Abstract
The chapter gives an overview of capital movements in the EEA, as experienced in the EFTA States. The Court has had to take into account changes resulting from the introduction of EMU in the EU. However, the gap between the relevant treaty and other provisions in the EU and the EEA has been dealt with on a case-by-case basis. So far, this approach is unlikely to have created any substantial difficulties.
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- 1.
Cf. the expansion of bilateral investment treaties.
- 2.
There is no worldwide legal regime on investment. Within the WTO context, certain trade aspects of investment are agreed. The OECD Code of Liberalisation of Capital Movements establishes a legal regime among developed economies. The Code obliges OECD Members to liberalise capital movements, but Members unable immediately to liberalise are entitled to lodge reservations. The Code’s system aims to eliminate such reservations gradually and systematically. Furthermore, the IMF Articles of Agreement allow Members to ‘exercise such controls as are necessary to regulate international capital movements’ provided that they do not prevent current payments (Article VI Section 3). National restrictions on payments may not be applied unless authorised by the IMF (Article VIII Section 2). However, OECD and IMF rules have little practical impact on capital movements and payments between EEA States, since the EEA rules provide for a greater degree of mandatory liberalisation. Vis-à-vis third countries , global rules may, nevertheless, play a role. Some EU Member States are not OECD Members (for example Romania, Bulgaria, Cyprus , Lithuania, and Latvia). On the EFTA side, Liechtenstein is not a member of the IMF or the OECD .
- 3.
Such payments include, for example, interest and dividend payments and loan repayments.
- 4.
The ECJ defined in Joined Cases 286/82 and 26/83 Luisi and Carbone [1984] ECR 377, paragraph 21, the difference thus: ‘current payments are transfers of foreign exchange which constitute the consideration within the context of an underlying transaction, whilst movements of capital are financial operations essentially concerned with the investment of the funds in question rather than remuneration’.
- 5.
In less developed economies restrictive practices are often applied to payments rather than on the underlying transactions, since in such economies an overall need to protect national foreign currency reserves may be more important for reasons of economic policy than to regulate specific transactions.
- 6.
This fact sets the free movement of capital and payments out from the other freedoms, which normally do not include liberalisation vis-à-vis third countries .
- 7.
The provision corresponds to Article 57 TFEU.
- 8.
However, in general it may be unlikely that the choice between the provisions will produce substantially different results.
- 9.
In Case C-251/98 Baars [2000] ECR I-2787, paragraph 22, the ECJ stated, inter alia, that ‘a national of a Member State who has a holding in the capital of a company established in another Member State which gives him definite influence over the company’s decisions and allows him to determine its activities is exercising his right of establishment’. The distinction corresponds to the contrast between direct and portfolio investments. The former seeks company control, whereas the latter is limited to a passive financial placement in shares.
- 10.
Coordination obligations on economic policy and exchange rate policy were included in Articles 105 and 107 EEC, respectively. Article 102a EEC (inserted by the Single European Act, 1986) included an obligation to ensure convergence in economic and monetary policies.
- 11.
Case C-203/80 Casati [1981] ECR 2595.
- 12.
Cf. below.
- 13.
The EMU rules are part of the Maastricht Treaty, which entered into force in 1993.
- 14.
These Articles corresponds to Article 67(1) and (2) EEC (Treaty of Rome), respectively. Article 67 EEC was later renumbered Articles 73B EC (Treaty of Maastricht), 56 EC (Treaty of Amsterdam) and Article 63 TFEU (Treaty of Lisbon).
- 15.
For example, in Norway the main rules under the derogation are laid down in Act of 26 March 1999 on the participation in fisheries. Only Norwegian nationals, and someone by law considered equal to a Norwegian national, may be licensed to acquire a fishing vessel (Section 5) with quota-rights in Norwegian maritime zones. A limited company is considered equal to a Norwegian national if the head office and the seat of the board are in Norway, that the board consists of shareholding Norwegian nationals resident in Norway and that at least 60 % of the share capital is owned by Norwegian nationals, cf. Act of 17 June 1966 prohibiting foreign nationals to fish within Norwegian waters (Section 2(2)).
- 16.
Article 42(1) EEA corresponds to Article 68(2) EEC. The non-discrimination requirement should also be read in the light of Articles 4 on the general prohibition of discrimination on grounds of nationality and Article 124 EEA on equal treatment of EEA States’ nationals with regard to participation in the capital of companies or firms. These provisions correspond essentially to Articles 18 and 55 TFEU, respectively.
- 17.
This provision corresponds to Article 68(3) EEC. The provision has no equivalent in the TFEU. However, it may be noted that Article 6 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (‘Fiscal Compact’, 2012) requires the Member States in Eurozone to pre-notify the Council and the Commission of their public loan-programmes in the capital markets. In that way coordination between sovereign borrowers in the Eurozone may be achieved.
- 18.
The Directive specified the EEC Treaty obligation to free capital movements and payments ‘to the extent necessary to ensure the proper functioning of the common market’ (Article 67(1) EEC). The Directive seems today mainly redundant in the EU, except for its Annex listing a classification (nomenclature) of capital movements. The ECJ may make reference to the Annex for that purpose; see for example, Cases C-35/08 Busley and Cibrian Fernandez [2009] ECR I-9807, paragraph 17 and case-law cited; C-450/09 Schröder [2011] ECR I-2497, paragraph 25 and case-law cited and C-322/11 K, judgment of 7 November 2013, not yet reported, paragraph 20 and case-law cited.
- 19.
This Article of the Directive elaborates on Article 43(2) EEA.
- 20.
The provision corresponds now to Article 65(1)(b) TFEU on measures to prevent infringements of national rules on prudential supervision of financial institutions and declarations of capital movements for administrative and statistical purposes.
- 21.
A direct investment serves to establish or maintain, for the purpose of economic activity, a direct and lasting link between the one providing the capital and the one to which the capital is made available, for example to buy the share capital of a company.
- 22.
Such an investment may include the purchase of land.
- 23.
The concept covers, in particular, the sale and purchase of securities and the admission of securities to the capital market, including the introduction on a stock exchange and the issue and placing of securities.
- 24.
In particular, deposit and withdrawal of funds.
- 25.
Covering the financing of trade and loans and credits such as a mortgage or a consumer credit.
- 26.
Covering different types of guarantees in relation to credit.
- 27.
Personal loans, gifts, inheritance etc.
- 28.
Including, for example, the export or import of banknotes.
- 29.
Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (OJ 2011 L 48, p. 1).
- 30.
Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December 2001 on cross-border payments in euro (OJ 2001 L 344, p. 13).
- 31.
Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 (OJ 2012 L 94, p. 22).
- 32.
Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (OJ 2002 L 168, p. 43).
- 33.
The provision corresponds to Article 70(2) EEC.
- 34.
The provision corresponds to Article 73(1) EEC.
- 35.
The provision corresponds to Article 107(2) EEC.
- 36.
It may be mentioned that under IMF rules multiple currency practices shall be avoided (Article VIII Section 3 of the Articles of Agreement). Such practice are understood to exist if official actions lead to ‘exchange rate spreads and cross rate quotations to differ unreasonably from those that arise from the normal commercial costs and risks of exchange transactions’, further defined as more than 2 % between buying and selling rates in spot transactions.
- 37.
Floating regimes include free floating and degrees of managed floating. In managed floating regimes, national authorities seek to influence to some extent the exchange rate formation. The Exchange Rate Mechanism (‘ERM 2’) in the EU, with exchange rate margins of ±2.25 and 15 % around a fixed central rate for the national currency expressed in Euro, is an example. Danish krone and Lithuanian litas participate at present in ERM 2—a so-called pegged floating regime.
- 38.
Cf. Article 139 TFEU, that is the United Kingdom and Denmark.
- 39.
Capital control influences the Icelandic floating regime.
- 40.
Articles 108 and 109 EEC correspond to Articles 143 and 144 TFEU (previously Articles 119 and 120 EC; Articles 109h and 109i EC, respectively). The wording of these provisions has not been substantially changed. For EU Member States, with a derogation from the EMU , it follows from Articles 143 and 144 TFEU that national measures may be applied in the case of such difficulties. The Commission will monitor restrictive measures. The Council will review national measures and may require the measures to be abolished. The Council may also provide for mutual assistance, including financial assistance to the Member State in difficulties.
- 41.
According to Article 3(1)(j) of the Agreement on the EFTA Standing Committee the Standing Committee performs in this context the tasks EU law previously placed on the EEC Monetary Committee (now the Economic and Financial Committee, cf. Article 134 TFEU).
- 42.
Correspondingly, an EU Member State or the Commission shall notify the EEA Joint Committee of any such protective measure within the EU pillar of the EEA.
- 43.
In addition, Article 66 TFEU exceptionally provides the Council with authority, following a special procedure, to take strictly necessary safeguard measures vis-à-vis third countries for a period of maximum 6 months, if capital movements cause or threatens to cause ‘serious difficulties for the operation of economic and monetary union’.
- 44.
The EFTA Ministers of Finance and Economy normally meet their colleagues in the Council (ECOFIN) once a year.
- 45.
Cf., for example, Article 105 EEC.
- 46.
Capital liberalisation was implemented according to Directive 88/361/EEC, which became an important part of the first stage of EMU as from 1 July 1999.
- 47.
This exception is similar to Article 7 of the Directive. However, while the Directive authorises Member States to take actions, Article 64(2) TFEU authorises such restrictions at the EU level only.
- 48.
For the procedure, see below.
- 49.
In principle, restrictions on capital movements and payments are incompatible with the idea of a common currency. It was found necessary nevertheless to allow for exceptions, which also include Member States in the Eurozone, cf. Article 65 TFEU. The EMU consists of sovereign States where political authorities in exceptional and critical circumstances must be able to protect essential national interests.
- 50.
Some other EU developments with regard to international capital transactions and payments are incorporated into the EEA, for example the rules on the prevention of money laundering and terrorist financing. Economic sanctions under the EU Common Foreign and Security Policy fall outside the EEA remit.
- 51.
Case C-451/05 ELISA [2007] ECR I-8251, paragraph 81.
- 52.
Case C-371/10 National Grid Indus [2011] ECR I-12273, paragraph 45 and case-law cited.
- 53.
Cf. Cases C-322/11 K, cited above, paragraph 41 and case-law cited; C-540/07 Commission v. Italy [2009] ECR I-10983, paragraph 29 and the case-law cited; C-231/05 Oy [2007] ECR I-6373, paragraph 52 and case-law cited.
- 54.
Case E-15/11 Arcade Drilling [2012] EFTA Ct. Rep. 676, paragraph 85, and case-law cited.
- 55.
ESA Reasoned Opinion to Norway of 30 October 2001, concerning the lack of implementation of Article 11 of the Second Banking Directive (89/646/EEC) and restrictions in national law on ownership of financial institutions. Remaining Norwegian legislation on ownership restrictions was at issue in Case E-9/11 ESA v. Norway [2012] EFTA Ct. Rep. 442 (Regulated Markets), cf. below.
- 56.
ESA Decision No. 421/13/COL of 6 November 2013.
- 57.
ESA Decision No. 279/12/COL of 11 July 2012.
- 58.
In Cases E-25/13 Engilbertsson and E-27/13 Gunnarsson the EFTA Court had occasion to deal with indexation to the national Consumer Price Index of an Icelandic krónur loan and its compatibility with Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ 1993 L 95, p. 29).
- 59.
Case E-14/13 ESA v. Iceland [2013] EFTA Ct. Rep. 926.
- 60.
ESA Reasoned Opinion to Liechtenstein of 6 November 2013, where ESA has held that a notional interest deduction granted for Liechtenstein real estate and permanent establishments, while no such deduction is granted for net assets in real estate and permanent establishments in other EEA States constitutes a restriction contrary to the EEA rules on the free movement of capital.
- 61.
ESA Decision No. 28/11/COL of 9 February 2011. Norway was under scrutiny by ESA for similar tax rules. This case is also closed; ESA Decision No. 29/11/COL of 9 February 2011.
- 62.
Cf. statement by the European Commission on the capital controls imposed by the Republic of Cyprus ; European Commission Press Release IP/13/298 of 28 March 2013.
- 63.
In the case of a Eurozone exit, exchange controls would be indispensable.
- 64.
Joined Cases E-3/13 and 20/13 Fred Olsen and Others [2014] Ct. Rep. 400 also concern Article 40 EEA.
- 65.
Case E-9/11 ESA v. Norway, cited above.
- 66.
In Case E-19/14 ESA v. Norway, ESA claims that Norway has failed within a reasonable time to fulfil its obligation arising from Article 33 SCA to take the necessary measures to comply with the judgment.
- 67.
Case E-3/11 Sigmarsson [2011] EFTA Ct. Rep. 430.
- 68.
Case E-2/06 ESA v. Norway [2007] EFTA Ct. Rep. 164.
Rights to utilise waterfalls for energy production has been closely related to national policies for industrialisation, developed after Norway declared its independence as a State in 1905. Foreign capital was needed. At the same time, it was considered necessary to keep national control of these resources. A licensing system was applied from 1906, and firmly established in legislation in 1917. During EEA negotiations it became clear that Norwegian legislation, being discriminatory on grounds of nationality, was incompatible with EU law and had to be changed. This fact contributed in November 1990 to the collapse of the centre-right coalition Government (led by Mr Syse). The Centre Party (an agrarian party and member of the coalition Government) rejected adaptations to EU law. This Government was succeeded by a Labour Party Government (led by Ms Brundtland), which completed the EEA negotiations.
Later, when ESA brought the Norwegian legislation before the EFTA Court, a centre-left coalition Government (led by Mr Stoltenberg) was in charge. Voices in the Socialist Left Party, a member of the Government, argued that if the EFTA Court decided against Norway, Norway should have terminated the EEA Agreement or else the Socialist Left Party should have left the Government. However, nothing of this has happened.
- 69.
The Article is identical to Article 345 TFEU.
- 70.
At the time, 10 % of the hydropower production capacity was privately owned.
- 71.
The judgment led to prohibition of private ownership to waterfall resources for hydropower production. Amended legislation established that the waterfall resources belong to the public and shall be exploited for the public good. The aim shall be ensured by public ownership at state, county or municipal level. Private investors may own one-third of the share capital of a public undertaking. The revised system strengthened the public ownership of these resources in Norway.
- 72.
Case E-1/04 Fokus Bank [2004] EFTA Ct. Rep. 11.
- 73.
Case E-10/04 Piazza [2005] EFTA Ct. Rep. 76.
- 74.
Case E-1/00 Íslandsbanki-FBA [2000] EFTA Ct. Rep. 8.
- 75.
Case C-452/01 Ospelt and Schlössle Weissenberg [2003] ECR I-9743.
- 76.
Cf., for example, Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraphs 45 and 49.
- 77.
Case C-72/09 Rimbaud [2010] ECR I-10659.
- 78.
In general, taxation as such is not included in the EEA. However, national taxation rules in an EEA/EFTA State must comply with general EEA law and principles. This was established by the EFTA Court in Case E-6/98 Norway v. ESA (RDA), [1999] EFTA Ct. Rep. 74, paragraph 34. This view has been reinforced, see Fokus Bank, cited above, paragraph 20 and case-law cited.
- 79.
Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the fields of direct taxation and value added tax (OJ 1977 L 336, p. 15), as amended by Council Directive 92/12/EEC of 25 February 1992 (OJ 1992 L 76, p. 1).
- 80.
Case C-48/11 A, judgment of 19 July 2012, not yet reported.
Acknowledgements
The author wishes to thank Amund Utne, Thomas Chr. Poulsen and Giulia Predonzani for their contributions.
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Christiansen, P. (2016). Free Movement of Capital. In: Baudenbacher, C. (eds) The Handbook of EEA Law. Springer, Cham. https://doi.org/10.1007/978-3-319-24343-6_24
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