Judgment of the Court (Third Chamber) of 21 December 2011.

– Arguments of the parties

31 The Commission submits that Article 56 EC applies to the investment activities of the OPFs in the light of the Court’s case-law concerning the nomenclature annexed to Directive 88/361.

32 The Commission also points out that, in the restructuring of their social security systems, Member States must comply with EU law, which means, in the present case, that, as regards the choice in respect of the investment of their assets, the OPFs must be able to benefit from the free movement of capital. In that regard, Article 137(4) EC cannot validly be relied on in so far as it concerns only the new provisions adopted pursuant to that article and by no means precludes the obligation on Member States to comply with the fundamental freedoms guaranteed by the EC Treaty.

33 According to the Commission, the activity at issue cannot be excluded from the scope of Article 56 EC on the ground that the OPFs should be treated as entities governed by public law substituting themselves for the State and, therefore, not engaging in economic activity. In view of their characteristics, the OPFs should, it argues, be considered to be operating according to the principle of capitalisation and on the basis of principles unrelated to the redistribution scheme as it prevails under the first pillar managed by the ZUS. Consequently, the OPFs should be classified as undertakings that engage in economic activity.

34 In addition, the Commission rejects the view that Article 295 EC is such as to exclude the Polish legislation at issue from the scope of Article 56 EC on the ground that the real owner of the resources derived from the contributions is the State. Those contributions, the Commission argues, originate entirely from the payments made by employees and entitle the latter, if they fulfil the requirements laid down by the legislation, to payment of the accumulated capital.

35 Basing itself on Article 137(4) EC, the non-economic nature of the activity at issue and Article 295 EC, the Republic of Poland maintains that the legislation concerning the OPFs does not come within the scope of application of EU law and that, consequently, Article 56 EC does not apply to the activity here at issue.

36 So far as concerns, first of all, Article 137(4) EC, the Republic of Poland argues that it alone is competent to define the principles governing the operation of the Polish compulsory social security scheme, including the foreign investment policy of the OPFs and the fees relating to those investments, which have the objective of safeguarding the financial equilibrium of its retirement pension scheme.

37 Second, with regard to the non-economic nature of the activity of the OPFs, the Republic of Poland argues that the freedoms set out in the Treaty, in particular in Article 56 EC, do not apply to fields which, like that of social security at issue in the present case, concern, by their very nature, State prerogatives and do not directly have a commercial dimension. The status of the OPFs as entities governed by public law which do not operate on a profit-making basis and their participation in the compulsory retirement pension scheme ought, it contends, to lead to the conclusion that the OPFs fulfil an exclusively social function.

38 Lastly, as regards Article 295 EC, the Republic of Poland maintains that, under that article, Member States may choose freely how to exercise the prerogatives vested in them by virtue of their ownership of public resources in order to comply with the duties incumbent on them. According to the Republic of Poland, the sums at issue constitute public resources, an assertion which has been confirmed by the Polish courts.

– Findings of the Court

39 Since it is common ground that the investment transactions open to the OPFs constitute ‘movements of capital’ within the meaning of Article 56 EC, it is necessary to examine the arguments put forward by the Republic of Poland with a view to demonstrating that those transactions do not, however, come within the scope of that provision.

40 With regard, first of all, to the argument that Article 56 EC is not intended to apply to activities involving the investment of OPF assets on the ground that those activities are not economic in nature, it must be borne in mind that the Court has already held that occupational pension funds operating in accordance with the principle of capitalisation engage, notwithstanding their social objective and the compulsory affiliation to the second pillar for the retirement scheme to which they belong, in economic activity (see Case C-67/96 Albany [1999] ECR I-5751, paragraphs 81 to 87). In accordance with Articles 2, 3, 27 and 29 of the Law on pension funds, the scheme in question is based on the capitalisation principle and the assets of the OPFs are managed and invested by PTEs, which operate for a fee, in the form of a joint-stock company. The evidence, relied on by the Republic of Poland, concerning the prudential supervision of the OPFs and PTEs by the public authorities and the guarantee made by the State to cover any deficits in the OPFs is not such as to call into question the economic nature of the activities in question.

41 So far as concerns the public or private nature of the resources allocated to the OPFs and managed by the PTEs, even if the public nature of those resources were to be accepted, as maintained by the Republic of Poland, notwithstanding the fact that they originate from the pension contributions collected from the employers of the workers concerned, such a fact would in itself be insufficient, in any event, to exclude from the scope of Article 56 EC transactions concerning those resources, as is apparent from Annex I to Directive 88/361, which provides that the concept of ‘capital movements’ covers, inter alia, ‘operations in respect of the assets or liabilities of Member States or of other public administrations and agencies’.

42 Neither the allegedly non-economic nature of the investment activities of the OPFs nor the allegedly public nature of the funds that supply them can therefore preclude application of Article 56 EC.

43 As regards, second, the argument of the Republic of Poland that application of Article 56 EC is, in the present case, excluded on the basis of Article 137(4) EC, which prohibits infringement of the right of Member States to define the fundamental principles of their social security systems and states that the financial equilibrium thereof must not be significantly affected, it must be noted that those prohibitions thus laid down apply in respect of ‘provisions adopted pursuant to [that] article’ (see, to that effect, Case C-343/08 Commission v Czech Republic, paragraphs 66 and 67). However, that is not the case with regard to Article 56 EC.

44 Third, with regard to the claims based on Article 295 EC, which states that ‘[the] Treaty shall in no way prejudice the rules in Member States governing the system of property ownership’, it must be noted that, in accordance with settled case-law, that article does not have the effect of exempting the Member States’ systems of property ownership from the fundamental rules of the Treaty (see Case C-171/08 Commission v Portugal [2010] ECR I-6817, paragraph 64 and the case-law cited). Consequently, if the sums held by the OPFs and invested by the PTEs must be considered to be public resources, Article 295 EC cannot relieve the Republic of Poland of its duty to comply with the rules relating to the free movement of capital (see, by analogy, Case C-367/98 Commission v Portugal [2002] ECR I-4731, paragraph 48), any more than it can justify a restriction on those rules (see, to that effect, Case C-171/08 Commission v Portugal, paragraph 64 and case-law cited).

45 It must therefore be concluded that the provisions of the Law on pension funds which are here in issue come within the scope of Article 56 EC.

– Arguments of the parties

46 The Commission maintains that the provisions at issue in the present action constitute restrictions on movements of capital between Members States within the meaning of Article 56 EC, in so far as they are liable to deter, and do deter, investments of the OPFs from being made outside the Republic of Poland in other Member States, a fact which the Republic of Poland does not dispute and which is evidenced by the low levels of foreign investments made by the OPFs (1.1 %).

47 Without calling into question the need to guarantee the security of the funds accumulated in the retirement accounts of the OPFs, the Commission takes the view that such restrictions cannot be justified either under Article 58(1)(b) EC or by overriding reasons in the public interest constituted by the maintenance of the financial equilibrium of the OPFs and the protection of the interests of their members, on account of their discriminatory character, and that they are, in any event, disproportionate.

48 The Commission also rejects the argument that Article 86(2) EC permits derogation, in the present case, from the principle of the free movement of capital. In that regard, while recognising that that article may constitute justification for a restriction on the free movement of capital, and that the OPFs may be classified as services of general economic interest, the Commission notes, first, that Article 86(2) EC requires that the operation of those services be entrusted to entities which have the status of undertakings, a status that the Republic of Poland excludes with regard to the OPFs. The Commission considers, second, that the OPFs are not required by the State to provide such services. Third, and in any event, the Commission notes that the application of the rules relating to the free movement of capital do not preclude the fulfilment of the tasks delegated to the OPFs and that the restrictions in dispute cannot be regarded as being necessary and proportionate to ensure that those tasks are carried out. The Commission takes the view, fourthly, that those restrictions affect the development of trade in a manner which runs counter to the interests of the European Union by significantly limiting competition and by discouraging and deterring the OPFs from operating more effectively.

49 The Republic of Poland submits that the restrictions at issue are justified, first, pursuant to Article 58(1)(b) EC and, second, by an overriding reason in the public interest relating, essentially, to the need to safeguard the stability and security of the resources transferred to the OPFs. In the third place, the Republic of Poland maintains that the restrictions at issue are justified pursuant to Article 86(2) EC.

– Findings of the Court

50 It is necessary to examine, first of all, whether the national provisions at issue result in a restriction on the free movement of capital between Member States which is, in principle, prohibited by Article 56(1) EC.

51 It is common ground that Article 143 of the Law on pension funds, first, limits foreign investments by the OPFs to 5 % of the value of the assets of the OPF concerned, and, second, sets out a list of possible foreign investments which is less extensive than that for possible investments within Poland pursuant to Article 141(1) of that Law. In doing so, Article 143 of the Law on pension funds imposes both quantitative and qualitative restrictions on OPFs with regard to investments made outside national territory, and in particular in other Member States.

52 Such a provision also has a restrictive effect in relation to companies established in other Member States in that it constitutes an obstacle to the raising, by such companies, of capital in Poland since the acquisition of, inter alia, shares in joint investment bodies is restricted (see, by analogy, Case C-242/03 Weidert and Paulus [2004] ECR I-7379, paragraph 14).

53 Likewise, it is apparent from Article 136(3) of the Law on pension funds that the value of the investments made by an OPF in shares issued by joint investment bodies domiciled outside Poland and referred to in Article 143(1) of that Law must not be taken into account in determining the value of the net assets managed by the fund concerned, the value of which forms the basis for determining the management costs levied by the PTEs as payment. Consequently, a provision such as Article 136(3) of that Law has the effect of deterring OPFs from investing their assets in shares issued by joint investment bodies domiciled in other Member States, by not allowing them to deduct management fees in respect of those assets. Furthermore, in conjunction with Article 143 of the Law on pension funds, Article 136(3) thereof reinforces the obstacle to the raising of capital in Poland by those bodies.

54 Lastly, Article 136a(2) of the Law on pension funds states that costs equivalent to the fees due to foreign clearing houses may be covered only to the extent of the corresponding amounts due to national clearing houses. That factor is also liable to deter OPFs from investing their assets in other Member States since, if costs such as those at issue that are incurred outside Poland prove to be greater than those incurred within Poland, they cannot be fully covered, in contrast to the position in respect of similar costs generated by national clearing houses.

55 Next, as regards justification for the restrictions on free movement of the capital in question, the Court has repeatedly held that the free movement of capital may be limited by national legislation only if this is justified by one of the reasons mentioned in Article 58 EC or by overriding reasons in the public interest within the meaning of the Court’s case-law (see, to that effect, judgment of 14 February 2008 in Case C-274/06 Commission v Spain, paragraph 35 and the case-law cited). Moreover, pursuant to Article 86(2) EC, ‘undertakings entrusted with the operation of services of general economic interest … shall be subject to the rules contained in this Treaty, … in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them [and on condition that the] development of trade [is] not … affected to such an extent as would be contrary to the interests of the [European Union]’.

56 With regard, first of all, to the argument that the restrictions in question are justified under Article 58(1)(b) EC, which provides that ‘Article 56 shall be without prejudice to the right of Member States … to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of … the prudential supervision of financial institutions’, suffice it to state that, while the national provisions at issue undoubtedly lay down the substantive content of the prudential rules applicable to the OPFs, they are not, by contrast, in any way whatsoever designed to prevent infringement of the laws and regulations in the field of the prudential supervision of financial institutions. Those provisions cannot, therefore, come within the exception laid down in that article.

57 So far as concerns, second, the alleged justification in terms of overriding reasons in the public interest, it is necessary to point out that the need to guarantee the stability and security of the assets administered by a pension fund, in particular by the adoption of prudential rules, constitutes an imperative reason of public interest which is capable of justifying restrictions on the free movement of capital.

58 Such restrictions must, however, be appropriate to the objective pursued and must not go beyond what is necessary to attain that objective (Case C-451/05 ELISA [2007] ECR I-8251, paragraph 82 and the case-law cited).

59 With regard, first of all, to the restrictions resulting from Article 143 of the Law on pension funds, the Commission maintains that the requirements laid down by the national legislation in question are disproportionate in view of the objective pursued, since diversification of investments both geographically and by type of investment guarantees their security. In addition, the Commission notes that the Polish legislation in question allows foreign investments to be made only in EU and OECD Member States or in States with which the Republic of Poland has concluded reciprocal investment promotion and protection agreements, and that the risk linked to short-term foreign-exchange-rate fluctuations does not justify such restrictive measures. Lastly, in the view of the Commission, if the defendant Member State were to adopt strict measures, those measures would have to be identical for both foreign and national investments in financial instruments.

60 The Republic of Poland rejects the argument that geographic diversification of investments still constitutes an essential risk-reducing tool, by reason of the globalisation of financial markets. The Republic of Poland stresses the exchange risks linked to sharp fluctuations in the Polish złoty exchange rate and stresses the need to adopt a particularly prudent approach during the initial period of operation of the new Polish social security system. The Republic of Poland also notes that it is easier, for the Financial Market Authority, to implement quantitative restrictions than to monitor an investment policy based on the ‘prudent-investor rule’.

61 In that regard, it is necessary to examine whether the Republic of Poland has been able to show that the quantitative and qualitative restrictions imposed by Article 143 of the Law on pension funds are appropriate for the purpose of guaranteeing the stability and security of the assets administered by a pension fund and that they do not go beyond what is necessary to attain that objective.

62 As regards the exchange risk, it is true that sharp fluctuations in the exchange rate of foreign currencies may have a significant impact on the return on investments made in foreign currency. However, it follows from Article 18(5)(b) of Directive 2003/41 that Member States must not prevent institutions for occupational retirement provision from investing up to 30 % of their assets in assets denominated in foreign currencies and that, pursuant to Article 18(6) thereof, it is only on an individual basis that Member States may require the application to institutions located in their territory of investment rules that are more stringent than those laid down in Article 18(5) of that directive.

63 Even if those provisions do not apply ratione materiae to the investments of the OPFs, the fact nonetheless remains that the 30 % rule was laid down by the EU legislature to cover similar situations.

64 In those circumstances, the Republic of Poland ought to have put forward, in order to justify the quantitative limit of 5 %, which is significantly lower than the limit of 30 % considered appropriate by the EU legislature, specific evidence explaining the reasons for imposing the quantitative limit that was adopted.

65 In so far as the Republic of Poland relies, in this respect, on the difficulties of the OPFs in evaluating the risks linked to foreign investments, it must be noted that this factor cannot justify quantitative restrictions on investments in securities issued in Member States. As the Commission has submitted, the laws of the Member States concerning disclosure of information on financial products and protection of investors and consumers have, to a large extent, been the subject of harmonisation at EU level, thereby facilitating the creation of a common market in European capital.

66 Likewise, such quantitative measures cannot be justified on the ground that it is easier for national monitoring authorities to implement them, even in the context of an emerging social security scheme.

67 For the same reasons as those referred to in paragraph 65 of this judgment, qualitative restrictions cannot be justified in respect of investments in securities issued in Member States.

68 So far as concerns, next, the restrictions resulting from Articles 136(3) and 136a(2) of the Law on pension funds, it must be held that the Republic of Poland has not put forward any evidence capable of demonstrating to the requisite legal standard that the objective pursued by those provisions cannot be attained either without such restrictions or by means of less restrictive measures with regard to the freedom of the OPFs to invest in other Member States.

69 Neither the failure to take into account the value of investments made in shares issued by joint investment bodies domiciled outside Poland for the purposes of determining the net assets of the fund concerned, the value of which is the basis for determining the management costs levied by the PTEs, nor the limit placed on the allocation of transaction costs linked to national clearing houses can be justified by the need, pleaded by the Republic of Poland, to protect the OPFs from the risk of bearing additional or excessive costs, since such costs must, in any event, be taken into account by the investor when choosing his investments, irrespective of where they are made.

70 Third, with regard to the arguments based on Article 86(2) EC, it must be borne in mind that, in accordance with settled case-law, it is incumbent upon a Member State which invokes that article to show that all the conditions for application of that provision are fulfilled (Case C-160/08 Commission v Germany [2010] ECR I-3713, paragraph 126 and the case-law cited).

71 While it is, admittedly, true that the OPFs are liable to be considered to be performing a task of general economic interest (see, by analogy, Albany, paragraphs 105 to 111), it must nevertheless be pointed out that the Republic of Poland has failed to demonstrate to the requisite legal standard that the conditions for the application of that article are met. In particular, the Republic of Poland has not demonstrated to what extent the application of the Treaty rules, in this case those relating to the free movement of capital between Member States, would obstruct the attainment, in law or in fact, of the objectives pursued by the OPFs.

72 It follows that the Republic of Poland’s arguments based on Article 86(2) EC must be rejected.

73 It must, accordingly, be held that, by maintaining in force Articles 143, 136(3) and 136a(2) of the Law on pension funds, in that they limit investments by Polish OPFs in the other Member States, the Republic of Poland has failed to fulfil its obligations under Article 56 EC.