The relationship of the Free Movement of Capital to the other Fundamental Freedoms

and the taxation of sums payable by insurers under old-age insurance and life assurance policies, which it was necessary to preserve in order to safeguard the cohesion of the tax system at issue. No such direct link exists in this case between the grant to shareholders residing in the Netherlands of income tax exemption in respect of dividends received and taxation of the profits of companies with their seat in another Member State. They are two separate taxes levied on different taxpayers.”418 Only some months ago the ECJ gave its judgment in the Lenz419 case concerning taxation of foreign dividends in Austria and in the Weidert & Paulus420 case regarding a rule (Luxembourg) that gave individual taxpayers a certain tax relief for investments in shares in domestic, but not foreign companies. In both cases the argument of the coherence of the tax system was raised, but in Weidert & Paulus the ECJ saw no direct link between the tax advantage and the restriction in question and in Lenz it held that the tax on the income of a natural person was a different and distinct tax that the one charged on the company’s profits. Concretely, the Court held that “in respect of capital from revenue of Austrian origin, the tax legislation at issue establishes no direct link between the taxation of company profits by means of corporation tax and the tax advantages enjoyed, in relation to income tax, by taxpayers living in Austria. In those circumstances, the level of the taxation of companies established outside Austrian territory cannot justify a refusal to grant those same financial advantages to persons receiving revenue from capital paid by those latter companies.”421 Furthermore, the level of taxation for a foreign company in comparison to an Austrian company is not relevant.422 Therefore, the scope of applicability of the coherence argument appears to be much narrower than first assumed in the Bachmann case. However, with respect to the recently decided Manninen423 case Rust424 speaks of the renaissance of the ground of justification of the ‘coherence of the tax system’. In this [...]

A further ground of justification, which has been first invoked in Bachmann409 and consequently in a number of cases410 related to tax law, is the coherence of the tax system. In Bachmann the ECJ accepted the coherence of the tax system as a possible justification, where the measures taken were necessary for the achievement of the objective invoked.411 In the case at hand the coherence of the Belgian tax system was seen in the link between the deductibility of insurance premiums and the taxation of insurance payments. In any case, the argument of the coherence of the tax system is subject to the following limitations: the reasoning justifying the restrictive measure is coherently applied to the national tax system as a whole, it is equally applied to purely domestic situations, the measure is necessary to secure, and capable of protecting the coherence invoked and represents the least restrictive measure that allows for an effective protection of the coherence of the tax system.412 Since the Bachmann ruling a series of cases413 invoking a justification on the grounds of the coherence of the tax system have been brought before the ECJ, which reaffirmed its value as a ground of justification, but denied its applicability in the relevant cases.414 In two of the more recent cases, Baars415 and Verkooijen,416 the ECJ again rejected the coherence argument, but further clarified that a justification based on the coherence of the tax system is only acceptable when two provisions stand in a direct and functional relationship to each other and refer to the taxation of the same taxpayer.417 Concretely, the Court found in Verkooijen that “in Bachmann and Commission v Belgium, a direct link existed, in the case of one and the same taxpayer, between the grant of a tax advantage and the offsetting of that advantage by a fiscal levy, both of which related to the same tax. In those cases, there was a link between the deductibility of contributions [...]

found that the steps taken did not satisfy the requirements of proportionality. This was the case in Trummer and Mayer.400 In Konle,401 Reisch402 and Ospelt403 the ECJ recognized the value of a justification grounded on an authorization requirement, but did find it to be not proportionate in the case at hand. In general, the Court holds declaration and notification requirements as opposed to prior authorization requirements to be compatible with Community law. Other examples of mandatory requirements within the Free Movement of Capital range from an effective tax control404 to the protection of investors and fairness of capital and payment movements. In this context, the Court has held in Trummer and Mayer that a Member State is entitled to take the necessary measures to ensure that the mortgage system clearly and transparently prescribes the respective rights of mortgagees inter se, as well as the rights of mortgagees as a whole vis-à-vis other creditors. Since the mortgage system is governed by the law of the State in which the mortgaged property is located, it is the law of that State which determines the means by which the attainment of that objective is to be ensured.405 Justified measures on the grounds of the effectiveness of fiscal supervision were the subject in Futura Participations where the Court “held that the effectiveness of fiscal supervision constitutes an overriding requirement of general interest capable of justifying a restriction on the exercise of fundamental freedoms guaranteed by the Treaty. A Member State may therefore apply measures which enable the amount of both the income taxable in that State and of the losses which can be carried forward there to be ascertained clearly and precisely.406 In general, further overriding requirements of general interest, which are particularly relevant in the context of the Free Movement of Capital, are effective measures against tax evasion or money laundering, terrorism, fairness within the banking, stock exchange and insurance services407 or the uniformity of taxation.408 [...]