On 14 April 2016, the European Court of Justice (ECJ) held that the freedom of establishment does not preclude a notification obligation under German law that also pertains to assets held or managed by a credit institution at dependent branches in other Member States where there are no similar notification obligations and where credit institutions are subject to banking secrecy rules.
Under the German Inheritance Tax and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz), any person who engages by way of business in the custody or management of third-party assets is obliged to notify the competent tax office in writing of such assets at the time of the death of their owner. Conversely, the Austrian Banking Act (Bankwesengesetz) provides that branches of credit institutions having their head office in another Member State are required to comply with the banking secrecy rules prevailing in Austria.
The dispute at hand revolved around Sparkasse Allgäu, a German credit institution which operated a dependent branch in Austria. In 2008, the German tax office demanded certain information for the period from 1 January 2001 in relation to the Austrian branch's clients, who were resident in Germany at the time of their deaths. Sparkasse Allgäu lodged an appeal against this request, which went up to the German Federal Tax Court (Bundesfinanzhof). Ultimately, the Federal Tax Court referred the question to the ECJ, seeking clarification on this case.
In its judgment (14 April 2016, C-522/14) the ECJ took the view that while it is not inconceivable that the German notification obligation might deter German credit institutions from opening Austrian branches due to the disadvantage suffered because of an obligation that is not imposed on Austrian credit institutions, this cannot lead to the conclusion that such an obligation constitutes a restriction on the freedom of establishment (cf. art. 49 of the TFEU). The adverse consequences emanating from such a notification obligation are due to a parallel (and deviating) exercise of the Member States' powers to either prioritize banking secrecy (i.e., Austria) or fiscal supervision (i.e., Germany). In the relevant periods from 2001 to 2008 no legal instrument existed for the exchange of banking information between the two countries concerned. Due to this, the ECJ concluded that the freedom of establishment does not oppose the German legislation at hand, which has the objective of fiscal supervision, on the condition that there is no discrimination in comparison to national branches.