Opinion of Advocate General Trstenjak, 8 March 2011 1 Case C-10/10 European Commission v Republic of Austria Table of contents I Introduction II Legal background A European Union law B EEA Agreement C National law III Facts IV - Pre-litigation procedure V Proceedings before the Court and forms of order sought VI Essential arguments of the parties VII Legal appraisal A Existence of a restriction on free movement of capital B Existence of a justification of the restriction on free movement of capital 1. Objective comparability of the relevant national institutions and institutions in other Member States 2. Justification for overriding reasons in the public interest 3. Summary C Existence of an infringement of Article 40 of the EEA Agreement VIII Costs IX Conclusion I Introduction 1. The present case concerns an action for failure to fulfil obligations brought by the Commission under Article 258 TFEU seeking a declaration by the Court that the Republic of Austria breached its obligations under Article 56 EC and Article 40 of the Agreement on the European Economic Area by limiting the deductibility for income tax purposes of gifts to institutions with education, research and teaching tasks to gifts to such institutions established in Austria. II Legal background A European Union law 2 2. Article 56(1) EC prohibits, within the framework of the provisions set out in Chapter 4, all restrictions on the movement of capital between Member States and between Member States and third countries. 3. Article 58 EC provides as follows: 1. The provisions of Article 56 shall be without prejudice to the right of Member States: a. to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested; b. to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial organisations, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security. 3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56. B EEA Agreement 4. Article 40 of the EEA Agreement provides as follows: 1. Original language:german. Language of the case: German. 2. Pursuant to the TEU and TFEU descriptions, the term Union law is used as a generic term for Community and Union law. Where in what follows provisions of primary law are concerned, the provisions applicable ratione temporis will be cited.
Within the framework of the provisions of this Agreement, there shall be no restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States and no discrimination based on the nationality or on the place of residence of the parties or on the place where such capital is invested. Annex XII contains the provisions necessary to implement this Article. AG C National law 5. Paragraph 4 of the Austrian Law on Income Tax 1988 3 (EStG) deals with the determination of profit as the basis for calculating income tax. Under that provision, profit is reduced by operating expenses. Paragraph 4(4) EStG defines operating expenses as expenditure incurred by business operations. It also includes a list of expenditure items which in any event and hence by operation of law are classified as operating expenses. 6. Paragraph 4a EStG, in the version inserted by the Law on Tax Reform 2009, sets out under the heading Gifts out of operating capital a series of gifts which are also deemed to be operating expenses. In that connection Paragraph 4a EStG reproduces the list of operating expenses which until 31 March 2009 was contained in Paragraph 4(4)(5) EStG. 7. Paragraph 4a of the EstG is worded as follows: Also deemed to be operating expenses are: 1. gifts out of operating capital, for carrying out research activities or teaching activities for adult education which concern academic or artistic teaching and correspond to the Law on Universities 2002, and producing related academic publications and documentation, to the following institutions: a. universities, colleges of art and the Akademie der bildenden Künste, their faculties, institutes and special establishments; b. funds established by federal or provincial law entrusted with the promotion of research; c. the Österreichische Akademie der Wissenschaften; d. legally non-independent establishments of local authorities which are concerned essentially with research or teaching activities of the kind mentioned above for Austrian learning or the Austrian economy, and related academic publications or documentation; e. legal persons which are concerned essentially with research or teaching activities of the kind mentioned above for Austrian learning or the Austrian economy and related academic publications or documentation. A further condition is that either a local authority has at least a majority participation in those legal persons or that the legal person pursues exclusively academic purposes as a corporation within the meaning of Paragraph 34 et seq. of the Federal Tax Code. The conditions in points (d) and (e) are to be demonstrated by the establishment in question by a decision of Vienna Tax Office 1/23 issued subject to revocation at any time. All establishments for which such a decision has been issued are to be published at least once a year in electronically appropriate form on the home page of the Federal Ministry of Financial Affairs. The market value of the gifts is deductible in so far as it does not, together with the market value of gifts within the meaning of subparagraph 2, exceed in total 10% of the profit of the immediately preceding trading year. The residual book value is not to be entered additionally as an operating expense and the partial value is not to be entered as operating revenue. Hidden reserves transferred under Paragraph 12 to the asset gifted shall be liable to tax ex post. To the extent that the market value exceeds the ceiling, it may be deducted as a special item of expenditure under Paragraph 18(1)(7). III Facts 8. Under Austrian income tax law gifts from operating capital to a series of establishments listed in legislation that have research, teaching and educational objectives may be claimed as operating expenses, with a corresponding reduction of the basis for calculating income tax. However, this possibility exists only where those establishments are based within national territory or are engaged essentially in research or teaching for Austrian science or for the Austrian economy. 9. The Commission considers that with this scheme the Austrian Republic is in breach of its obligations under the free movement of capital and under Article 40 of the EEA Agreement. Accordingly, it has brought the present proceedings against the Republic of Austria for failure to fulfil obligations. IV Pre-litigation procedure 10. In a letter dated 12 May 2005, the Commission requested the Austrian Finance Ministry for information about whether, under Paragraph 4(4)(5) EStG, gifts are also tax deductible where they are paid to institutions of the kind mentioned in that provision, or comparable ones, which are located in other EU/EEA States. 11. In a letter dated 5 September 2005 the Austrian Ministry of Finance confirmed that the recipients of donations described in Paragraph 4(4)(5)(a) to (d) EStG can only be domestic institutions. Conversely, 4(4)(5)(e) EStG on its wording was not limited to domestic institutions. 3. Federal law of 7 July 1988 on the taxation of income of natural persons (Law on Income Tax 1988 EstG 1988), BGBl. No 400/1988.
12. In a first letter of formal notice dated 4 April 2007, the Commission concluded that Paragraph 4(4)(5)(a) to (e) EStG ran counter to Article 49 EC and Article 36 of the EEA Agreement. It requested the Republic of Austria to submit its observations in this regard within two months. 13. In its observations of 5 June 2007, the Republic of Austria rejected in its entirety the legal view put forward by the Commission in its letter of formal notice. It stressed in that connection, inter alia, that the freedom to provide services relied on by the Commission could not be relevant. 14. In a supplementary letter of formal notice dated 8 May 2008, the Commission supplemented its legal assessment set out in the first letter of formal notice by adding that the national rules at issue ran counter not only to the freedom to provide services but also to the free movement of capital enshrined in Article 56 et seq. EC. Accordingly, the Republic of Austria was also in breach of its obligations under Article 56 EC and Article 40 of the EEA Agreement by restricting the deductibility of donations to bodies engaged in research to Austrian institutions. 15. In its observations of 9 July 2008 the Republic of Austria essentially referred to its opinion expressed in its observations of 5 June 2007. It thereby adhered to the view that Paragraph 4(4)(5) EStG lawfully limited the preferential treatment of donations from an objective perspective by promoting only charitable purposes having a sufficient domestic connection. Such domestic connection is demonstrated either by a special connection to Austrian learning or the Austrian economy, or by a special State responsibility for financing the relevant institutions. 16. On 19 March 2009 the Commission issued a reasoned opinion which was sent to the Republic of Austria on 23 March 2009. In its legal analysis of Paragraph 4(4)(5) EStG, the Commission distinguished between points (a) to (d) and point (e). The effect of Paragraph 4(4)(5)(a) to (d) EStG was that only gifts to charitable bodies mentioned therein and established in Austria could be recognised as operating expenses. Gifts to analogous foreign institutions could not be recognised as operating expenses. Therefore a distinction is made according to the location of the institution. Even though Paragraph 4(4)(5)(e) EStG does not distinguish according to the seat of the recipient of donations, the gifts will be allowed as operating expenditure only if the legal person in receipt of a donation essentially conducts its activities in favour of Austrian learning or the Austrian economy. Against that background the Commission established first that the Republic of Austria had failed to fulfil its obligations under Article 56 EC and Article 40 of the EEA Agreement by permitting tax deductibility for gifts to research and teaching institutions only in the case of institutions established within Austria. Secondly, the Republic of Austria had failed to fulfil its obligations under Article 49 EC and Article 56 EC and under Article 36 EEA and Article 40 EEA by limiting tax deductibility for donations to legal persons engaged in research and teaching activities to cases where such persons essentially carry on activities in favour of Austrian learning or the Austrian economy. 17. By observations dated 25 May 2009, the Republic of Austria replied to this. It reiterated its view that Paragraph 4(4)(5) EStG did not infringe Articles 49 EC and 56 EC and Articles 36 and 40 of the EEA Agreement. V Proceedings before the Court and forms of order sought 18. Because in the Commission s view the Republic of Austria failed to comply with the reasoned opinion, the Commission on 8 January 2010 brought an action under Article 258 TFEU. 19. The Commission claims that the Court should: declare that, by permitting tax deductibility for donations to research and teaching institutions only in the case of institutions established within Austria, the Republic of Austria has failed to fulfil its obligations under Article 56 EC and Article 40 of the EEA Agreement; order the Republic of Austria to pay the costs. 20. The Republic of Austria contends that the Court should dismiss the action and order the Commission to pay the costs. VI Essential arguments of the parties 21. According to the Commission, the provisions on tax deductions now contained in Paragraph 4a(1)(a) to (d) EStG, which as to substance fully correspond to Paragraph 4(4)(5)(a) to (d) EStG, which was in force until 31 March 2009, contravene the requirements of both Article 56 EC and Article 40 of the EEA Agreement. The Austrian Government denies the existence of such a breach. 22. According to the Commission, a system like that laid down in Paragraph 4a(1)(a) to (d) EStG under which only donations to education, research and academic institutions in Austria, but not donations to such establishments in other Member States, are allowed to be deducted for tax purposes, constitutes an interference with the free movement of capital. Article 56 EC prohibits such a system as a matter of principle. There appears to be no justification for this interference. It is plain from the wording of the legislation and from the submissions of the Republic of Austria in the pre-litigation procedure that deductible donations could only be made to domestic institutions. The Commission is against a distinction being made on the basis of the location of donation recipients. 23. The Austrian Government concedes that Paragraph 4a(1)(a) to (d) EStG in certain respects distinguishes between domestic institutions and those established in another Member State, but considers this scheme to be in conformity with Union law. In that connection it maintains firstly that the education, research and academic organisations referred to in Paragraph 4a(1)(a) to (d) EStG are not comparable to institutions excluded from the scope of the regulatory scheme. Those listed in Paragraph 4a(1)(a) to (d) EStG are, it says, predominantly public-law bodies set up in the exercise of State power and entrusted with tasks conducive to the common good at national level. Accordingly, these organisations have in common that they are established under federal or provincial law and it is thus for the legislature not only
to determine their aims and tasks but substantially to make sure that those aims and tasks accord with social objectives in order to advance the common good at national level. There is no such possibility of State regulatory influence on such institutions if they are established abroad. In addition, such foreign institutions do not usually direct their activities to the advancement of Austrian learning and academic research. 24. The Commission considers these submissions of the Austrian Government to be partially incorrect. In the light of the Court s case-law they are in any event irrelevant. 25. The Austrian Government considers a restriction on the free movement of capital, if proven, additionally justified for overriding reasons in the public interest. The system allowing preferential tax treatment of donations is intended to promote Austria s suitability as a location for learning and education. The system does not require the research activity to be carried on in Austria but that it be of benefit to Austrian learning or to Austria as an academic centre. The aim of ensuring a high standard of academic research in Austria constitutes an overriding reason in the public interest, justifying a restriction of favourable treatment for donations to gifts to the institutions referred to in Paragraph 4a(1)(a) to (d) EStG, provided that the principle of proportionality continues to be observed. That is so in the case of the scheme at issue in these proceedings. 26. For the Commission, that line of argument does not carry conviction. The Austrian Government has specifically not demonstrated that the discriminatory system of preferential treatment of donations is appropriate and necessary to attain the objective of enhancing Austria as an academic centre. The argument that the fiscally incentivised domestic universities perform inter alia activities which are especially important for the common good at national level is countered by the Commission when it says that it is open to Austria to define more specifically the subject areas that might be eligible for donations attracting tax incentives. 27. Finally, the Austrian Government submits that the institutions listed in Paragraph 4a (1)(a) to (d) EStG are to be classed as institutions furthering the common good which have a particularly close connection with the Republic of Austria either by exercising sovereign activities or by using public funds to promote Austria as an academic centre and training centre for young scholars. The funds from private donations supplement the budget and thus the financing of those public tasks. The ability to deduct donations provides additional funding for these public tasks. No obligation under European Union Law on a Member State to further the common good and sustenance of life in the territory of another Member State by tax incentives in the same way can be inferred from either the free movement of capital or the Court s case-law. 28. The Commission is not persuaded by the Austrian Government s argument that only donations to institutions in Austria discharge the Austrian State from its own financing liability to these institutions but not donations to foreign institutions. It is not proven that such interaction exists between the two sources of finance. Even if it were proven, the restriction on the free movement of capital would not be justified under the Court s case-law. Even though the Republic of Austria is not obliged to further the common good in other countries through direct subsidies, it is not free to restrict the free movement of capital as it deems fit. AG VII Legal appraisal 29. In these proceedings it should first be noted that European Union law does not as a matter of principle require Member States to provide direct subsidies to foreign education, research and academic institutions. In addition, direct taxes in principle fall within the Member States area of competence. Yet it does not follow from these general rules that Member States may exercise their sovereignty in matters of taxation in order to encourage research, education and learning without taking account of obligations arising from the fundamental freedoms. For under settled case law Member States must always exercise their retained tax sovereignty consistently with Union law. 4 30. Against this background it must first be examined whether the tax system at issue gives rise to a restriction on the free movement of capital that is prohibited as a matter of principle. Because this question in my opinion must be answered affirmatively, it must then be investigated whether this restriction is nevertheless permitted under the Treaty provisions on free movement of capital or is justified by an overriding reason in the public interest recognised by the Court. A Existence of a restriction on free movement of capital 31. Under Article 56(1) EC, all restrictions on the movement of capital between Member States are prohibited. Under the Court s case-law the tax treatment of monetary donations or donations in kind also comes under this Treaty provision on the free movement of capital. The only cases excluded are ones in which the constituent elements of the relevant transactions are confined within a single Member State. 5 32. The system for the preferential tax treatment of donations at issue provides, in the first place, that gifts from operating capital to the education, research and academic organisations listed in Paragraph 4(1)(a) to (d) EStG are deemed to be operating expenses which are 4. See judgments in Cases C-233/09 Dijkman and Dijkman-Lavaleije [2010] ECR I-0000, paragraph 20; C-487/08 Commission v Spain [2010] ECR I-0000, paragraph 37; C-182/08 Glaxo Wellcome [2009] ECR I-8591, paragraph 34; C-76/05 Schwarz and Gootjes-Schwarz [2007] I-6849, paragraph 69; C-319/02 Manninen [2004] I-7477, paragraph 19; and C-311/97 Royal Bank of Scotland [1999] ECR I-2651, paragraph 19. 5. The key ruling is the judgment in Case C-318/07 Persche [2009] ECR I-359, paragraph 27. Cf. also Case C-510/08 Mattner [2010] ECR I-0000, paragraph 20, which also confirmed that the tax treatment of the gift of land falls under the provisions concerning capital, where the case has a cross-border element. Earlier, the Court had already ruled that inheritance is a movement of capital for the purposes of Article 56 EC, except in cases where its constituent elements are confined within a single Member State; cf. judgment of 11 September 2008, in Case C-11/07 Eckelkamp and Others [2008] ECR I-6845, paragraph 39.
deductible for income tax purposes. The Austrian Government does not deny that gifts to foreign institutions are excluded as a matter of principle from the scope of this provision. 33. In the second place, Paragraph 4(1)(e) EStG also regards gifts from operating capital to institutions entrusted with research or teaching tasks for Austrian learning or the Austrian economy, and which pursue exclusively academic objectives, as operating expenditure deductible from income tax. Even though the latter provision does not expressly restrict the organisations which may come within the scope of this scheme to Austrian education, research and academic institutions, it seems to me extremely difficult for institutions in other Member States in practice to satisfy the requirements of Paragraph 4(1)(e) EStG. The main problem in this respect would be for those institutions to provide proof of the performance of research and teaching tasks for Austrian learning or the Austrian economy. 6 At least, neither in the defence nor in the rejoinder has the Austrian Government given an actual example of a foreign institution, which would satisfy this condition. 7 34. In conclusion, it is therefore important to note that the system of preferential tax treatment of donations at issue in the present case will generally only apply to gifts to domestic education, research and academic institutions. Contributions to education, research and academic institutions in other Member States cannot normally be deducted from income tax. 35. As Advocate General Mengozzi correctly pointed out in his Opinion in the Persche case, 8 there is generally no doubt that tax deduction of donations significantly influences the generosity of the donor. By according such advantages, the Member States reduce the costs of the gift for the donor and therefore encourage him to repeat his gesture. Refusing this advantage is likely to result in fewer persons making donations. Against this backdrop, the Court in Persche ruled that a scheme providing for preferential tax treatment of donations applying only to donations to domestic charities, and therefore likely to have a negative impact on charitable donations to organisations in other Member States, was a restriction on free movement of capital that was prohibited as a matter of principle. 9 36. If, as with the scheme providing for preferential tax treatment of donations in question, only gifts from operating capital donated to domestic education, research and academic organisations can normally be claimed as operating expenses, the taxable persons in question will as a matter of preference donate to the domestic organisations subsumed within the scope of Paragraph 4a(1)(a) to (e) EStG. The Austrian scheme is therefore likely to discourage those taxable persons from donating to foreign education, research and academic institutions. 10 37. Taking into account the fact that even modest or minor restrictions fall under the Article 56 prohibition on restrictions, 11 the scheme providing for preferential tax treatment of donations is therefore to be characterised as restricting the free movement of capital in a manner that is prohibited as a matter of principle. B Existence of a justification of the restriction on free movement of capital 38. According to settled case-law, it may be inferred from Article 56 EC, Article 58(1)(a) EC and Article 58(3) EC that a national tax system like the one at issue in the present case which distinguishes between donations to domestic institutions and those in other Member States and thus introduces a restriction on free movement of capital that is prohibited as a matter of principle can be regarded as compatible with the Treaty provisions on free movement of capital only where the differential treatment concerns situations which are not objectively comparable, or subject to the principle of proportionality are justified by an overriding reason in the public interest. 12 39. Against this background, the Austrian Government maintains in this case that the education, research and academic institutions listed in Paragraph 4a(1)(a) to (d) EStG are not comparable with relevant institutions in other Member States. In addition, the unequal treatment of donors subject to income tax in Austria complained of by the Commission is justified for overriding reasons in the public interest. 1. Objective comparability of the relevant national institutions and institutions in other Member States 40. In order to assess the argument of the Austrian Government that the education, research and academic institutions listed in Paragraph 4a(1) (a) to (d) EStG are not comparable with the corresponding education, research and academic institutions in other Member States, it should first be remembered that the present proceedings concern the unequal tax treatment of donors subject to income tax in Austria. The Commission essentially complains that the tax deduction of donations to education, research and academic institutions in other Member States is refused as a matter of principle, while they can deduct from tax within the statutory limits a donation to the Austrian organisations 6. Under Paragraph 4a(1) EStG, proof of compliance with the requirements of point (e) are to be provided by the relevant establishment by means of a decision issued by Vienna Tax Office 1/23, which is subject to withdrawal at any time. 7. Austria has argued only that a foreign university, a foreign institution comparable to the Akademie der Wissenschaften and a comparable foreign research fund could also benefit from the preferential treatment of donations if they served the incentivised purposes in the academic field; cf. in particular Rejoinder, points 9 and 10. 8. Opinion of Advocate General Mengozzi of 14 October 2008 in Persche (judgment cited above in footnote 5), point 47. 9. Persche (cited above in footnote 5, paragraphs 38 and 39). 10. Cf. in this context, the Opinion of Advocate General Mengozzi in Persche (judgment cited above at footnote 5, point 48). 11. Cf. Dijkman (cited in footnote 4 above, paragraph 42). 12. Cf. in this context Commission v Spain (cited above at footnote 4, paragraph 47), Persche (cited above at footnote 5, paragraph 41), Eckelkamp and Others (cited above at footnote 5, paragraph 59), Cases C-386/04 Centro di Musicologia Walter Stauffer [2006] ECR I-8203, paragraph 32; C-265/04 Bouanich [2006] ECR I-923 paragraph 38; Manninen (cited above at footnote 4 paragraph 29) and Case C-35/98 Verkooijen [2000] ECR I-4071, paragraph 43.
listed in Paragraph 4a(1)(a) to (d) EStG. Therefore, the scheme in question gives rise to unequal treatment for income tax purposes depending on the place in which capital is invested. 41. According to the Austrian Government this unequal treatment is allowed because the Austrian establishments listed in Paragraph 4a(1)(a) to (d) EStG and the analogous education, research and academic institutions in other Member States are not in a similar situation. Thus, the Austrian Government is ultimately maintaining that the restriction on free movement of capital at issue in this case is justified because the situation of persons liable to income tax in Austria who make donations to the institutions listed in Paragraph 4a(1)(a) to (d) EStG and the situation of such persons who donate to the corresponding institutions in other Member States are not comparable, in view of the differences between the recipients of donations. 42. That argument is unconvincing. In my opinion the Austrian Government provides no proof that the Austrian institutions listed in Paragraph 4a(1)(a) to (d) EStG and the corresponding education, research and academic institutions in other Member States are not objectively comparable. 43. In support of its argument as to lack of objective comparability as between the Austrian institutions listed in Paragraph 4a(1)(a) to (d) EStG and the education, research and academic institutions of other Member States, the Austrian Government first points out that the activities of the institutions listed in Paragraph 4a(1)(a) to (d) EStG are characterised by the influence of the Austrian State, while such influence is precluded in the case of organisations in other Member States. 44. I am not convinced by that argument. As the Austrian Government itself emphasises, the State influence over the Austrian organisations listed in Paragraph 4a(1)(a) to (d) EStG essentially takes the form of determining their aims serving the public interest and through intervention in the event of failure to respect these objectives. From the arguments of the Austrian Government it may also be concluded that donations to these bodies receive income tax incentives because these organisations pursue certain objectives that are worth promoting. The key criterion for determining the bodies within the scope of the scheme providing for preferential tax treatment of donations is therefore the objective pursued by these organisations, not the fact that the Republic of Austria determined those objectives, or can intervene to secure their attainment. 45. Against that background the review of the comparability of education, research and academic institutions of other Member States with the Austrian institutions listed in Paragraph 4a(1)(a) to (d) is to be assessed by reference to the aims pursued by these institutions. If the education, research and academic institutions in other Member States are pursuing the same goals as the Austrian institutions listed in Paragraph 4a(1)(a) to (d) EStG, they are in an objectively comparable situation, regardless of who determined these objectives in regard to the institutions of other Member States. 46. In conclusion, therefore, it should be noted that it is basically open to the Republic of Austria, in compliance with the rules of European Union law, directly or indirectly to determine the aims to be pursued by Austrian education, research and academic institutions in order to be capable of being subsumed within the scheme for the preferential tax treatment of donations. 13 If education, research and academic institutions in other Member States pursue the same goals they cannot be deemed not to be objectively comparable with domestic organisations only because it was not the Austrian legislature that prescribed those objectives for them. 47. The argument based on Austria s State influence alleging that the Austrian institutions listed in Paragraph 4a(1)(a) to (d) EStG are not comparable with the corresponding education, research and academic institutions in other Member States must therefore be dismissed as incorrect. 48. The lack of objective comparability of the domestic and non-domestic establishments is also contributed to, the Austrian Government says, by the fact that only donations to the institutions listed in Paragraph 4a(1)(a) to (d) EStG assist the Austrian State in its financing responsibilities towards organisations serving the common good in Austria. For the bodies listed in Paragraph 4a(1)(a) to (d) EStG have an especially close connection with the Republic of Austria, by either exercising State activities for example, the entire area of university education or by using public funds to promote Austria as a centre of learning and for the training of young scholars. Because the funds from private donations supplement the budget of those institutions, additional resources for these public tasks are able to be made available by means of the deductibility of donations with fewer budgetary appropriations. 49. In Persche the Court already dealt with a similar argument and in the result rejected it. In that case, the Court was called on to rule inter alia on the compatibility with Article 56 et seq. EC of German tax legislation providing for deduction from tax of donations to charitable organisations based in Germany, while donations to charitable entities established in another Member State were excluded from this tax concession. In this context, the Court dealt inter alia with the argument that domestic and foreign charities were not comparable, if domestic non-profit organisations took over activities serving the public interest, thereby relieving the State of responsibility. The Court accepted that domestic charities may take over certain tasks of the public authorities and that this may lead to a reduction in expenditure by the Member State concerned, which may offset, at least in part, the reduction in tax revenue occasioned by the tax deduction. But it rejected the argument that donations to domestic and foreign charities should for this reason alone be subject to different tax incentive schemes. 14 In that connection the Court relied in particular on its settled case-law to the effect that the need to prevent a reduction in tax revenues is neither among the objectives stated in Article 58 EC nor an overriding reason in the public interest capable of justifying a restriction of a Treaty freedom. 15 AG 13. Cf. judgments in Persche (cited above in footnote 5, paragraph 48) and Centro di Musicologia Walter Stauffer (cited above in footnote 12, paragraph 39). 14. Persche (cited in footnote 5, paragraphs 45 and 46). 15. Cf. Centro di Musicologia Walter Stauffer (cited above at footnote 12, paragraph 59) and Manninen (cited above at footnote 4, paragraph 49). Cf. also Case C-287/10 TankreedereiI [2010] ECR I-0000, paragraph 27.
50. This appraisal, according to which the possible budgetary impact resulting from a Union-law-compliant configuration of a national tax system as a rule neither comes under the objectives in Article 58 EC nor is an overriding reason in the public interest, seems to me to be applicable in this case. 16 51. It cannot be excluded, in the present case too, that the tax-incentivised donations to the institutions mentioned in Paragraph 4a(1)(a) to (d) EStG support the Austrian State in its responsibilities to provide financing to institutions engaged in the Austrian research and educational sector. In view of my reasoning set out above, that does not mean, however, that in making provision for the deductibility from income tax of donations the Republic of Austria may introduce, in a way that restricts the free movement of capital, unequal treatment of donors to domestic and to non-resident education, research and academic institutions on the general ground that donations to the latter do not support the Republic of Austria in meeting its financing responsibilities in this area. 52. In its rejoinder, the Austrian Government finally sought to substantiate the lack of comparability with the institutions listed in Paragraph 4a(1)(a) to (d) EStG by arguing that the Republic of Austria used these institutions to carry out its tasks in the field of higher education, academic research and the promotion of Austria as a centre of learning. In the context of Paragraph 4a(1)(a) to (d) EStG domestic education, research and academic institutions can only be included in the scope of the preferential tax treatment scheme for donations if they largely serve purposes of benefit to the public good in Austria in the field of learning. If education, research and academic institutions in other Member States served these purposes, they could also come within the scope of the preferential tax treatment scheme for donations. 53. The Austrian Government thus claims that the domestic institutions serve the common good in Austria, while the institutions in other Member States normally serve the common good in the relevant State of establishment. These different objectives allow the unequal treatment for income tax purposes of donors liable to income tax in Austria. If exceptionally there were education, research and academic institutions in other Member States pursuing aims serving the common good in Austria in the field of learning, these organisations could also be subsumed by way of Paragraph 4a(1)(e) EStG within the scope of the preferential tax treatment scheme in question. 54. Nor is this argument convincing. 55. Even though in the choice of establishments coming within the scope of a national preferential tax treatment scheme the Republic of Austria may demand a certain connection on the part of these institutions to the Republic of Austria, 17 the delimitation of the class of institutions worth promoting must in principle be carried out in a case such as the present one by determining the specific objectives to be pursued by the bodies concerned. So the Republic of Austria could opt to restrict the preferential tax treatment to donations to institutions that are engaged in areas of research of particular significance at national level, such as avalanche research. If this limitation of areas of research worthy of receiving tax incentives should result in a situation where in practice only donations to domestic organisations came under the preferential tax treatment scheme, that would be compatible in principle with the free movement of capital. 56. In this case, the Austrian Government only claims in general terms that the establishments listed in Paragraph 4a(1)(a) to (d) pursue aims of service to the common good in Austria in the field of learning. This objective is formulated in such a way as to be satisfied by almost all education, research and academic institutions resident in Austria, while there is not a single example of an institution in another Member State that meets that objective. So the objective as formulated comes down to a pure criterion of location, to which recourse may of course not be had in order to justify the differential treatment of gifts to education, research and academic institutions in Austria and in other Member States. 57. In this context it should also be stressed that the need for objective comparability of gifts to the relevant institutions does not mean that these institutions have to be in an identical situation in every respect. Rather, this requirement is to be interpreted as meaning that the institutions in the relevant Member State must be similarly situated. Against this background, the fact that the Republic of Austria in the selection of the (Austrian) establishments falling within the scope of the preferential tax treatment scheme is generally guided by their contribution to Austrian society in the academic field should not automatically mean that these (Austrian) institutions are objectively not comparable to the corresponding institutions in other Member States. It must instead be assumed that the organisations in other Member States which pursue the same objectives as the Austrian ones and thus make a contribution to the common good in the academic field in their respective States of establishment are in a similar situation. Thus for example, education, research and academic institutions which conduct basic research in different Member States are essentially in an objectively comparable situation even if that research contributes indirectly to the development of the State of establishment as an academic centre. Moreover, in its defence the Austrian Government seems to have adopted this view. 18 58. All this leads me to the conclusion that the Austrian Government s submission that the institutions listed in Paragraph 4a(1)(a) to (d) EStG and the corresponding education, research and academic institutions of other Member States are not in an objectively comparable situation, so that the unequal treatment of donors liable to income tax in Austria reflects situations (donations) that are not comparable, must be dismissed as incorrect. 16. Cf. in this context also Joined Cases C-316/07, C-358/07 to C-360/07, C-409/07 and C-410/07 Markus Stoß [2010] ECR I-0000, paragraph 105. 17. Cf in this connection Tankreederei I (cited above in footnote 15, paragraph 30 et seq.) 18. Thus the Austrian Government in paragraph 19 of its Defence stated that the objective comparability of the situation of institutions which, while in different Member States, pursue identical public interests breaks down for lack of State influence beyond the borders of the respective (Member) State.
2. Justification for overriding reasons in the public interest 59. According to the Austrian Government a restriction of free movement of capital is in any case justified for overriding reasons in the public interest. All the institutions listed in Paragraph 4a(1)(a) to (d) EStG pursue the aim of promoting the character of Austria as an academic and hence an educational centre. Such an aim constitutes an overriding reason in the public interest. The preferential tax treatment scheme contributes to the attainment of this objective and also passes the proportionality test. 60. This argument must be rejected for several reasons. 61. First, reference should be made to the judgment in Laboratoires Fournier. 19 In this judgment the Court found that the promotion of research and development can be an overriding reason in the public interest. But it also stressed that a national measure that refuses a tax incentive for any research activities that are not carried out in the Member State concerned is in direct contradiction to the objectives of Union policy on research and technological development, and cannot therefore be justified by reference to the measure s objective of promoting national research and development. In substantiation the Court specifically cited Article 163 EC now Article 179 TFEU paragraph 2 of which provides for the Community to encourage undertakings, research centres and universities in their research and technological development activities of high quality and to support their efforts to cooperate with one another, in particular through the removal of legal and fiscal obstacles. 62. In my opinion, the reasoning in Laboratoires Fournier is directly transferable to the present case, especially since Article 179 TFEU provides for the creation of a European research area as an express objective of research policy. Accordingly, neither the preferential tax treatment scheme for donations in question nor the consequent restriction of free movement of capital can as a matter of principle be justified by reference to the objective pursued by this measure of promoting national research and development in Austrian research centres and universities. 63. In so far as the Austrian Government, in order to justify the restriction of free movement of capital, refers to the objective underlying the scheme for preferential tax treatment, namely that of promoting education in Austria, I agree with that argument to the extent that education can be an overriding reason in the public interest. However, the Austrian Government has not in my view adduced proof that the restriction on the free movement of capital at issue in this case is justified for overriding reasons to do with the advancement of education. 64. In this context, it should be first and foremost recalled that, under traditional case-law, overriding reasons in the public interest cannot be advanced in order to justify restrictions being applied in a discriminatory manner to the fundamental freedoms. 20 65. There is no doubt that the scheme for preferential tax treatment in question is at least indirectly discriminatory. 21 But it is doubtful whether the traditional case-law under which discriminatory restrictions on fundamental freedoms are not amenable to justification for overriding reasons in the public interest may be transposed to a case such as this, in which national tax legislation which distinguishes according to the place of capital investment gives rise to a restriction on the free movement of capital. 22 In the Court s more recent case-law there are also clear indicators that overriding reasons in the public interest may also be relied on in certain areas to justify discriminatory restrictions on the fundamental freedoms, whereby of course the principle of proportionality must always be observed. 23 66. In the present case, however, the question whether the restriction on free movement of capital in question in this case is amenable in principle to justification for overriding reasons in the public interest does not require a definitive response. This is because such justification is always on the basis that the principle of proportionality is observed. And in this case I do not think it is. 19. Case C-39/04 Laboratoires Fournier [2005] ECR I-2057, paragraph 23. 20. Key judgment in Case C-55/94 Gebhard [1995] ECR I-4165, paragraph 37. Cf. on discriminatory restrictions on freedom of services, Cases C-153/08 Commission v Spain [2009] ECR I-9735, paragraph 36; C-451/03 Servizi Ausiliari Dottori Commercialisti [2006] ECR I-2941, paragraphs 36 and 37; and C-388/01 Commission v Italy [2003] ECR I-721, paragraph 19. On the principle that the restrictions of freedom of establishment based on nationality are not open to justification for overriding reasons in the public interest, cf. Case C-89/09 Commission v France [2010] ECR I-0000, paragraphs 50 and 51; Joined Cases C-570/07 and C-571/07 Blanco Pérez and Chao Gómez [2010] ECR I-0000, paragraphs 61 and 62; C-171/07 and C-172/07 Apothekerkammer des Saarlandes and Others [2009] ECR I-4171, paragraphs 25 and 26; and Case C-169/07 Hartlauer [2009]] ECR I-1721, paragraphs 44 and 45. 21. The Austrian Republic does not deny that foreign institutions are in principle excluded from the application of Paragraph 4a(1)(a) to (d) EStG. Although Paragraph 4a(1)(e) EStG does not expressly limit the institutions which may come within this rule to national educational, research and academic institutions, it must be assumed that institutions in other Member States are hardly able to meet the conditions of Paragraph 4a(1)(e) EStG in practice. There is therefore income tax discrimination against donors liable to pay tax in Austria based on the location of the capital investment. See point 32 et seq. of this Opinion. 22. The Court holds in what is now settled case-law that national tax legislation that distinguishes between domestic and foreign factual situations and thereby restricts the free movement of capital can be regarded as compatible with the Treaty provisions concerning the free movement of capital only if the differential treatment concerns situations which are not objectively comparable to one another or if it is justified by an overriding reason in the public interest (cf the cases cited above in footnote 12). This formulation in the end implies that even a differential treatment for tax purposes of objectively comparable domestic and foreign situations that infringes the free movement of capital can be justified by an overriding reason in the public interest. See in those express terms the judgment in Centro di Musicologia Walter Stauffer (cited above in footnote 12, paragraph 42). 23. That is the case for example in the area of national environmental measures of a discriminatory nature. Cf in this connection my Opinion of 16 December 2010 in pending Case C-28/09 Commission v Austria, point 82 et seq.
67. In reviewing the proportionality of the scheme for preferential tax treatment of donations it must essentially be verified whether that scheme is (1) suitable and (2) necessary for achieving the objective of promoting Austria as a centre of education and whether the resulting restriction on the free movement of capital is (3) reasonable. 24 68. According to the case-law of the Court, a measure is appropriate for attaining the proclaimed objective if it actually answers the concern of attaining it in a coherent and systematic way. 25 A measure is necessary if, from among several measures which are appropriate for meeting the objective pursued, it is the least onerous for the interest or legal right in question. 26 There is an unreasonable restriction of free movement of capital if the national measure, despite its contribution to achieving the public-interest objective, may interfere to an excessive degree with the free movement of capital. 69. In this connection the Austrian Government submits that 27 the restriction of the tax incentive to the institutions listed in Paragraph 4a(1)(a) to (d) EStG is appropriate and necessary to attain the objective because under the preferential tax treatment scheme in question operating expenses to a maximum of 10% of profit can be claimed as a tax-deductible donation to learning and research and the volume of possible donations is thus limited as to amount. It is therefore to be feared that a relaxation of the current restriction would lead to a partial transfer of donations away from the Austrian institutions to foreign ones, which would mean that the Austrian institutions would have fewer resources available to them from donations. 70. In my view the Austrian Government with this submission has not shown in a sufficiently substantiated way that the restriction of the preferential tax treatment scheme at issue is necessary to promote the Republic of Austria as a centre of learning and education. 28 71. In the present case the Austrian Government has provided no figures, either in the defence or in the rejoinder, showing the annual yield of donations to the establishments listed in Paragraph 4a(1)(a) to (d) EStG and the extent to which this income contributes to funding their activities. Instead the Austrian Government has confined itself to general remarks concerning the preferential tax treatment scheme for donations and the likely impact on the readiness to donate of persons liable to income tax in Austria if the scheme were to be reconfigured in conformity with European Union law. That is not enough as evidence that the restriction of the scheme to donations to domestic institutions is necessary to promote the Republic of Austria as an academic and educational centre. For the same reason, the Austrian Government has failed to provide any evidence that the exclusion of foreign institutions from this scheme is reasonable. Against this background, the scheme providing for preferential tax treatment of donations must in the final analysis be regarded as a disproportionate interference with the free movement of capital. 72. All this leads me to the conclusion that the Austrian Government s argument that the restriction of the free movement of capital at issue in this case is justified for overriding reasons relating to the advancement of national learning and education must be dismissed as unfounded. 3. Summary 73. On the basis of my foregoing considerations I reach the conclusion that the provisions of Paragraph 4a(1)(a) to (d) EStG, under which generally only gifts from donors liable to income tax in Austria to the Austrian institutions mentioned therein are tax deductible within the statutory limits, constitute an impermissible restriction of free movement of capital and consequently infringe Article 56 EC. 74. Although in its reasoned opinion the Commission concluded that Paragraph 4a(1)(a) to (e) EStG contravened Article 56 EC and Article 40 of the EEA Agreement, and requested the Republic of Austria to adopt the measures necessary to bring this infringement to an end, in its application it alleged only that Paragraph 4a(1)(a) to (d) EStG was incompatible with Article 56 EC and Article 40 of the EEA Agreement 29. 75. Under Article 38(1) of the Rules of Procedure, read with Article 42(2), the subject-matter of the dispute must be determined in the application. Because the Commission limited that subject-matter to the provisions of Paragraph 4a(1)(a) to (d) EStG it must be stated, taking into account my above remarks, that the Republic of Austria has failed to fulfil its obligations under Article 56 EC by restricting the deductibility for income tax purposes of gifts to the institutions mentioned in Paragraph 4a(1)(a) to (d) EStG to institutions established in Austria. C Existence of an infringement of Article 40 of the EEA Agreement 76. In the Commission s view its considerations on the infringement of free movement of capital under Article 56 EC by the contested preferential tax treatment scheme for donations apply by analogy also to Article 40 of the EEA Agreement. Accordingly, the Commission seeks a 24. On this three-stage approach to the review of proportionality see my Opinions of 14 April 2010 in Case C-271/08 Commission v Germany, point 189, and 16 December 2010 in Commission v Austria (cited above in footnote 23, point 93). 25. Cf Cases C-384/08 Attanasio Group [2010] ECR I-0000, paragraph 51, and C-169/08 Presidente del Consiglio dei Ministri [2009] ECR I-10821, paragraph 42. 26. Case 265/87 Schräder [1989] ECR 2237, paragraph 21. 27. Defence, point 29 et seq. 28. In infringement proceedings it is for the Commission to put forward sufficient facts to substantiate an infringement of Union law. If that is done as in the present proceedings it is for the Member State to defend itself by means of substantiated and detailed submissions against the data submitted and the conclusions drawn from them; cf. Case 272/86 Commission v Greece [1988] ECR 4875, paragraph 21. 29. This is already apparent from the presentation of the Austrian legislation at point 7 et seq. of the application, where only Paragraph 4a (1)(a) to (d) EStG is cited.