Probleem 8
E-Lesson Free Movement of Capital (Article 63 TFEU)
The central prohibition governing the free movement of capital is found in Article 63 TFEU. Where
other fundamental freedoms have been confined to intra-Union situations, Article 63(1)TFEU also
covers capital movement to and from third States. Nonetheless, the extension of capital movements
between Member States and third countries is governed and conditioned by Article 64 TFEU; the
provision not only exempts (certain) national measures adopted before 31 December 1993 from the
scope of Article 63 TFEU; it ultimately leaves the degree of capital liberalisations vis-à-vis third
countries to the Union legislator.
Justifications to the free movement of capital
As with the other three fundamental freedoms, the EU Treaties recognize that capital restrictions
imposed by the Member States may be justified by reference to certain public interests.
There are two types of justifications: Express justifications are justifications that are stated explicitly
in the Treaties (Article 65(1) (a) and (b) TFEU) and implied justifications developed in case law.
Express justifications
The express justifications can be found in Article 65(1) (a) and (b) TFEU. The difference between the
two is that the justification of Article 65(1) (a) TFEU is interpreted very strictly. The second
justification of Article 65(1) (b) TFEU is applied broader, which is unusual because internal market
justifications are usually interpreted very strictly.
Article 65(1) (a) TFEU permits national tax laws that historically apply differentiated rates to
(permanently) resident and non-resident taxpayers. The Court has held that in the context of (direct)
taxation, the situations of residents and of non-residents are not comparable. However, where there
is no objective difference between the situations of a non-resident and a resident, the differential
treatment by a Member State would be (indirectly) discriminatory and thus would need to be
justified. Yet, only objectively comparable situations could fall within the scope of the justification.
Article 65(1)(b) allows Member States to take all requisite measures to prevent infringements of
national law and regulations, in particular in the field of taxation and the prudential supervision of
financial institutions, or to lay down procedures for the declaration of capital movements for
purposes of administrative or statistical information or to take measures which are justified on
grounds of public policy or public security.
The special emphasis on infringement prevention and declaration procedures in this context
corresponds to the particularly ‘fluid’ and potentially ‘clandestine’ nature of capital movements.
The Court has given a broad reading of these special grounds in Article 65(1)(b). Effective fiscal
supervision, the prevention of tax evasion and other measures are permitted in so far as they are
designed to prevent illegal activities of comparable seriousness, such as money laundering, drug
trafficking, or terrorism. Unlike its broad approach to the grounds of justification here, the Court has
however been very strict with regard to what constitutes a ‘proportionate’ restriction.
Finally, Articles 66 and 75 TFEU provide that under certain circumstances the Council is permitted to
take safeguard measures restricting the free movement of capital and payments. There is a
considerable body of case law on the use of this instrument, particularly in relation to the freezing of
assets and the compatibility of such decisions with the fundamental rights.
Implied justification/ imperative requirement
E-Lesson Free Movement of Capital (Article 63 TFEU)
The central prohibition governing the free movement of capital is found in Article 63 TFEU. Where
other fundamental freedoms have been confined to intra-Union situations, Article 63(1)TFEU also
covers capital movement to and from third States. Nonetheless, the extension of capital movements
between Member States and third countries is governed and conditioned by Article 64 TFEU; the
provision not only exempts (certain) national measures adopted before 31 December 1993 from the
scope of Article 63 TFEU; it ultimately leaves the degree of capital liberalisations vis-à-vis third
countries to the Union legislator.
Justifications to the free movement of capital
As with the other three fundamental freedoms, the EU Treaties recognize that capital restrictions
imposed by the Member States may be justified by reference to certain public interests.
There are two types of justifications: Express justifications are justifications that are stated explicitly
in the Treaties (Article 65(1) (a) and (b) TFEU) and implied justifications developed in case law.
Express justifications
The express justifications can be found in Article 65(1) (a) and (b) TFEU. The difference between the
two is that the justification of Article 65(1) (a) TFEU is interpreted very strictly. The second
justification of Article 65(1) (b) TFEU is applied broader, which is unusual because internal market
justifications are usually interpreted very strictly.
Article 65(1) (a) TFEU permits national tax laws that historically apply differentiated rates to
(permanently) resident and non-resident taxpayers. The Court has held that in the context of (direct)
taxation, the situations of residents and of non-residents are not comparable. However, where there
is no objective difference between the situations of a non-resident and a resident, the differential
treatment by a Member State would be (indirectly) discriminatory and thus would need to be
justified. Yet, only objectively comparable situations could fall within the scope of the justification.
Article 65(1)(b) allows Member States to take all requisite measures to prevent infringements of
national law and regulations, in particular in the field of taxation and the prudential supervision of
financial institutions, or to lay down procedures for the declaration of capital movements for
purposes of administrative or statistical information or to take measures which are justified on
grounds of public policy or public security.
The special emphasis on infringement prevention and declaration procedures in this context
corresponds to the particularly ‘fluid’ and potentially ‘clandestine’ nature of capital movements.
The Court has given a broad reading of these special grounds in Article 65(1)(b). Effective fiscal
supervision, the prevention of tax evasion and other measures are permitted in so far as they are
designed to prevent illegal activities of comparable seriousness, such as money laundering, drug
trafficking, or terrorism. Unlike its broad approach to the grounds of justification here, the Court has
however been very strict with regard to what constitutes a ‘proportionate’ restriction.
Finally, Articles 66 and 75 TFEU provide that under certain circumstances the Council is permitted to
take safeguard measures restricting the free movement of capital and payments. There is a
considerable body of case law on the use of this instrument, particularly in relation to the freezing of
assets and the compatibility of such decisions with the fundamental rights.
Implied justification/ imperative requirement
