Case Note C-545/19 ALLIANZGI-FONDS AEVN V. AUTORIDADE TRIBUTÁRIA E ADUANEIRA

Case Note C-545/19

ALLIANZGI-FONDS AEVN V. AUTORIDADE TRIBUTÁRIA E ADUANEIRA

I. Introduction

Undertaking for Collective Investment Company on Transferrable Securities (UCITS) is investment fund that legal framework is determined by EU Directive 2009/65/EC to facilitate participation of private investors in securities market. AllianzGI-Fonds (Company A), Germany’s residence UCITS, was paying 25%, partially reduced to 15% under Double Taxation Convention (DTC) between Portugal and Germany, dividend withholding tax under Corporation Tax Code (CTC) for tax year of 2015 and 2016. February 2019, Company A brought a legal action over the tax before the referring court CAAD after rejection result in administrative appeal from late 2017 to the late 2018 to the Tax Authorities (ATeA).

Discrimination

This issue started with enactment of Statute of Tax Benefits (EBF) Article 22(3) and Article 22(10) that provide revision of exemption implementation supplemented with Código do Imposto do Selo (Stamp Duty Code/CIS) applied for UCITS except non-resident company in Portugal. UCITS Residence in Germany is treated as transparent taxable entity and will be offset in investors income level under German’s Investmentsteuergesetz (Law on Investment Income Tax) Paragraph 4(2). Company A feels discriminated on free movement of capital based on exemption for Portuguese UCITS Residents. ATeA considered this inappropriate since UCITS Residents are subject to Quarter Yearly Stamp Duty (QYSD), a different taxation method and objectively incomparable since the tax amount is indifferentiable. CAAD passed 5 questions to the Court of Justice of the European Union (CJEU) to determine whether Portugal is contrary to the Freedom to Provide Services or the Freedom of Movement of Capital. Contrary, Advocate General's (AG)Opinion exposes this meet exemption on certain circumstances and perceived no discrimination as it is justifiable situation.

Discrimination related business presence could infringe both Fundamental Freedoms which needs to be referred to applicable national regulations and their objectives. As theproblem relate to UCITS, it could be referred to TFEU Article 63 and not TFEU Article 56. Although AG say 'free float' dividends cannot invoke freedom of establishment, the CJEU provides both considerations together.

Proceedings

Article 65(1)(a) TFEU, and EU law on distributing profits, grants Member States rights to apply relevant provisions strictly interpreted, , particularly define tax systemfor shareholder benefiting its investment as optimization use and benefits of UCITS, as long as objectively comparable between investment places in context of tax ability to burden investors, and detterence effect that limits freedom of capital movement. Fiscal autonomy should be assessing specific domestic situation, not instead general relaxation, .

Discrimination Analysis

Similar to other cases, resident UCITS taxation is also caried on asset basis by switching taxation method. Not only both dividends have not been distributed or reinvested, but also the entire UCITS Residence’s capital is taxed in the principle of 'exit tax' on, not only Portuguese resident, but all shareholders., AG concluded that this is merely pursuingUCITS Non-Residents investors favorable position and inappropriately be used, because based on jurisprudence, fundamental freedoms should only seek equality. The author believes this perspective aligns with the discussion to be conducted.

The CAAD found that Article 22 EBF, based on equity ownership,, reducing attractiveness of resident investors' investments, especially if dividends are distributed relatively small. UCITS creation can help private investors with minimal administrative hassle and better protection in the securities market. However, tax offsetting UCITS is significant, creating uneven treatment involving tax rate, levy timing, and distribution time. The CJEU emphasizes the importance of determining less favorable treatment based on residence status, not just formal burdens comparability.

Justifications

The distinction between TFEU Article 65(1)(a) and Article 65(3) TFEU is necessary to prevent national rules from disguising discrimination against Article 63 TFEU , which provide inequivalent objective or justifiable in the public interest. Comparability between residents and non-residents is considered disproportionate, , different from recent jurisprudence. Objective comparability of the restriction on capital movement and other fundamental freedoms is needed, and arbitrary discrimination provides less protection than other freedoms gaining a necessitiy to examineproportionality afterward.

AG views restriction as a taxation technique, while relevant criteria are the objectives, direction, and content of Portuguese Law, it should include balancing taxation between countries, effectively avoiding double non-taxation, and coherent taxation. Taxation objectives of UCITS are similar to non-resident UCITS, but resident UCITS are more appropriately called Wealth Tax, as assets are smaller, free from QYSD, and capped by DTC to 15%, .

CJEU redirected the authority to determine national objectives back to the CAAD, interpreting double taxation avoidance and UCITS resident dividend tax with subsequentinterpretations both as comparable, . The only relevant criterion is UCITS residence, which is unjustifiable due to its incomparability. The justification of public interest was linked to ATeA's reasons for maintaining coherence and distribution of taxation authority, but both were unreasonable , . The results showed national objectives were irrelevant and the justification was not proportional to ATeA's intention.

Author’s Argument and Conclusion

CJEU overreached with its extensive scrutiny, oversimplifying CAAD inquiries from five only into two, creating false perspectives. CJEU considers QYSD solelywealth tax, despite the AG mentioning a tax on both distirbuted and undistributed dividends out of the wealth. Considering less favorable treatment, Taxation for non-resident UCITS more favourable even does not exist but serves as justifiable double non-taxation prevention, added by DTC limitation. CJEU fairness assessment to investors is limited due to its focus on German national regulations but not the worldwide opportunity scale. Portugal's approach should not be blamed since German government should bear solely investor convenience but not for how UCITS to choose investments and its tax natural constraints. The disparity in treatment arises from national sovereignty is influenced by local economic context, and a country's economic attributes are incomparables, especially when considering lower tax burdens on UCITS non-Residents. These AG opinions, also authors’ opinion, reflect how all articles 56, 63 and 65 TFEUsimultaneously implemented.