Opinion of Mr Advocate General Mancini

Mr President,

Members of the Court,

1. The Court has been asked to rule on an application under Article 169 of the EEC Treaty brought by the Commission of the European Communities against the French Republic. The Commission complains that the French Republic failed to grant to branches and agencies set up in France by insurance companies of other Member States the benefit of the shareholders' tax credit known as avoir fiscal, from which corresponding French undertakings benefit. That omission and the discrimination which results from it is alleged to be a breach of Article 52 of the Treaty.

2. Let me refer briefly to the relevant French provisions. Taxable income is determined in accordance with the provisions of the Code général des impôts [General Tax Code], Article 205 of which provides for a tax on all profits or income payable by the companies and other legal persons referred to in Article 206, the rate of which is fixed at 50% of profits. Article 209 provides that for the purposes of that tax account is taken only of profits made by undertakings operating in France or by those which France is entitled to tax under an international double taxation agreement.

3. Since it considered that the difference in treatment described above was discriminatory and infringed Article 52 of the Treaty, the Commission, by a letter of 29 July 1981 initiated the procedure for a declaration that the French Republic had failed to fulfil its obligations. By letter of 30 December 1981 the French Government refuted the complaint. It contended that the legal form which an undertaking gave to its subordinate structures was not without consequences from the point of view of taxation since it could affect the forms of taxation to which such structures were liable. Thus, a subsidiary of a foreign undertaking was a legal person and, in so far as it was subject to French law, was regarded as resident for the purposes of taxation. On the other hand, branches and agencies were secondary establishments of the undertaking and were not autonomous. For the purposes of taxation therefore they were regarded as being nonresident in the State in which they operated.

4. The application consists of two complaints: the above-mentioned arrangements for granting the avoir fiscal infringe Article 52 of the Treaty because they constitute:

5. In answer to the Commission's complaints, the French Government relies on a defence consisting of seven principal arguments which I propose to consider in the following order:

6. The French Government contends firstly that the tax credit scheme will continue to be lawful until the laws of the Member States concerning the taxation of legal persons have been completely harmonized. That argument is unconvincing, as is shown by the Court's case-law concerning the relationship between Article 30 and Article 100 of the Treaty. I would draw attention in particular to what the Court said in its judgment of 9 December 1981 in Case 193/80 (Commission v Italy [1981] ECR 3019):

7. Let me now turn to the second argument which is presented more in the form of a proposition. The French Government contends that in order to resolve the present problem, it is sufficient to add additional provisions to the existing bilateral double-taxation agreements between France and its Community partners. In those protocols, however, the shareholders' tax credit would have to be extended on the basis of reciprocity. Thus, foreign undertakings will be allowed to benefit from the tax credit if and when the same concession is granted to French companies having secondary establishments in the other contracting Member State.

8. The third argument relies on the danger of tax avoidance if the measure at issue were abolished. It is argued that foreign companies which owned French shares might be prompted to include them in the assets of the agencies or branches operating in France solely in order to benefit from the tax credit on the distribution of dividends.

9. The fourth argument is the one to which the French Government attaches the greatest importance. It alleges that the Commission has claimed that the rules at issue are unfavourable to foreign companies operating through agencies and branches in regard to tariffs and investments. The French Government argues that those disadvantages do not exist and even if they did, they would be more than compensated for by the tax and financial advantages which those undertakings enjoy compared to French companies and the French subsidiaries of foreign companies. In any event, if they actually wish to be treated in the same way as French companies, foreign undertakings need only establish subsidiaries rather than open secondary establishments.

10. Let me now turn to the fifth argument. The French Government observes that the principle of equality does not prohibit treating similar situations differently if the difference is objectively justified (judgment of 8 October 1980 in Case 810/79 Uberschär v Bundesversicherungsanstalt für Angestellte [1980] ECR 2747; judgment of 16 October 1980 in Case 147/79 Hochstrass v Court of Justice [1980] ECR 3005). That is exactly the situation in this case. The different rules applied to subsidiaries, on the one hand, and agencies and branches, on the other, have nothing to do with the nationality of those bodies. They are in fact based on an objective distinction, to be found in the legal systems of practically all the Member States, between residents and nonresidents.

11. As the Court has seen, the Commission complains that the French rules give rise not merely to discrimination but also to an indirect restriction on the establishment of secondary establishments by foreign undertakings. Provided that the conditions laid down in Article 58 have been satisfied, those undertakings are free to choose the legal form in which they exercise the right granted to them by Article 52, and it is precisely that freedom which the rules at issue limit by refusing to grant them the benefit of the shareholders' tax credit and thereby discouraging the establishment of agencies and branches.

12. The French Government's final argument is, so to speak, in the nature of a counterclaim. It contends that if it were to accede to the Commission's wishes, France would discriminate against agencies and branches of foreign companies operating in sectors other than insurance.

13. For all the foregoing reasons, I propose that the Court uphold the application brought by the Commission of the European Communities against the French Republic on 12 December 1983. Consequently, I propose that the Court declare that by failing to extend to branches and agencies set up in France by companies whose registered office is in other Member States the benefit of the shareholders' tax credit enjoyed by French insurance companies, the French Republic has infringed the principle of nondiscrimination laid down in the second paragraph of Article 52 of the EEC Treaty.

1 Translated from the Italian.