Free movement of capital and State aid

The ECJ has held that issues of State aid would preclude domestic courts finding that discriminatory taxes breached the free movement of capital. 

The ECJ has held that the Dutch courts are not competent to determine whether Dutch dividend withholding taxes, which could be reclaimed by certain domestic but not foreign entities, infringe the free movement of capital where providing those refunds would involve a grant of State aid: A-Fonds v Inspecteur de Belastingsdienst (Case C-598/17).


The case concerned the imposition of Dutch dividend withholding tax. Dutch tax law provided that legal persons established in the Netherlands and not subject to corporation tax were granted a refund of the withholding tax. However, non-Dutch entities were not entitled to the refund.

A-Fonds was a special collective investment fund established in Germany. It received dividends from Dutch companies which were subjected to the Dutch dividend tax, and through its shareholder, BBB, sought a refund of that tax. It argued that it was comparable with certain Dutch public funds which were exempted from Dutch tax. As such, restricting the right to a refund to Dutch entities was contrary to the free movement of capital.

The Dutch Court of Appeal considered that, in principle, the Dutch rules infringed the freedom of capital movement and that A-Fonds should be granted a refund. However, the EU Commission had decided in 2013 that the tax exemption from corporation tax for certain public undertakings was illegal State aid. Therefore, the Dutch Court of Appeal was concerned that extending the exemption from withholding tax to entities comparable to such Dutch public entities would effectively extend the illegal State aid and referred the matter to the ECJ for a preliminary ruling. In particular, the Dutch Court asked the ECJ as to whether extending exemption to a non-Dutch entity would constitute “new aid” which the court would have to notify to the EU Commission in accordance with the EU State aid rules.

Decision of the ECJ

To answer the question, the ECJ set out the roles of the national courts and the EU Commission in relation to State aid. It is the EU Commission that is competent to assess the compatibility of aid measures within the internal market. In contrast, it is for national courts to ensure that the rights of individuals are safeguarded where there is an obligation to give notification to the EU Commission of State aid. However, national courts only have competence to assess whether arrangements of an “aid scheme” comply with Treaty provisions (such as the fundamental freedoms) if those arrangements can be evaluated separately. If the aspects of the scheme are necessary to the attainment of the objective or functioning of the “aid scheme”, then it is impossible to evaluate them separately and then it is for the EU Commission exclusively to deal with the matter.

In this case, it was clear to the ECJ that the condition of nationality complained of by A-Fonds was one “indissolubly linked” (see: paras. 48 and 49 of the judgment) to the very object of the exemption measure at issue and therefore would call into question the nationality condition in the provisions exempting public undertakings from Dutch corporate taxes. The ECJ concluded (at para. 51) that “[i]t does not therefore appear to be possible to separate such a condition, which is necessary for the attainment of the objective and functioning of that aid scheme, without adversely affecting the division of competences between the Commission and the national courts in the matter of State aid.”

Therefore, the ECJ held that EU law precludes a national court from assessing whether the residence condition complied with the free movement of capital, where the scheme for the refund of dividend tax concerned constituted an aid scheme.


This decision appears to have been a test case with almost a 1,000 similar requests for refund standing behind the case from other foreign entities. Nevertheless, it seems a sensible outcome that, if the national provisions have been held to amount to illegal State aid, it would be contrary to EU law for national courts to extend the de facto benefits of that aid to foreign entities pursuant to the application of the fundamental freedoms.

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