Contents
Judgment of the Court (First Chamber)30 April 2025note(Reference for a preliminary ruling — Free movement of capital — Restrictions — Tax on income from capital — Undertaking for collective investment in transferable securities (UCITS) — Legal personality — National legislation providing that UCITS do not have legal personality — Tax transparency of UCITS — Tax treatment of foreign undertakings that are comparable to UCITS but that have legal personality — Whether a cross-border situation is comparable to a domestic situation)In Case C‑602/23,REQUEST for a preliminary ruling under Article 267 TFEU from the Verwaltungsgerichtshof (Supreme Administrative Court, Austria), made by decision of 20 September 2023, received at the Court on 3 October 2023, in the proceedingsTHE COURT (First Chamber),composed of F. Biltgen, President of the Chamber, T. von Danwitz, Vice-President of the Court, acting as Judge of the First Chamber, A. Kumin, I. Ziemele (Rapporteur) and S. Gervasoni, Judges,Advocate General: M. Campos Sánchez-Bordona,Registrar: R. Șereș, Administrator,having regard to the written procedure and further to the hearing on 7 November 2024,after considering the observations submitted on behalf of:– Franklin Mutual Series Funds – Franklin Mutual European Fund, by S. Haslinger and P.P. Rümmele, Steuerberater,– the Austrian Government, by A. Posch, J. Schmoll, F. Koppensteiner and A. Wild-Simhofer, acting as Agents,– the Spanish Government, by A. Pérez-Zurita Gutiérrez and A. Torró Molés, acting as Agents,– the European Commission, by B.‑R. Killman and W. Roels, acting as Agents,having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,gives the following
Judgment
1This request for a preliminary ruling concerns the interpretation of Article 63 TFEU.
2The request has been made in the context of an appeal on a point of law (Revision) brought by the Finanzamt für Großbetriebe (Tax Authority for Large Traders, Austria) (‘the tax authority’) against a judgment of the Bundesfinanzgericht (Federal Finance Court, Austria) granting an application made by Franklin Mutual Series Funds – Franklin Mutual European Fund (‘Franklin’) for a refund of tax levied on income from capital for the year 2013.
Legal context
European Union law
The FEU Treaty
3Article 63 TFEU provides:1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.’
Directive 2009/65/EC
4Article 1 of Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ 2009 L 302, p. 32) provides:1. This Directive applies to undertakings for collective investment in transferable securities (UCITS) established within the territories of the Member States.2.For the purposes of this Directive, and subject to Article 3, UCITS means an undertaking:(a) with the sole object of collective investment in transferable securities or in other liquid financial assets referred to in Article 50(1) of capital raised from the public and which operate on the principle of risk-spreading; and(b) with units which are, at the request of holders, repurchased or redeemed, directly or indirectly, out of those undertakings’ assets. Action taken by a UCITS to ensure that the Stock Exchange value of its units does not significantly vary from their net asset value shall be regarded as equivalent to such repurchase or redemption.Member States may allow UCITS to consist of several investment compartments.3. The undertakings referred to in paragraph 2 may be constituted in accordance with contract law (as common funds managed by management companies), trust law (as unit trusts), or statute (as investment companies).…’
The Austro-American Convention
5Article 10 of the Convention between the United States of America and the Republic of Austria for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, concluded on 31 May 1996 (BGBl. III, 6/1998; ‘the Austro-American Convention’), provides:1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.2.However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:…(b) 15[%] of the gross amount of the dividends in all other cases.’
Austrian law
6In accordance with Paragraph 93(1) and (2) of the Bundesgesetz über die Besteuerung des Einkommens natürlicher Personen (Einkommensteuergesetz 1988) (Federal Law on the taxation of the income of natural persons 1988) of 7 July 1988 (BGBl., 400/1988), in the version applicable to the dispute in the main proceedings (‘EStG 1988’), income tax was levied by way of a withholding tax on capital gains generated in Austria and was referred to as ‘tax on income from capital’.
7Paragraph 21 of the Bundesgesetz über die Besteuerung des Einkommens von Körperschaften (Körperschaftsteuergesetz 1988) (Federal Law on corporation tax of 1988) of 7 July 1988 (BGBl., 401/1988), in the version applicable to the dispute in the main proceedings (‘the KStG 1988’), provided:(1)In the case of persons subject to limited tax liability … the following provisions shall apply:1. The tax liability extends only to income within the meaning of Paragraph 98 of the Law on income tax 1988. The Law on income tax 1988 and this Federal Law shall determine the method of calculating the income. ……1a. Persons subject to limited tax liability which are resident in a Member State of the European Union or in a State [party to the Agreement on the European Economic Area of 2 May 1992 (OJ 1994 L 1, p. 3; ‘the EEA Agreement’),] with which extensive procedures for mutual assistance with regard to administrative matters and enforcement exist, shall be entitled to obtain, on application, a refund of tax levied on income from capital in respect of income received by them …, in so far as the tax on income from capital cannot be set off in the State of residence on the basis of an agreement for the avoidance of double taxation. The taxpayer must provide evidence that the tax on income from capital cannot be set off in whole or in part.…’
8Paragraph 2 of the Bundesgesetz über Investmentfonds (Investmentfondsgesetz 2011) (Law on investment funds 2011) of 1 August 2011 (BGBl. I, 77/2011), in the version applicable to the dispute in the main proceedings (‘InvFG 2011’), provided:(1)An undertaking for collective investment in transferable securities (UCITS)1. has as its sole object the collective investment of funds raised from the public, in accordance with the principle of risk-spreading …, and2. at the request of the unit-holders, its units are repurchased or redeemed, directly or indirectly, out of the assets of the UCITS; action to ensure that the value of the units of the UCITS does not significantly vary from their net asset value shall be regarded as equivalent to such repurchase and redemption; and3. is approved in accordance with Paragraph 50 or authorised in its home Member State in accordance with Article 5 of Directive 2009/65/EC.(2) A UCITS may be established in Austria only in the form of a portfolio of assets within the meaning of Paragraph 46, divided into equal units in the form of securities and held in co-ownership by the unit-holders. In so far as this Federal Law lays down obligations for a UCITS, any duty to act arising therefrom shall apply to the management company which manages that UCITS.(3) A UCITS may consist of different sub-funds; for the purposes of the Second Part, Third Chapter, Third section [of this Law], each sub-fund of a UCITS shall be regarded as a separate UCITS. …’
9In accordance with Paragraph 3(2) of that law:(2)For the purposes of this Federal Law, the following definitions shall apply:…19. Investment fund: a UCITS in the form of a portfolio of assets within the meaning of Paragraph 2(2) and an alternative investment fund (AIF) within the meaning of point 31(a) and (c) of Paragraph 3(2);…’
10Paragraph 46(1) of that law provided:‘A UCITS in the form of a portfolio of assets within the meaning of Paragraph 2(2) does not have its own legal personality; it is divided into equal units in the form of securities (share certificates). The share certificates are financial instruments …; they embody the co-ownership rights in the assets of the UCITS and the rights of the unit-holders vis-à-vis the management company and the custodian bank. The share certificates may be made out to the bearer or may be registered.…’
11Paragraph 186(1) of the InvFG 2011 provided:‘The distributed profits from the income of an investment fund …, after deduction of the related expenses, shall constitute taxable income for the unit-holder. …’
12Under Paragraph 188 of that law:‘The provisions of Paragraph 186 shall also apply to foreign investment funds. Any assets governed by foreign law which, pursuant to the law, articles of association or actual use, are invested in accordance with the principles of risk-spreading shall be regarded as a foreign investment fund, irrespective of the legal form. …’
The dispute in the main proceedings and the questions referred for a preliminary ruling
13Franklin is an investment company with its registered office in the United States of America and is one of seven series, which are independent sub-funds, of a trust established in the State of Delaware (United States of America).
14The Verwaltungsgerichtshof (Supreme Administrative Court, Austria), which is the referring court, states, first of all, that, under United States law (Delaware Statutory Trust Act, 12 Del. C., § 3801 et seq.), that trust is a separate legal entity, which may sue and be sued in legal proceedings and is the ‘owner under civil law’ of the assets which are to be attributed to Franklin; Franklin, according to its statements in the applications for a refund of the withholding tax, is the ‘beneficial owner’ of those assets.
15Next, each series is a corporate entity taxable under United States law. All domestic and foreign income of a series, including that derived from capital gains realised by it, is subject to taxation in the United States of America. The attribution of that income to unit-holders in the United States of America presupposes a distribution of that income. Otherwise, that income would be attributed to the series, which would mean that it would not be subject to direct taxation at the level of the unit-holders.
16Lastly, when the series distribute at least 90% of the taxable income, excluding realised capital gains, they benefit in the United States of America from the possibility of claiming that distribution against tax, which could lead to a reduction to zero of the US federal income tax due.
17In the present case, in the course of the main national judicial proceedings, the Bundesfinanzgericht (Federal Finance Court) found, first, that Franklin had distributed all of its income for 2013, with the result that it had not paid any US federal income tax in respect of that year. Second, that court found that Franklin is a freely negotiable fund open to the public which invests mainly in European-listed shares, is subject, in its State of residence, to financial market supervision in accordance with a set of rules comparable to EU and Austrian prudential regulations, and is managed according to the same principles and investment criteria as those of an investment fund of the same name authorised in Luxembourg. According to that court, Franklin’s activity corresponds in all its essential aspects, such as investor protection, information obligations, in particular the obligation to draw up a prospectus and half-yearly and annual reports, authorised commercial activity, and effective supervision and control, to an Austrian investment fund and therefore to a UCITS within the meaning of Directive 2009/65.
18In 2013, Franklin received from two Austrian-listed public limited companies, in which it had holdings of less than 10%, dividends which were subject to a withholding tax levied on income from capital at the rate of 25%.
19Following an application lodged by Franklin in the name and on behalf of its unit-holders, the tax authority, on the basis of the Austro-American Convention, reduced the rate of the tax on income from capital to 15% and issued a refund to Franklin, in respect of its unit-holders residing in the United States of America and covered by that convention, consisting in the difference in relation to the amount of tax levied on income from capital that had been deducted at source at the rate of 25%.
20Maintaining that, pursuant to Article 63 TFEU, the application of Paragraph 21(1)(1a) of the KStG 1988 has to be extended to legal entities of non-Member States, Franklin made applications in its own name, on the basis of that provision, for a refund of the balance of the tax levied on income from capital that had been withheld on that income for 2013.
21Since the tax authority rejected those applications on the ground that Franklin was not resident in another Member State or in a State party to the EEA Agreement, Franklin brought an action before the Bundesfinanzgericht (Federal Finance Court), which, by judgment of 3 October 2017, was dismissed.
22That judgment of 3 October 2017 was set aside by the Verwaltungsgerichtshof (Supreme Administrative Court) by judgment of 13 January 2021, since that court took the view that, in order to determine whether a refund of tax levied on income from capital should be made, it is necessary, first, to determine, in the context of a ‘typological comparison’, whether the foreign entity is comparable to an Austrian corporate entity and, second, to examine to which entity that income has to be attributed. That court stated that, if it is only Paragraph 188 of the InvFG 2011 that precludes the attribution of income to the foreign entity concerned, there is a restriction on the free movement of capital, the justification for which has to be examined.
23Following the judgment of 13 January 2021 of the Verwaltungsgerichtshof (Supreme Administrative Court), the Bundesfinanzgericht (Federal Finance Court) granted Franklin a refund of the balance of the tax deducted at source from the income from capital, as sought by Franklin. Following a ‘typological comparison’, that court held that Franklin corresponded to an Austrian corporate entity, and that, in accordance with the general rules, the income also had to be attributed to that corporate entity; it also found that Paragraph 188 of the InvFG 2011, which precludes such an attribution, constitutes an unjustified restriction on the free movement of capital.
24The tax authority brought an appeal on a point of law (Revision) against the judgment of the Bundesfinanzgericht (Federal Finance Court) before the referring court, claiming, in essence, that that comparison should take account of the fact that Franklin is an investment fund also for the purposes of the prudential law of its home State, that such an entity would be subject to authorisation, within the European Union, pursuant to Directive 2009/65, and that domestic entities classified as investment funds, for the purposes of prudential law, and corresponding to a UCITS, were subject, without exception, in 2013, to a tax transparency regime. According to the tax authority, the same treatment should have applied to a foreign entity which, under foreign prudential law, also has to be classified as an investment fund and corresponds to a UCITS.
25The referring court notes that, in accordance with Paragraph 2(2) of the InvFG 2011, domestic investment funds that are classified as UCITS can be constituted, under prudential law, only in the form of a portfolio of assets and do not have legal personality. The income received by those undertakings, which is transparent for tax purposes under Paragraph 186 of the InvFG 2011, is attributed to the unit-holders, who alone are subject to tax.
26Consequently, according to the referring court, since such a domestic investment fund receiving dividends from a holding of less than 10% in a resident capital company is transparent for tax purposes, only the unit-holders could apply for the amount of tax on income from capital which had been deducted at source to be refunded or offset. Non-resident unit-holders could obtain a refund of tax on income from capital in accordance with the agreement for the avoidance of double taxation concluded with their State of residence.
27By contrast, an Austrian company which is not equivalent to a UCITS could, when it receives such dividends from a holding in a resident company, set off the tax on income from capital against its corporation tax. According to the referring court, such a corporate entity is always taxed in accordance with the principles of corporate tax law, irrespective of its commercial activity.
28The referring court states that corporate entities which have neither their place of management nor their registered office in Austria and which are comparable, in particular as regards their articles of association or the fact of having legal personality, to an Austrian corporate entity, are subject to limited tax liability. Under Paragraph 21(1)(1a) of the KStG 1988, a company resident in a Member State of the European Union or in a State party to the EEA Agreement could, if the income from capital could be attributed to that company and not to its unit-holders, apply for a refund of the tax on income from capital levied on dividends distributed by a resident company, provided that, pursuant to Paragraph 188 of the InvFG 2011, Paragraph 186 thereof was not applicable to it.
29In the context of the examination of the Revision lodged with it, the referring court is uncertain as to whether EU law requires Paragraph 188 of the InvFG 2011 to be disapplied in the case of a foreign fund open to the public which, if it had its registered office in Austria, could only operate there as a UCITS, would not be subject to tax, and would therefore not have been eligible for the tax on income from capital to be refunded or set off against its corporation tax, since that income would have had to be attributed to its unit-holders in accordance with Paragraph 186 of the InvFG 2011.
30In those circumstances, the Verwaltungsgerichtshof (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:(1) Does a provision such as Paragraph 188 of [the InvFG 2011], which has the effect of precluding foreign entities that are comparable to a domestic corporation from receiving a refund of income tax in Austria if they correspond in substance to a UCITS within the meaning of [Directive 2009/65], and are therefore not permitted to operate as a corporation in Austria because only the legal form of a transparent [portfolio of assets] is provided for in respect of such entities in Austria, constitute a restriction on the free movement of capital within the meaning of Article 63 TFEU?(2) If [the first] question is answered in the affirmative: is there an objectively comparable situation between, on the one hand, a domestic corporation that invests its assets in accordance with the principles of risk spreading, but does not constitute a UCITS due to the fact that funds are not raised from the public, and is thus permitted to operate as a corporation even in the domestic market and, on the other hand, a foreign investment fund company which would constitute a UCITS according to the domestic principles – on account of the fact that funds are raised from the public – and is therefore not permitted to operate as a corporation in the domestic market?(3) If [the second] question is answered in the affirmative: does preservation of the balanced allocation of the power to impose taxes constitute a ground of justification for a restriction on the free movement of capital in view of the fact that Paragraphs 186 and 188 of the InvFG 2011 seek to ensure that neither a domestic mutual fund nor a foreign mutual fund can produce a tax shielding effect vis-à-vis the unit-holders and that, consequently, relief from income tax is to be provided only at the level of the unit-holders in those cases in which [the Republic of] Austria has waived its taxing right under the terms of a double taxation agreement?’
Admissibility of the request for a preliminary ruling
31The European Commission submits that the request for a preliminary ruling is inadmissible on the ground that the application of Article 63 TFEU, the interpretation of which is sought, is not necessary for the resolution of the dispute in the main proceedings. According to it, Franklin, acting in its name, is not authorised to apply for a refund of the tax levied on income from capital on the basis of Paragraph 21(1)(1a) of the KStG 1988, since such an application must be made by the unit-holders, provided that they satisfy the conditions laid down in that provision.
32In addition, according to the Commission, Franklin’s application, made after it had obtained a refund pursuant to Article 10(2) of the Austro-American Convention, runs counter to the allocation of powers of taxation agreed between the Republic of Austria and the United States of America and seeks to circumvent the obligation to show that the balance of the Austrian tax levied on income from capital could not have been set off, in whole or in part, against the tax due in the United States of America. That application could lead to unjust enrichment on the part of Franklin, which would then receive refunds due to others, that is to say, to its unit-holders, and could even be regarded as abusive.
33In that regard, it must be noted that, in the context of the cooperation between the Court of Justice and the national courts provided for in Article 267 TFEU, it is solely for the national court, before which a dispute has been brought, and which must assume responsibility for the subsequent judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court of Justice. Consequently, where the questions submitted concern the interpretation of EU law, the Court is, in principle, bound to give a ruling (judgment of 17 October 2024, FA.RO. di YK & C., C‑16/23, EU:C:2024:886, paragraph 33 and the case-law cited).
34It follows that questions concerning EU law enjoy a presumption of relevance. The Court may refuse to rule on a question referred by a national court only where it is quite obvious that the interpretation of EU law sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it (judgment of 17 October 2024, FA.RO. di YK & C., C‑16/23, EU:C:2024:886, paragraph 34 and the case-law cited).
35According to the Court’s settled case-law, in the context of the cooperation between the Court of Justice and the national courts, the need to provide an interpretation of EU law which will be of use to the national court means that the national court is bound to observe scrupulously the requirements concerning the content of a request for a preliminary ruling, expressly set out in Article 94 of the Rules of Procedure of the Court of Justice (judgment of 17 October 2024, FA.RO. di YK & C., C‑16/23, EU:C:2024:886, paragraph 35 and the case-law cited).
36Thus, it is, in particular, essential, as provided for in Article 94(c) of the Rules of Procedure, that the order for reference contain a statement of the reasons which prompted the national court to inquire about the interpretation or validity of certain provisions of EU law, and set out the relationship between those provisions and the national legislation applicable to the main proceedings (judgment of 17 October 2024, FA.RO. di YK & C., C‑16/23, EU:C:2024:886, paragraph 36 and the case-law cited).
37In the present case, it is not obvious that the interpretation of EU law sought bears no relation to the actual facts of the main action or its purpose or that the problem is hypothetical. Furthermore, the Court has before it the factual and legal material necessary to give a useful answer to the questions submitted to it.
38First, despite the refund made to the unit-holders of part of the withholding tax, following Franklin’s application in their name, the admissibility of Franklin’s application concerning the balance of the tax deducted at source from the income from capital does not appear to have been called into question before the referring court, which, moreover, has also not expressed any uncertainty in that regard. In addition, the procedural steps described in paragraphs 20 to 24 of the present judgment attest to the genuine nature of the dispute in the main proceedings.
39Second, according to the request for a preliminary ruling, the refusal to refund the withholding tax to Franklin, which may be relied on against Franklin, arises from the application of Paragraph 188 of the InvFG 2011 to Franklin; that provision has the effect of regarding the tax treatment of dividends received by Franklin as equivalent to that applied to dividends received by an Austrian UCITS.
40By expressing its uncertainty as to whether, in a situation such as that at issue in the main proceedings, the equivalence provided for in Paragraph 188 of the InvFG 2011 must be regarded as constituting a restriction on the free movement of capital, within the meaning of Article 63 TFEU, and whether, consequently, Paragraph 188 must be disapplied, the referring court sets out sufficiently the relationship between the provision of EU law which it seeks to have interpreted and the national legislation applicable to the dispute in the main proceedings.
41Third, the Commission’s arguments concerning the allocation of powers of taxation between the United States of America and the Republic of Austria, the unjust enrichment of Franklin in the event of the refund sought being granted to it and the possible abusive nature of that application for a refund are not such as to call into question the admissibility of the request for a preliminary ruling, but fall within the scope of the examination of the substance of the case.
42It follows that the request for a preliminary ruling is admissible.
Consideration of the questions referred
The first and second questions
43By its first and second questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 63 TFEU must be interpreted as meaning that national legislation which has the effect of precluding a refund of tax on income from capital to a non-resident entity which, on the one hand, has the same characteristics as a UCITS within the meaning of Directive 2009/65 but, on the other hand, has legal personality and is, in that regard, comparable to a resident legal person, even though, under that national legislation, a resident UCITS is considered to be transparent for tax purposes and cannot operate as a legal person, constitutes a restriction on the free movement of capital.
44According to settled case-law, Article 63(1) TFEU lays down a general prohibition on restrictions on the movement of capital between Member States and between Member States and third countries (judgment of 2 March 2023, PrivatBank and Others, C‑78/21, EU:C:2023:137, paragraph 26 and the case-law cited).
45The concept of a ‘restriction’, within the meaning of that provision, includes State measures which are discriminatory in nature in that they establish, directly or indirectly, a difference in treatment between domestic and cross-border movements of capital which does not correspond to an objective difference in circumstances, and which are therefore liable to deter natural or legal persons from other Member States or third countries from carrying out cross-border movements of capital (see, to that effect, judgment of 2 March 2023, PrivatBank and Others, C‑78/21, EU:C:2023:137, paragraphs 48 and 49 and the case-law cited).
46Accordingly, the less favourable treatment by a Member State of income paid to non-resident collective investment undertakings, compared with the treatment of income paid to resident collective investment undertakings, is liable to deter undertakings established in another State from pursuing investments in that Member State and, consequently, amounts to a restriction of the free movement of capital, prohibited, in principle, under Article 63 TFEU (judgment of 27 February 2025, Dyrektor Krajowej Informacji Skarbowej (Management form of a UCI), C‑18/23, EU:C:2025:119, paragraph 58 and the case-law cited).
47Furthermore, national legislation which applies without distinction to resident and non-resident operators may constitute a restriction on the free movement of capital. It follows from the Court’s case-law that even a differentiation based on objective criteria may de facto place cross-border situations at a disadvantage (judgment of 27 February 2025, Dyrektor Krajowej Informacji Skarbowej (Management form of a UCI), C‑18/23, EU:C:2025:119, paragraph 65 and the case-law cited).
48In the present case, it is apparent from the documents before the Court, first, that, in the dispute in the main proceedings, Franklin is seeking, on the basis of Paragraph 21(1)(1a) of the KStG 1988, a refund of withholding tax and, second, that, according to the referring court, the potential application of Paragraph 188 of the InvFG 2011 would preclude that refund.
49According to those documents, Paragraph 188 of the InvFG 2011 provides, in essence, that the tax transparency, established in Paragraph 186 of the InvFG 2011 as regards resident investment funds, applies also to non-resident investment funds, irrespective of their legal form, provided that their assets are, pursuant to the law, articles of association or actual use, invested in accordance with the principles of risk-spreading.
50It is apparent from the request for a preliminary ruling that the application of Paragraph 188 of the InvFG 2011 has the effect of making a non-resident entity such as Franklin subject to the tax regime applicable to resident investment funds.
51Provided that the dividends distributed to a non-resident entity such as Franklin are not subject in Austria to a heavier tax burden than dividends paid to a resident investment fund, which it will be for the referring court to ascertain, treating Franklin in the same way as a resident investment fund could constitute a restriction, within the meaning of Article 63 TFEU, only if Franklin is not comparable to such funds but has to be considered to be comparable to a resident legal person which is not transparent for tax purposes and may receive a refund of tax levied on income from capital if it otherwise satisfies the conditions laid down by the applicable legislation.
52In order to assess whether a non-resident entity such as Franklin can be considered to be in an objectively comparable situation, having regard to Paragraphs 186 and 188 of the InvFG 2011, to a resident investment fund, it must be borne in mind that it is clear from the case-law of the Court, first, that the comparability or otherwise of a cross-border situation with a domestic situation must be examined having regard to the objective pursued by the provisions of the national legislation concerned and to the purpose and content of those provisions, and, second, that only the relevant distinguishing criteria established by that legislation must be taken into account for the purpose of assessing whether the difference in treatment resulting from that legislation reflects a difference in objective situation (see, to that effect, judgment of 27 April 2023, L Fund, C‑537/20, EU:C:2023:339, paragraph 54 and the case-law cited).
53In the present case, it must be noted that, according to the explanations provided by the referring court, the purpose of Paragraph 186 of the InvFG 2011 is to provide for transparent taxation of investment funds, which means that the income is attributed to the unit-holders and that only the unit-holders are subject to tax directly.
54It is apparent from the documents before the Court that Paragraph 186 of the InvFG 2011 concerns the tax treatment of the income of undertakings falling, inter alia, within the scope of Paragraph 2(2) of the InvFG 2011, read in conjunction with Paragraph 46 thereof, namely undertakings without legal personality which carry out investment activities and which satisfy certain conditions relating to the raising and investment of capital, authorisation and supervision. Paragraph 186 of the InvFG 2011 does not concern the tax treatment of the income of companies carrying out commercial activities, which are not subject to such conditions.
55Paragraph 188 of the InvFG 2011 applies to foreign investment funds, while specifying that an investment fund encompasses, irrespective of its legal form, any assets governed by foreign law which, pursuant to the law, articles of association or actual use, are invested in accordance with the principles of risk-spreading. The purpose of Paragraph 188 is therefore to subject non-resident entities which satisfy the condition relating to the investment of funds in accordance with the principles of risk-spreading to the regime applicable to resident investment funds.
56According to the referring court, the objective of Paragraph 186 of the InvFG 2011 is, inter alia, to ensure that an investment fund does not produce a shielding effect and that only unit-holders are taxed, whereas the objective of Paragraph 188 of the InvFG 2011 is to ensure equal tax treatment of resident and non-resident investment funds so that non-resident investment funds also do not produce a shielding effect and taxation takes place at the level of the unit-holders.
57In that regard, according to the findings of the Bundesfinanzgericht (Federal Finance Court) made in the national judicial proceedings, which are recalled in paragraph 17 of the present judgment, and those of the referring court, an investment fund such as Franklin has the same characteristics as an Austrian investment fund and as a UCITS within the meaning of Directive 2009/65. By virtue of its activity and subject to the verifications which it will be for the referring court to carry out, it can therefore be likened to the resident undertakings referred to in Paragraph 186 of the InvFG 2011.
58However, unlike resident investment funds, Franklin has legal personality and corresponds, in that regard, according to the findings of the Bundesfinanzgericht (Federal Finance Court) made in the national judicial proceedings, to a resident company, and, in accordance with the general rules, the income also has to be attributed to that company.
59It is therefore necessary to examine whether the fact that Franklin has legal personality places such an entity, under Paragraphs 186 and 188 of the InvFG 2011, in a different situation from that of resident investment funds and thus results in its situation not being objectively comparable, under those paragraphs, to the situation of a resident investment fund falling within the scope of Paragraph 186 of the InvFG 2011.
60In that regard, the Court has held that, as regards the objectives, in essence, of avoiding the double taxation of income from investment and of treating indirect investments, carried out through an investment fund, in the same way as direct investments for tax purposes, the fact that a collective investment undertaking has been formed in accordance with statute does not necessarily place it in a different situation to that of a collective investment undertaking formed in accordance with contract law (see, to that effect, judgment of 7 April 2022, Veronsaajien oikeudenvalvontayksikkö (Exemption of contractual investment funds), C‑342/20, EU:C:2022:276, paragraph 73).
61Such objectives may also be achieved where a collective investment undertaking has been constituted under statute but benefits, in the Member State in which it is established, from an exemption from income tax or from a system of tax transparency (judgment of 7 April 2022, Veronsaajien oikeudenvalvontayksikkö (Exemption of contractual investment funds), C‑342/20, EU:C:2022:276, paragraph 74).
62Similarly, in the light of those objectives, the fact that a non-resident entity, which has the same characteristics as a resident investment fund, has legal personality does not necessarily place it in a different situation from that of a resident investment fund without legal personality, if the dividends received by that first entity are attributed to its unit-holders and are taxed, in its State of residence, not at the level of that entity but at the level of its unit-holders.
63It will be for the referring court to examine whether that is the case here, having regard, in particular, to the fact that, first, the Bundesfinanzgericht (Federal Finance Court) found, in the national judicial proceedings, that Franklin had distributed all of its income for 2013, with the result that it did not have to pay any United States federal income tax in respect of that year and, second, that Franklin had benefited, for its unit-holders residing in the United States of America and covered by the Austro-American Convention, from a reduction in the rate of tax on income from capital to 15% and a refund of the difference compared with the 25% tax deducted at source from income from capital, the tax authority having thus recognised that those unit-holders were beneficial owners of that income, within the meaning of Article 10 of that convention.
64It follows that the answer to the first and second questions is that Article 63 TFEU must be interpreted as meaning that national legislation which has the effect of precluding a refund of tax on income from capital to a non-resident entity which, on the one hand, has the same characteristics as a UCITS within the meaning of Directive 2009/65 but, on the other hand, has legal personality and is, in that regard, comparable to a resident legal person, even though, under that national legislation, a resident UCITS is considered to be transparent for tax purposes and cannot operate as a legal person, does not constitute a restriction on the free movement of capital, provided that the income received by the non-resident entity is attributed to its unit-holders and is taxed, in its State of residence, not at the level of the non-resident entity but at the level of its unit-holders.
The third question
65In view of the answer given to the first and second questions, there is no need to answer the third question.
Costs
66Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
Operative part
On those grounds, the Court (First Chamber) hereby rules: Article 63 TFEU must be interpreted as meaning that national legislation which has the effect of precluding a refund of tax on income from capital to a non-resident entity which, on the one hand, has the same characteristics as an undertaking for collective investment in transferable securities (UCITS) within the meaning of Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), but, on the other hand, has legal personality and is, in that regard, comparable to a resident legal person, even though, under that national legislation, a resident UCITS is considered to be transparent for tax purposes and cannot operate as a legal person, does not constitute a restriction on the free movement of capital, provided that the income received by the non-resident entity is attributed to its unit-holders and is taxed, in its State of residence, not at the level of the non-resident entity but at the level of its unit-holders.
Source: EUR-Lex, © European Union, 1998-2026. Reuse authorised under Decision 2011/833/EU.