensure the effective collection of tax." ​​(Cartrans Preda C-461/21)
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- At least where provider only performs services occasionally in Member State
"[73] The tax treatment of the income of a service provider established outside the State of taxation by means of a procedure where tax is withheld at source and the liability rules serving as a guarantee may, inter alia, prove to be legitimate and appropriate where that provider performs only occasional services in that State and where that provider remains only a short period of time (see, to that effect, judgment of 18 October 2012, X, C‑498/10, EU:C:2012:635, paragraph 42)." ​​(Cartrans Preda C-461/21)
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- Mutual assistance mechanisms addressing problems collecting tax from taxpayers based in other Member States
"[73] In the third place, the mutual assistance mechanisms existing between the authorities of the Member States are sufficient to enable the Member State in which the dividends are paid to check the accuracy of the evidence put forward by non-resident companies wishing to claim a deferral of taxation of dividends which they have received (see, to that effect, judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 68).
[74] In that connection, 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 and taxation of insurance premiums (OJ 1977 L 336, p. 15), as amended by Council Directive 2004/106/EC of 16 November 2004 (OJ 2004 L 359, p. 30), repealed and replaced by Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799 (OJ 2011 L 64, p. 1), allows a Member State to apply to the competent authorities of another Member State for all the information required to allow it to ascertain the correct amount of income tax.
[75] Further, Article 4(1) of Council Directive 2008/55/EC of 26 May 2008 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures (OJ 2008 L 150, p. 28), repealed and replaced by Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (OJ 2010 L 84, p. 1), provides that ‘at the request of the applicant authority, the requested authority shall provide any information which would be useful to the applicant authority in the recovery of its claim’. That directive therefore allows the Member State in which dividends are paid to obtain, from the Member State of residence, the information necessary to allow it to recover a tax liability which arose when the dividends were distributed.
[76] Thus, Directive 2008/55 provides the authorities of the Member State in which dividends are paid with a framework of cooperation and assistance that allows them actually to recover a tax liability in the Member State of residence (see, to that effect, judgments of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 78, and of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraphs 70 and 71).
[77] Accordingly, if the advantage associated with the deferral of taxation on dividends distributed were also granted to loss-making non-resident companies, that would have the effect of eliminating any restriction on the free movement of capital, but would not thereby impede the achievement of the aim pursued by the national legislation at issue in the main proceedings.
[78] In those circumstances, justification of the national legislation at issue in the main proceedings in the effective collection of tax cannot be accepted." (Sofina C-575/17)
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