The free movement of capital in the EU is a critical function of the Community, as an effective investment is necessary to build and maintain a business presence across borders. Articles 63-65 of the Treaty of the Functioning of the European Union (TFEU) govern the freedom of movement of capital.
The prohibition of restrictions on the movement of capital prevents all rules that make it difficult to invest in or raise capital in another member state. Thus, the purpose is to prevent explicit or implicit discrimination on capital movement within the Community.
Article 63 TFEU is short but governs the scope of impact, including investments, inheritance, and certain tax deductions for gifts “in-kind.” It also covers the movement of payments for transactions instead of investments. The relations with third-party countries are covered by Article 64 TFEU. This freedom of movement is not a given method but a legislative one. The Council may unanimously adopt measures to step backward from the liberalization of more unrestrained movement of capital.
As in most areas of the TFEU, the member states have certain abilities to have exceptions and, therefore, implement certain restrictions on the movement of capital. These are set out in Article 65 TFEU. They cover areas between foreign and domestic taxpayers and revolve predominantly around the tax system. They cannot be applied in a discriminatory manner and must be applied in the least restrictive method. The article also provides for exceptions in policy areas such as:
- Urban Planning
- Public Housing Policy
- Agriculture and Forestry Holdings
- Preservation of Jobs
- Promoting the Use of an Official Language
Economic grounds do not justify a restriction and must apply the principle of proportionality.