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OPINION OF ADVOCATE GENERAL

HOGAN

delivered on 24 October 2019(1)

Case C-458/18

‘GVC Services (Bulgaria)’ EOOD

v

Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ — Sofia

(Request for a preliminary ruling from the Administrativen sad Sofia-grad (Sofia Administrative Court, Bulgaria))

(Request for a preliminary ruling — Directive 2011/96/EU —Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States — Prevention of double taxation — Concepts of companies incorporated under United Kingdom law and United Kingdom corporation tax — Status of companies registered in Gibraltar and taxes paid in Gibraltar — Freedom of establishment)






I.      Introduction

1.        The present request for a preliminary ruling concerns the interpretation of Article 2(a)(i) and (iii) of Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, (2) as amended by Council Directive (EU) 2015/121 of 27 January 2015, (3) and its Annex I, Part A(ab) and Part B.

2.        This request was made in proceedings between GVC Services (Bulgaria) EOOD, established in Bulgaria (‘the applicant’), and the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ Sofia (Director of the ‘Appeals and Tax and Social Security’ Directorate of Sofia, Bulgaria) (‘the Direktor’), concerning a tax adjustment notice recording tax debts on dividends distributed and paid by the applicant to its parent company PGB Limited — Gibraltar, established in Gibraltar, for the period from 13 July 2011 to 21 April 2016.

3.        One immediate consequence of this preliminary ruling is that the Court is once again called upon to rule on the question of the status of Gibraltar within the European Union. The referring court limits its questions to the interpretation of the scope of Directive 2011/96. If, however, the Court follows my interpretation of the concept of ‘company of a Member State’ within the meaning of this directive, I believe that the Court will not be able to avoid a discussion on freedom of establishment issues. Indeed, EU law does not preclude the taxation of dividend payments where the transaction does not fall within the scope of Directive 2011/96, unless the provision adopted for that purpose by a Member State is itself contrary to the free movement guaranteed by the Treaty.

II.    Legal context

A.      International law

4.        Chapter XI of the Charter of the United Nations, signed in San Francisco on 26 June 1945, is entitled ‘Declaration regarding Non-Self-Governing Territories’. Article 73 of Chapter XI provides as follows:

‘Members of the United Nations which have or assume responsibilities for the administration of territories whose peoples have not yet attained a full measure of self-government recognise the principle that the interests of the inhabitants of these territories are paramount, and accept as a sacred trust the obligation to promote to the utmost, within the system of international peace and security established by [the] Charter, the well-being of the inhabitants of those territories, and, to this end:

…

e.       to transmit regularly to the Secretary-General for information purposes, subject to such limitation as security and constitutional considerations may require, statistical and other information of a technical nature relating to economic, social, and educational conditions in the territories for which they are respectively responsible other than those territories to which Chapters XII and XIII apply.’

B.      Status of Gibraltar

5.        Gibraltar was ceded by the King of Spain to the British Crown by virtue of the Treaty of Utrecht which had been concluded between the King of Spain and the Queen of Great Britain on 13 July 1713. This was one of the treaties bringing the War of Spanish Succession to an end. The last sentence of Article X of that treaty made it clear that if the British Crown ever intended to grant, sell, or otherwise dispose of ownership of the town of Gibraltar, it would be required to grant preference to the Spanish Crown in priority to any other interested party.

6.        As regards international law, Gibraltar is classified as a non-self-governing territory within the meaning of Article 73 of the Charter of the United Nations. While the United Kingdom has responsibility for the external relations of Gibraltar, it is, however, important to stress that Gibraltar is not itself part of the United Kingdom.

7.        As regards EU law, Gibraltar is a European territory for whose external relations a Member State is responsible within the meaning of Article 355(3) TFEU and to which the provisions of the Treaties apply. The Act concerning the Conditions of Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland and the Adjustments to the Treaties (4) (‘the 1972 Act of Accession’) provides, however, that certain parts of the Treaty are not to apply to Gibraltar.

8.        Article 28 of the 1972 Act of Accession provides as follows:

‘Acts of the institutions of the Community relating to the products in Annex II to the EEC Treaty and the products subject, on importation into the Community, to specific rules as a result of the implementation of the common agricultural policy, as well as the acts on the harmonisation of legislation of Member States concerning turnover taxes, shall not apply to Gibraltar unless the Council, acting unanimously on a proposal from the Commission, provides otherwise.’

9.        Under Article 29 of the 1972 Act of Accession, in conjunction with Annex I, Section I, point 4, thereto, Gibraltar does not form part of the EU customs territory.

C.      Directive 2011/96

10.      The period concerned by the dispute in the main proceeding covers the period of validity of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (5) and Directive 2011/96. However, since the latter is a recasting of the former, (6) it is sufficient in this case to cite the relevant provisions of the latter. (7)

11.      Article 2(a) of Directive 2011/96 provides:

‘For the purposes of this Directive the following definitions shall apply:

(a)      “company of a Member State” means any company which:

(i)      takes one of the forms listed in Annex I, Part A;

(ii)      according to the tax laws of a Member State is considered to be resident in that Member State for tax purposes and, under the terms of a double taxation agreement concluded with a third State, is not considered to be resident for tax purposes outside the Union;

(iii)      moreover, is subject to one of the taxes listed in Annex I, Part B, without the possibility of an option or of being exempt, or to any other tax which may be substituted for any of those taxes.’

12.      Annex I, Part A, to Directive 2011/96 lists the companies referred to in Article 2(a)(i). It includes, under the littera (ab) the ‘companies incorporated under United Kingdom law’. Annex I, Part B, to Directive 2011/96 lists the taxes referred to in Article 2(a)(iii) of Directive 2011/96, including the ‘corporation tax in the United Kingdom’.

13.      According to Article 5 of Directive 2011/96, ‘profits which a subsidiary distributes to its parent company shall be exempt from withholding tax’.

D.      Bulgarian law

14.      The relevant provision of the Bulgarian law is Article 194 of Zakon za korporativnoto podohodno oblagane (Law on Corporation Tax) (DV No 105 of 22 December 2006) which states that:

‘(1)      Dividends and liquidation proceeds which are distributed (personified) by domestic legal persons to the following persons shall be subject to withholding tax:

1.      foreign legal persons except for the cases in which the dividends are achieved by a foreign legal person by virtue of a domestic permanent establishment;

…

(3)      Paragraph (1) shall not apply where the dividends and liquidation proceeds are distributed to the following persons or institutions:

3. … a foreign legal person which is resident for tax purposes in a Member State of the European Union or in another Contracting State of the Agreement on the European Economic Area, with the exception of cases of hidden distribution of profits.’

III. The facts of the main proceedings

15.      The applicant is a Bulgarian single-member limited-liability company named GVC Services (Bulgaria) EOOD. It was incorporated under the Targovski zakon (Commercial Law) of the Republic of Bulgaria. Until 1 February 2016, its share capital was wholly owned by the company PGB Limited — Gibraltar, incorporated in Gibraltar. The Bulgarian company provides services in connection with information technology (IT services).

16.      In the period from 13 July 2011 to 21 April 2016, the applicant allotted dividends to the parent company PGB Limited — Gibraltar, and paid them out without withholding and paying over tax in Bulgaria because it was of the opinion that the company PGB Limited — Gibraltar could be considered to be a foreign legal person which was resident for tax purposes in a Member State of the European Union in accordance with Article 194(3) of the Law on Corporation Tax.

17.      On the contrary, the competent tax authority considered that the withholding tax on dividends distributed should have been applied and issued a tax assessment notice on 1 December 2017, rectified twice by the notices of 7 and 22 December 2017. This tax assessment notice identified withholding tax liabilities totalling 930 529.54 Bulgarian leva (BGN) in respect of the dividends and liquidation proceeds paid to the parent company, of which BGN 669 690.32 was for the principal amount and BGN 260 839.22 for the default interest.

18.      The tax assessment notice was the subject of an administrative challenge lodged with the Direktor, who confirmed the notice. An action was then brought before the Administrativen sad Sofia-grad (Sofia Administrative Court, Bulgaria).

19.      The applicant argued that EU law was applicable to Gibraltar, which had the status of a European territory for whose external relations the United Kingdom is responsible. The applicant relied on Article 355(3) TFEU and contended that the payment of dividends did not come within the exceptions in Articles 28 to 30 of the 1972 Act of Accession. In this connection, the applicant took the view that the parent company satisfied the requirements of Article 2 of Directive 2011/96: it could be equated with a company incorporated in the United Kingdom and was subject to corporation tax in Gibraltar, which was able to be equated with corporation tax in the United Kingdom, as referred to in Annex I, Part B, to Directive 2011/96.

20.      The Direktor contended that Directive 2011/96 contained an express and exhaustive list both of the companies (Annex I, Part A) and of the taxes (Annex I, Part B) to which it applied. He considered that the scope of the Directive 2011/96 was exhaustively determined therein and could not be extended to companies incorporated in Gibraltar and liable to tax there, because giving an extensive interpretation to provisions of law relating to the tax burden was impermissible.

21.      According to the referring court, the assessment of the compatibility of the disputed notice with Directive 2011/96 depends on whether Gibraltar falls within its scope and whether as a consequence the applicant must be exempt from withholding tax in Bulgaria as a subsidiary of a parent company incorporated in Gibraltar.

IV.    The request for a preliminary ruling and the procedure before the Court

22.      In those circumstances, by decision of 5 July 2018, received at the Court on 12 July 2018, the Administrativen sad Sofia-grad (Sofia Administrative Court) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1)      Should Article 2(a)(i) of, in conjunction with Annex I, Part A(ab), to Directive [2011/96] be interpreted as meaning that the expression “companies incorporated under the law of the United Kingdom” also covers companies incorporated in Gibraltar?

(2)      Should Article 2(a)(iii) of, in conjunction with Annex I, Part B, to Directive [2011/96] be interpreted as meaning that the expression “corporation tax in the United Kingdom” also covers the corporation tax that has to be paid in Gibraltar?’

23.      Written observations were submitted by GVC Services, the Direktor, the Bulgarian, Danish and the United Kingdom Governments and by the European Commission. Save for the United Kingdom Government, all of these parties presented oral argument before the Court at the hearing on 11 September 2019.

V.      Analysis

24.      By its two questions, the referring court seeks, in substance, to determine the scope of Directive 2011/96 and, more precisely, whether Directive 2011/96 is applicable to companies incorporated in Gibraltar. These two questions, which concern the constituent elements of the concept of a ‘company of a Member State’ within the meaning of Directive 2011/96, can therefore be examined together.

25.      As, however, I have come to the conclusion that companies incorporated in Gibraltar are not covered by Directive 2011/96, I also propose to consider, as a second step, the compatibility of the refusal to exempt withholding tax in respect of freedom of establishment issues so far as Gibraltar is concerned.

A.      The interpretation of ‘company of a Member State’ within the meaning of Article 2(a) of Directive 2011/96

26.      Even before determining whether companies incorporated in Gibraltar are covered by Directive 2011/96 — in other words, before specifying the scope ratione personae of the directive (8) — it is first necessary to determine its territorial scope and whether that directive is actually applicable to Gibraltar.

1.      The applicability of Directive 2011/96 to Gibraltar

27.      It may first be recalled that Article 355(3) TFEU states that the provisions of the Treaties are to apply to the European territories for whose external relations a Member State is responsible.

28.      In that regard, it is now established that Gibraltar is a European territory for whose external relations a Member State (namely, the United Kingdom) is responsible, and that EU law is applicable to that territory pursuant to Article 355(3) TFEU. By way, however, of derogation from Article 355(3) TFEU, under the 1972 Act of Accession, EU acts (including legislative acts) do not apply to Gibraltar in certain areas of EU law. (9)

29.      In accordance with Articles 28 and 29 of the 1972 Act of Accession, the common agricultural policy and the acts on the harmonisation of legislation of Member States concerning turnover taxes do not apply to Gibraltar and Gibraltar does not form part of the EU customs territory. Nevertheless, as an exception to the application of EU law in the territory of the European Union, those provisions must be given an interpretation which limits their scope to that which is strictly necessary to safeguard the interests which these provisions allow Gibraltar to protect. (10)

30.      According to recital 3 of Directive 2011/96, the objective of this directive is to exempt dividends and other profit distributions paid by subsidiary companies to their parent companies from withholding taxes and to eliminate double taxation of such income at the level of the parent company. It is therefore clear that Directive 2011/96 does not fall under any of the exemptions provided for in Articles 28 and 29 of the 1972 Act of Accession. There is, moreover, no provision in Directive 2011/96 which excludes Gibraltar from its territorial scope.

31.      In those circumstances, it seems clear that Directive 2011/96, as an EU legislative measure, should, in principle, be applied to Gibraltar as a European territory. The question of whether companies such as PGB Limited — Gibraltar which have been incorporated in Gibraltar are covered by the definition of ‘company of a Member State’ given in Article 2(a) of Directive 2011/96 is, however, a slightly different one. It is to that issue to which I now propose to turn.

2.      The inapplicability of Directive 2011/96 to companies incorporated in Gibraltar

32.      In accordance with Article 2(a)(i) and (iii) of Directive 2011/96, for a company to be a ‘company of a Member State’ within the meaning of this directive, it must take one of the forms listed in its Annex I, Part A and be subject to one of the taxes listed in its Annex I, Part B, without the possibility of an option or of being exempt, or to any other tax which may be substituted for any of those taxes.

33.      The Court has already had the opportunity to interpret those provisions in the sense that ‘the legal forms … covered by Directive [2011/96] are exhaustively listed in [Annex I, part A] thereto, the extension of the scope of that directive by analogy to other forms of company …, even if they were comparable, would not be admissible’. (11)

34.      It is true that, whereas the relevant French law in the abovementioned judgment expressly listed the legal forms covered by Directive 2011/96, the United Kingdom has by contrast opted for a general wording since Annex I, Part A(ab), to Directive 2011/96 simply refers to the ‘companies incorporated under United Kingdom law’.

35.      However, it should be noted that the Court’s interpretation of the material scope of Directive 2011/96 is independent of the method used by Member States to designate the companies covered by it. Indeed, according to the Court, it is the ‘fundamental principle of legal certainty [which] precludes the list of companies in … the annex to the directive from being interpreted as merely an indicative list, when such an interpretation does not follow from the wording or scheme of Directive 90/435’, recast by Directive 2011/96. (12) As stressed by the Court and Advocate General Mazák in Gaz de France — Berliner Investissement, Directive 90/435 — as well as the current Directive 2011/96 — does not seek to introduce a common system for all companies of the Member States nor for all holdings. (13)

36.      Since the Court expressly rejected in Gaz de France — Berliner Investissement (C-247/08, EU:C:2009:600) the possibility of extending the scope of Directive 2011/96 by analogy to other forms of companies other than those listed in its Annex I, Part A for reasons of legal certainty, I do not think that the expression ‘companies incorporated under United Kingdom law’ can be interpreted as also covering companies incorporated in Gibraltar, not least given that Gibraltar is not itself part of the United Kingdom. In addition, it may be observed that the Government of the United Kingdom itself acknowledges that ‘companies incorporated under UK law can only extend to companies which under UK domestic law are seen as incorporated in the United Kingdom. Domestic UK law does not regard companies incorporated in Gibraltar as companies incorporated under UK law’. (14)

37.      In arriving at that conclusion I have not overlooked the argument advanced by GVC Services at the hearing of 11 September 2019 to the effect that the failure on the part of Directive 2011/96 to address in express terms the position of companies incorporated in Gibraltar amounted to a legislative oversight, the remedy for which lay in the gift of the Court by means of a generous teleological interpretation of the provisions of Annex I, Part A to Directive 2011/96. There are undoubtedly instances where a departure from the literal words of a legislative measure may be warranted, especially where it is plain that the end result would be absurd or unintelligible or otherwise at variance with the clear intention of the Union legislator. Yet, to my mind, at least, this is not one such case.

38.      First, it should be observed that the language of Annex I, Part A to Directive 2011/96 is itself particularly clear, since the companies referred to in Article 2(a)(i) of that directive are listed as ‘the companies incorporated under United Kingdom law’. Given this wording, it just does not seem possible for this Court to depart from that language in favour of the teleological interpretation urged by the applicant. In any event, this Court has already clearly rejected any such approach in Gaz de France — Berliner Investissement.

39.      Second, the context of this legislation is also of some importance. As the Danish Government observed at the hearing of 11 September 2019, that given the manifest reluctance of some Member States to conclude double taxation agreements with the territory of Gibraltar, it seems inherently unlikely that the Union legislator would simply have overlooked the special position of Gibraltar given the sensitivity of this entire question.

40.      The conditions laid down in Article 2(a) of Directive 2011/96 are cumulative. (15) The above conclusion is therefore sufficient to reject the applicability of Article 5 of Directive 2011/96 to a subsidiary whose parent company is incorporated in Gibraltar.

41.      However, for the sake of completeness, I would add that the requirement to be subject to one of the taxes listed in Annex I, Part B, to Directive 2011/96 must also be interpreted restrictively for the same reason of legal certainty. This must be all the more so since, as the Commission pointed out in its written observations, there is — as yet, at least — no harmonised definition of corporation tax in Union law and its determination falls within the competence of the Member States. (16)

42.      Since the Government of the United Kingdom also accepts that UK domestic law does not consider equivalent tax paid in Gibraltar to constitute ‘corporation tax in the UK’, (17) it also follows that the term ‘corporation tax in the United Kingdom’ used in Annex I, part B, to Directive 2011/96 cannot be read as including ‘equivalent tax in Gibraltar’. (18)

3.      Interim conclusion: answer to the questions asked by the referring court

43.      In the light of the foregoing considerations, I propose that the Court should answer the questions for a preliminary ruling submitted by the referring court that Article 2(a) of Directive 2011/96, in conjunction with Annex I, Part A(ab) and Annex I, Part B, must be interpreted as meaning that a company incorporated in Gibraltar and subject to Gibraltar corporation tax cannot be considered to be a ‘company of a Member State’ within the meaning of that directive.

B.      Applicability of Article 49 TFEU in favour of a parent company incorporated in Gibraltar

1.      Preliminary remark on the utility of Article 49 TFEU in the present case

44.      The referring court has limited its questions to the interpretation of Article 2(a)(i) and (iii) of Directive 2011/96 and its Annex I, Part A(ab) and Part B. The Court has, however, repeatedly held that such a situation does not prevent the Court from providing the referring court with all the elements of interpretation of EU law which may be of assistance in adjudicating on the case before it, whether or not that court has specifically referred to them in the questions. (19)

45.       In that context, I would observe that, although Article 5 of Directive 2011/96 is applicable only as regards profit distributions accruing to a company which may be regarded as a ‘company of a Member State’ within the meaning of the directive, the Court pointed out that Directive 2011/96 does not authorise a Member State to treat profits distributed to companies in other Member States which do not fall within the scope of the directive less favourably than profits distributed to comparable companies established in its territory. (20) Member States are not allowed to impose measures that are contrary to the freedoms of movement guaranteed by the Treaty. (21)

46.      It therefore seems necessary to examine the national legislation in the light of the freedoms of movement and, in particular, the freedom of establishment. Indeed, as already said, Gibraltar is a European territory for whose external relations a Member State is responsible, and that EU law is in principle applicable to that territory pursuant to Article 355(3) TFEU. (22) It is also clear and established that the exclusions of the territory of Gibraltar from the application of Union acts in certain areas of law, laid down in the 1972 Act of Accession, do not relate to the freedom of establishment or to the free movement of capital, guaranteed by Articles 49 and 63 TFEU respectively. In other words, Articles 49 and 63 TFEU apply to the territory of Gibraltar by virtue of Article 355(3) TFEU. (23) 

47.      In the present case, PGB Limited — Gibraltar owned 100% of the shareholding in the applicant during the period with which the main proceedings is concerned. In that context, the freedom applicable is the freedom of establishment since such participation allows its holder to exert a definite influence on a company’s decisions and to determine its activities. (24)

2.      On the existence of a discrimination

48.      In the present case, unlike the subsidiary of a parent company incorporated in a Member State, the applicant could not benefit from the exemption from withholding tax. As the Court has already ruled, ‘such difference in the tax treatment of dividends between parent companies, based on the location of their registered office, constitutes a restriction on freedom of establishment, which is, in principle, prohibited by Article [49 TFEU] and Article [54 TFEU]’. (25)

49.      Indeed, the tax measure at issue in the main proceedings makes it less attractive for companies established in Gibraltar to exercise freedom of establishment and they may, consequently, refrain from acquiring, creating or maintaining a subsidiary in the State which adopts that measure. (26) As the Court has already explained,  acceptance of the proposition that the Member State in which a resident subsidiary is established may freely apply different treatment merely by reason of the fact that the registered office of the parent company is situated in another Member State would deprive Article 49 TFEU of all meaning. (27)

50.      In the present case, the difference in treatment is not applied because the parent company is established in a Member State other than the subsidiary but because it would be considered as a foreign legal person which is not established in a Member State even though EU law is applicable to Gibraltar by virtue of Article 355(3) TFEU. (28)

51.      Under these circumstances, since the withholding tax is applicable to all parent companies incorporated in Gibraltar without reference to the material scope of Directive 2011/96 or any other reason likely to distinguish them from comparable companies established in other Member States, but for the sole reason of being established in that territory, national legislation such as that at issue in the main proceedings gives rise to a discriminatory restriction on the freedom of establishment guaranteed by Article 49 TFEU. (29)

52.       In this context, it is settled case-law that national rules which are not applicable to companies without distinction, irrespective of their place of establishment, and which are therefore discriminatory, are compatible with EU law only if they can be based on one of the grounds set out in Article 52(1) TFEU, namely public policy, public security or public health. (30)

53.      The identification of the objectives in fact pursued by the national legislation is, in the context of a case referred to the Court under Article 267 TFEU, a matter within the jurisdiction of the referring court. It is also for the referring court, while taking account of the information provided by the Court, to determine whether the restrictions imposed by the Member State concerned satisfy the conditions laid down in the Court’s case-law as regards their proportionality. (31)

54.      In that regard, the order for reference does not contain any information on the objective pursued by the legislator. It is therefore particularly difficult to go further in the analysis and it would probably be preferable for the national court, if it considers it necessary, to make a new request for a preliminary ruling on that specific issue. At the same time, it may be useful to note that the issue of freedom of establishment was specifically raised by the Court in its questions to the parties and the issue was the subject of extensive debate at the oral hearing of 11 September 2019.

55.      In any event, it may be inferred from the Bulgarian Government’s written observations that the statutory exclusion of parent companies incorporated in Gibraltar from the benefit of the exemption from withholding tax is based on the low tax rate applied in Gibraltar — or even the absence of taxation — and on the difficulties — or even impossibility — of obtaining information from the competent authorities regarding taxation affairs. The Bulgarian Government confirmed at the oral hearing of 11 September 2019 that the need to prevent tax evasion and the need to safeguard the balanced allocation of the power to impose taxes between the Member States are grounds capable of justifying a restriction on the freedom of establishment. In that context, the objective of the legislation in question would be to avoid that funds paid to natural persons established in other Member States through a parent company incorporated in Gibraltar are not taxed in any way. (32)

56.      In that regard, I would observe that it follows from settled case-law that a national measure restricting the free movement of capital or freedom of establishment may be justified by the need to prevent tax evasion and avoidance where it specifically targets wholly artificial arrangements which do not reflect economic reality and the purpose of which is to avoid the tax normally payable on the profits generated by activities carried out in the territory of the Member State concerned. (33) The Court has also consistently held that the need to guarantee the effectiveness of fiscal supervision constitutes an overriding reason in the public interest capable of justifying a restriction on the free movement of capital and recalled, in that context, that fiscal supervision is designed to combat tax evasion and avoidance. (34)

57.      In the present case, it seems to follow from the written observations of the Bulgarian Government — but, I repeat, without certainty — that the objective of the national legislation at issue in the main proceedings seems to correspond, in essence, to those overriding reasons in the public interest and, in particular, to the prevention of tax evasion and avoidance.

58.      It must, however, be noted that those objectives cannot fall within the definition of public policy since the Court’s case-law has made it clear that the concept of public policy presupposes, in any event, the existence, in addition to the perturbation of the social order which any infringement of the law involves, of a genuine, present and sufficiently serious threat to one of the fundamental interests of society. (35) In that context, the Court has already pointed out that economic aims cannot constitute grounds of public policy within the meaning of Article 52 TFEU. (36) The prevention of tax evasion and avoidance cannot, therefore, justify restrictions on a fundamental right guaranteed by the Treaty. (37)

59.      In addition, to exclude in a general way, as the national legislation at issue in the main proceedings does for subsidiaries whose parent companies are incorporated in Gibraltar, the benefit of a tax exemption appears to be disproportionate, as it goes beyond what is necessary to prevent tax evasion and avoidance.

60.      It is clear that, as the Court recently confirmed, a finding that there is an abusive or fraudulent arrangement justifies the inapplicability of the fundamental freedoms guaranteed by the FEU Treaty. (38) Nevertheless, this kind of exclusion cannot be applied in a general way on the basis of a territorial criterion, whereas it appears that companies incorporated in Gibraltar are in a situation objectively comparable to companies established in other ‘Member States’, with regard to the issue of exemption from withholding tax for profits distributed by a subsidiary to its parent company.

61.      In that regard, I observe, first, that Article 194 of the Law on Corporation Tax states that withholding tax shall not apply where the dividends and liquidation proceeds are distributed ‘to a foreign legal person which is resident for tax purposes in a Member State of the European Union’ without any condition in relation to the tax rate applied in the Member State. Nevertheless, according to the OECD Tax Database, the personal income tax on dividend applied in Member States of the European Union vary between 7% and 51%, or even 0% for one of them. (39)

62.      Second, on the one hand, the Convention on Mutual Administrative Assistance in Tax Matters, developed jointly by the Organisation for Economic Cooperation and Development (OECD) and the Council of Europe in 1988 and amended by Protocol in 2010, has been extended to the territory of Gibraltar since 1 March 2014. (40) In that regard, I note that, according to the OECD’s peer review, the situation in Gibraltar is judged as being ‘largely compliant’. (41) On the other hand, and probably more importantly, Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC, (42) is applicable to Gibraltar since Article 2(4) of that directive states that it is applicable to all taxes of any kind levied within the territory to which the Treaties apply by virtue of Article 52 TEU, which refers to Article 355 TFEU.

63.      It appears, in addition, that Directive 2011/16 — as modified by Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16 as regards mandatory automatic exchange of information in the field of taxation, (43) Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16 as regards mandatory automatic exchange of information in the field of taxation, (44) Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16 as regards mandatory automatic exchange of information in the field of taxation, (45) and Council Directive (EU) 2016/2258 of 6 December 2016 amending Directive 2011/16 as regards access to anti-money-laundering information by tax authorities (46) — as well as Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (47), have all been transposed into Gibraltarian law. (48) This was, in any event, confirmed by the Commission at the hearing of 11 September 2019.

64.      In those circumstances, it seems to me that the refusal to exempt dividends paid by subsidiaries established in a Member State to their parent companies incorporated in Gibraltar from withholding tax cannot be stated by way of a general rule such as has apparently happened in the present case. Such a refusal can only be the result of the application of an anti-abuse measure to the circumstances of an individual case. As such, it must therefore be assessed individually.

65.      In addition, it must be recalled that, according to settled case-law, in order for national law to be proportionate, the taxable person must, on each occasion in which the existence of artificial transactions cannot be excluded, have an opportunity, without undue administrative constraints, to provide evidence of any commercial justification for the transaction at issue. (49)

3.      Interim conclusion on the applicability of Article 49 TFEU in the main proceedings and its consequences

66.      It follows from the foregoing that Articles 49 and 52 TFEU must be interpreted as precluding legislation of a Member State which excludes from the exemption from withholding taxes, in a general way on the basis of a territorial criterion, dividends paid by subsidiary companies incorporated in that Member State to their parent companies incorporated in Gibraltar.

VI.    Conclusion

67.      Accordingly, I propose that the Court should answer to the questions referred by Administrativen sad Sofia-grad (Sofia Administrative Court, Bulgaria) as follows:

(1)      Article 2(a) of Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, as amended by Council Directive (EU) 2015/121 of 27 January 2015, in conjunction with Annex I, Part A(ab) and Annex I, Part B, must be interpreted as meaning that a company incorporated in Gibraltar and subject to Gibraltar corporation tax cannot be considered to be a ‘company of a Member State’ within the meaning of that directive.

(2)      Articles 49 and 52 TFEU must be interpreted as precluding legislation of a Member State which excludes from the exemption from withholding taxes, in a general way on the basis of a territorial criterion, dividends paid by subsidiary companies incorporated in that Member State to their parent companies incorporated in Gibraltar.

1      Original language: English.

2      OJ 2011 L 345, p. 8.

3      OJ 2015 L 21, p. 1.

4      OJ 1972 L 73, p. 14.

5      OJ 1990 L 225, p. 6.

6      See, to that effect, recital 1 of Directive 2011/96.

7      In addition, since the relevant provisions of Directive 2011/96 at issue in the dispute in the main proceedings are essentially identical to those of Directive 90/435, the Court’s case-law relating to the second of those directives must be considered applicable to Directive 2011/96 (see, to that effect, order of 14 June 2018,  GS, C-440/17, not published, EU:C:2018:437, paragraph 30).

8      See, to that effect, judgment of 8 March 2017, Wereldhave Belgium and Others (C-448/15, EU:C:2017:180, paragraph 27).

9      See, to that effect, judgments of 23 September 2003, Commission v United KingdomCommission v United KingdomCommission v United Kingdom (C-30/01, EU:C:2003:489, paragraph 47); of 12 September 2006, Spain v United KingdomSpain v United KingdomSpain v United Kingdom (C-145/04, EU:C:2006:543, paragraph 19); and of 13 June 2017, The Gibraltar Betting and Gaming Association (C-591/15, EU:C:2017:449, paragraphs 29 and 30).

10      See, to that effect, judgment of 21 July 2005, Commission v United KingdomCommission v United KingdomCommission v United Kingdom (C-349/03, EU:C:2005:488, paragraphs 41 to 43 and 51).

11      Judgment of 1 October 2009, Gaz de France — Berliner Investissement (C-247/08, EU:C:2009:600, paragraph 43). Emphasis added. The directive interpreted in that case was Directive 90/435. However, as already mentioned, since the relevant provisions at issue in that case were essentially identical to those of Directive 2011/96, the judgment cited must be considered applicable (see, to that effect, order of 14 June 2018,  GS, C-440/17, not published, EU:C:2018:437, paragraph 30).

12      Judgment of 1 October 2009, Gaz de France — Berliner InvestissementGaz de France — Berliner InvestissementGaz de France — Berliner Investissement (C-247/08, EU:C:2009:600, paragraph 38).

13      See, to that effect, judgment of 1 October 2009, Gaz de France — Berliner InvestissementGaz de France — Berliner InvestissementGaz de France — Berliner Investissement (C-247/08, EU:C:2009:600, paragraph 36), and Opinion of Advocate General Mazák (EU:C:2009:399, point 31).

14      Written observations of the United Kingdom Government, paragraph 40. Emphasis added. See also Antón Guardiola, C., Gibraltar: un desafío en la Unión Europea, Tirant lo Blanch, Valencia, 2011, p. 168.

15      See, to that effect, judgments of 1 October 2009, Gaz de France — Berliner InvestissementGaz de France — Berliner InvestissementGaz de France — Berliner Investissement (C-247/08, EU:C:2009:600, paragraph 29), and of 8 March 2017, Wereldhave Belgium and Others (C-448/15, EU:C:2017:180, paragraph 27).

16      See, to that effect, written observations of the Commission, paragraph 22.

17      See, to that effect, written observations of the United Kingdom Government, paragraph 41.

18      See, to that effect, Antón Guardiola, C., Gibraltar: un desafío en la Unión Europea, Tirant lo Blanch, Valencia, 2011, p. 168.

19      See, for recent applications of this case-law, judgments of 5 June 2018, Coman and Others (C-673/16, EU:C:2018:385, paragraph 22), and of 13 June 2019, Moro (C-646/17, EU:C:2019:489, paragraph 40).

20      See, to that effect, judgment of 1 October 2009, Gaz de France — Berliner InvestissementGaz de France — Berliner InvestissementGaz de France — Berliner Investissement (C-247/08, EU:C:2009:600, paragraph 59).

21      See, to that effect, judgment of 1 October 2009, Gaz de France — Berliner InvestissementGaz de France — Berliner InvestissementGaz de France — Berliner Investissement (C-247/08, EU:C:2009:600, paragraph 60).

22      See, to that effect, references cited in footnote 9 of the present Opinion.

23      See, to that effect, order of 12 October 2017, Fisher (C-192/16, EU:C:2017:762, paragraph 26) and, in relation to Article 56 TFEU relating to the freedom to provide services, judgment of 13 June 2017, The Gibraltar Betting and Gaming Association (C-591/15, EU:C:2017:449, paragraphs 30 and 31).

24      See, to that effect, judgment of 27 February 2019, Associação Peço a Palavra and Others (C-563/17, EU:C:2019:144, paragraph 43 and the case-law cited).

25      Judgment of 14 December 2006, Denkavit Internationaal and Denkavit FranceDenkavit Internationaal and Denkavit France (C-170/05, EU:C:2006:783, paragraph 29).

26      See, to that effect, judgment of 14 December 2006, Denkavit Internationaal and Denkavit FranceDenkavit Internationaal and Denkavit France (C-170/05, EU:C:2006:783, paragraph 30).

27      See, to that effect, judgments of 14 December 2006, Denkavit Internationaal and Denkavit FranceDenkavit Internationaal and Denkavit France (C-170/05, EU:C:2006:783, paragraph 22), and of 18 July 2007, Oy AA (C-231/05, EU:C:2007:439, paragraph 30).

28      Judgment of 13 June 2017, The Gibraltar Betting and Gaming Association (C-591/15, EU:C:2017:449, paragraph 51).

29      If the justification for applying withholding tax on dividends paid to a parent company, such as that at issue in the main proceedings, had been that it had not been constituted in one of the legal forms referred to in Annex A to Directive 2011/96, the solution would probably have been different. Indeed, in such a case, Bulgaria would have simply drawn the conclusions from the United Kingdom’s choice not to allow the subsidiaries of these companies to benefit from the provisions of Directive 2011/96.

30      See, to that effect, judgments of 18 June 1991, ERT (C-260/89, EU:C:1991:254, paragraph 24); of 29 April 1999, Ciola (C-224/97, EU:C:1999:212, paragraph 16); of 9 September 2010, Engelmann (C-64/08, EU:C:2010:506, paragraph 34); and of 22 October 2014, Blanco and Fabretti (C-344/13 and C-367/13, EU:C:2014:2311, paragraph 38).

31      See, to that effect, in relation with the freedom to provide services, judgment of 22 October 2014, Blanco and Fabretti (C-344/13 and C-367/13, EU:C:2014:2311, paragraph 40).

32      See, in that sense, the written observations of the Danish Government, paragraph 10.

33      See, to that effect, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas (C-196/04, EU:C:2006:544, paragraphs 51 and 55), and of 26 February 2019, X (Controlled companies established in third countries) (C-135/17, EU:C:2019:136, paragraph 73).

34      See, to that effect, judgment of 26 February 2019, X (Controlled companies established in third countries) (C-135/17, EU:C:2019:136, paragraph 74 and the case-law cited).

35      See, to that effect, judgment of 26 September 2018, Van Gennip and Others (C-137/17, EU:C:2018:771, paragraph 58).

36      See, to that effect, judgments of 25 July 1991, Collectieve Antennevoorziening Gouda (C-288/89, EU:C:1991:323, paragraph 11), and of 14 November 1995, Svensson and Gustavsson (C-484/93, EU:C:1995:379, paragraph 15).

37      See, to that effect, Opinion of Advocate General Saggio in X and Y (C-200/98, EU:C:1999:280, points 22 and 26), and Opinion of Advocate General Kokott in flyLAL-Lithuanian Airlines (C-302/13, EU:C:2014:2046, point 87).

38      See, to that effect, judgment of 26 February 2019, N Luxembourg 1 and Others (C-115/16, C-118/16, C-119/16 and C-299/16, EU:C:2019:134, paragraph 177). In that regard, it can also be noted that, after the amendment of Directive 2011/96 by Council Directive (EU) 2015/121 of 27 January 2015 (OJ 2015 L 21, p. 1), Article 1(2) of Directive 2011/96 provides that: ‘Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances.’ According to Article 1(3) of that directive, ‘an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality’. Finally, Article 1(4) of the same directive adds that ‘[it] shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse’.

39      See Table II.4. Overall statutory tax rates on dividend income (https://stats.oecd.org/index.aspx?DataSetCode=TABLE_II4). The ‘PIT [personal income tax] rate on (grossed-up) dividend’ shows the combined (central and sub-central) top marginal statutory personal income tax rate inclusive of surtax (if any), imposed on dividend income (on grossed-up dividends where gross-up provisions apply), before taking account of imputation systems, tax credits and tax allowances. Although the average of the PIT rate on (grossed-up) dividend applicable in the 22 identified Member States would be 25.45%, it must be noted that, according to the table for 2019, the PIT rate on (grossed-up) dividend applicable in Estonia and Slovakia would be 7% and 0% in Latvia, while Ireland would apply a rate of 51%. In addition to that, it seems that the claim that ‘passive interest’ (including dividends) would not be chargeable to tax (written observations of Bulgarian Government, paragraph 57) is no longer relevant since June 2013 and the amendment of the Income Tax Act 2010 (see Commission Decision of 19 December 2018 on the State Aid SA.34914 (2013/C), paragraphs 28, 33 and 34).

40      See Declaration of territorial Extension contained in a letter from the Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom, dated 4 November 2013, registered at the Secretariat General of the OECD on 19 November 2013.

41      See OECD (2014), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Gibraltar 2014: Phase 2: Implementation of the Standard in Practice,  OECD Publishing (https://read.oecd-ilibrary.org/taxation/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-peer-reviews-gibraltar-2014_9789264222885-en#page103).

42      OJ 2011 L 64, p. 1.

43      OJ 2014 L 359, p. 1.

44      OJ 2015 L 332, p. 1.

45      OJ 2016 L 146, p. 8.

46      OJ 2016 L 342, p. 1.

47      OJ 2010 L 84, p. 1.

48      See Mutual Legal Assistance (European Union) Act 2005; Income Tax Act 2010; Taxation (Mutual Administrative Assistance) Act 2014 and International Co-operation (Improvement of International Tax Compliance) Regulations 2016.

49      See, in that sense, judgments of 13 March 2007, Test Claimants in the Thin Cap Group Litigation (C-524/04, EU:C:2007:161, paragraph 82); of 5 July 2012, SIAT (C-318/10, EU:C:2012:415, paragraph 50); of 3 October 2013, Itelcar (C-282/12, EU:C:2013:629, paragraph 37); and of 26 February 2019, X (Controlled companies established in third countries) (C-135/17, EU:C:2019:136, paragraph 87). It is apparent from the Court’s case-law that the existence of such an obligation for Member States must be assessed according to the availability of administrative and legislative measures permitting, if necessary, the accuracy of such evidence to be verified. It is also why, where compliance with the conditions required by law can only be verified by obtaining information from the competent authorities of a third country, it is, in principle, legitimate for that Member State to refuse to grant that advantage if, for example, that third country has no treaty obligation to provide information, and it thus proves impossible to obtain that information from that third country (see, to that effect, judgment of 26 February 2019, X (Controlled companies established in third countries), C-135/17, EU:C:2019:136, paragraphs 91 and 92). However, between Member States, the competent national authorities have, in principle, the opportunity to use the procedures for collaboration and exchange of information between national tax administrations introduced by legal instruments such as Directive 2011/16. As mentioned above, subject to its temporal applicability to the facts of the main proceedings, this directive has effectively been transposed into Gibraltar’s legislation. Finally, it is for the national court to determine whether or not the taxable person has had the opportunity, without having been subject to undue administrative constraints, to provide evidence of any commercial justification that there may have been for the transaction at issue.