## Facts

- A Netherlands resident owned 100% of the shares of a company established and operating in Ireland.
- The company’s principal asset was a pleasure boat used by the shareholder and his family.
- Under Netherlands wealth-tax law, certain “business assets” could qualify for a full or partial exemption from wealth tax.
- When the claimed business assets consisted of shares, the exemption applied only if the company was established in the Netherlands.
- The taxpayer sought the exemption for his Irish shareholding, arguing the territorial limitation violated EU Treaty rules on freedom of establishment and free movement of capital.
- A Netherlands appellate tax court referred questions to the Court of Justice for a preliminary ruling on the interpretation of the relevant Treaty provisions.

## Issues

1. Whether a shareholding that gives a shareholder definite influence over a company’s decisions and activities falls within the EU freedom of establishment, rather than only the free movement of capital.
2. Whether EU law precludes a wealth-tax exemption that is available for shares in companies established in the taxing Member State but denied for comparable holdings in companies established in other Member States.
3. Whether the restriction, if any, can be justified by preserving the coherence of the national tax system.

## Decision

- The Court held that a shareholder with a holding conferring definite influence over a company established in another Member State is exercising freedom of establishment.
- Because the taxpayer owned all shares, the dispute was analyzed primarily under freedom of establishment.
- The Court ruled that EU freedom of establishment precludes national wealth-tax legislation that grants the exemption only for shareholdings in companies established domestically and denies it for comparable controlling holdings in other Member States.
- The Court rejected the justification based on preserving the coherence of the tax system, finding no sufficient direct link between the tax advantage and any corresponding tax burden.
- The referring national court was required to resolve the dispute consistently with this interpretation of EU law.

## Legal Principles

- A controlling shareholding that gives definite influence over a company’s decisions and permits determination of its activities is treated as an exercise of freedom of establishment.
- A tax advantage conditioned on the company’s seat in the taxing Member State constitutes unequal treatment that restricts freedom of establishment when applied to comparable controlling holdings in other Member States.
- A “tax system coherence” justification requires a sufficiently direct connection between a granted advantage and an offsetting fiscal burden; absent that link, discrimination based on the corporate seat is unlawful under freedom of establishment.
- Where establishment is the applicable Treaty freedom due to control, a separate capital-movement analysis may be unnecessary to resolve the dispute.

## Conclusion

The Court of Justice held that EU freedom of establishment bars a Member State from limiting a wealth-tax exemption for business-related shareholdings to companies established domestically when the taxpayer holds a controlling interest in a company established in another Member State, and the restriction cannot be justified by tax-system coherence.


Baars v. Inspecteur der Belastingen Particulieren/Ondernemingen Gorinchem, Case C-251/98, 2000 E.C.R. I-2787 (C.J.E.U. 2000)