C-270/81

JUDGMENT OF 15. 7. 1982 — CASE 270/11

the basis of objective criteria, having a It is for the national court, taking into uniform scope within the Community account the criteria for interpretation and free from the influence of laid down by the Court of Justice, to national laws. It follows thai the carry out the necessary appraisal both interpretation of the concept at issue, of the relevant national rules and the considered in its entirety, may not be provisions of the company's docu- left to the discretion of each Member ments of constitution in order to State. establish whether that is the case.

2. The shares in a company have a 3. Whenever a directive is correctly nominal amount within the meaning implemented, its effects reach of Article 5 (2) of Directive individuals through the intermediary 69/335/EEC when the legal structure of the implementing measures of the type of company to which the adopted by the Member State company concerned belongs includes concerned, without its being necessary amounts fixed in cash, intended to to examine the question whether the quantify the value of the members' provision in question meets the contribution to the raising of capital conditions which must be fulfilled for in that company and to characterize individuals to be able to rely upon it in durable fashion the relations before a national court in the event of between the members and the the directive's not being correctly company. implemented.

In Case 270/81

REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht [Finance Court] Hamburg for a preliminary ruling in the action pending before that court between

Advocate General: Sir Gordon Slynn Registrar: H. A. Rühi, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of the defined more precisely in Article 4 of the procedure, and the observations sub- directive. mitted pursuant to Article 20 of the Protocol on the Statute of the Court of Under Article 5 (1) (b) of the directive, Justice of the EEC may be summarized in the case of conversion into a capital as follows : company, duty is to be charged "on the actual value of the assets of any kind belonging to the company at the time of the conversion . . . after the deduction of I Facts and written procedure liabilities and expenses for which the company is responsible at that time". The original version of Article 5 (2) — later amended by Council Directive 1. Council Directive 69/335/EEC of 74/553 of 7 November 1974 (Official 17 July 1969 concerning indirect taxes Journal 1974, L 303, p. 9), which is not on the raising of capiul (Official applicable in this case — provided in Journal, English Special Edition 1969 addition that in that case, the amount on (II), p. 412) provides for the charging of which the duty was charged was not to capital duty on certain transactions of be less "than the actual value of the capital companies — including inter alia shares in the company allotted or companies limited by shares (Aktien- belonging to each member or the gesellschaften) and limited liability nominal amount of the shares if the companies (Gesellschaften mit beschränk- latter exceeds their actual value". ter Haftung) — and, in so far as the Member States do not provide otherwise, on transactions of other companies In order to comply with that directive, operating for profit and deemed to be the Federal Republic of Germany capital companies. Those transactions are adopted the Kapitalverkehrsteuergesetz

[Law on Capital Transactions Tax], 10 April 1974, Hapag Lloyd AG became (Bundesgesetzblatt I, p. 2129). According a general panner of the latter. to paragraph 5 (2) (3) of that Law, as amended on 17 November 1972, capital At that time there were 26 limited companies for the purposes of the Law panners in Felicitas Rickmers-Linie KG also include Kommanditgesellschaften & Co. with fully-paid compulsory contri- [limited partnerships] which have among butions totalling DM 6 480 000, which their general partners a capital company were entered in the commercial register — defined by the Law as including inter as the "Hafteinlagen" [the contributions alia the Aktiengesellschaft and the for which the limited panners were Gesellschaft mit beschränkter Haftung liable]. In the balance sheet as at 31 — as well as so-called two-tier limited December 1973, the pannership capital partnerships, that is to say, "limited was shown as DM 7 200 000, including partnerships which have among their the limited partners' contribution of general panners a limited partnership DM 6 480 000, as well as the panners' deemed to be a capital company". loss account brought forward on the assets side, which appeared as DM In application of that Law, according to 25 358 233.83, including the limited the practice of the finance authorities panners' share of DM 22 822 410.51. and the Finanzgerichte [Finance Courts], The value of the limited panners' shares a transaction is considered to attract in April 1974 was unquestionably, even capital duty, as an acquisition of in the Finanzamts opinion, nil. membership rights, if the so-called two- tier limited partnership fulfils the By a decision of 10 October 1980, the conditions for treatment as a capital Finanzamt für Verkehrsteuern [Tax company inasmuch as a capital company Office for Transfer Duties], Hamburg, becomes a general partner of the limited assessed duty at DM 64 800. It thereby partnership which is itself a general took as the basis of computation of duty partner of the limited partnership in the limited partners' shares with contri- question. In such a case under paragraph butions of DM 6 480 000, which it 8 (1) (1) (b) in conjunction with regarded as the nominal value within the paragraph 6 of the Kapitalverkehr- meaning of paragraph 8 of the Kapital- steuergesetz, capital duty is payable on verkehrsteuergesetz. the value of the membership rights of the partners. In addition to that provision, paragraph 8 of the Kapitalverkehr- 3. The plaintiff in the main action steuergesetz states: challenged that decision before the Finanzgericht [Finance Court] Hamburg. "In so far as membership rights have a It based its claim on the ground that the nominal value, the value of the value of the limited partners' shares was membership rights shall be . . . at least nil and the limited panners' shares had equal to the nominal value after no nominal value within the meaning of deduction of the contributions out- paragraph 8 of the Kapitalverkehr- standing on them." steuergesetz.

this respect contains directly applicable Court of Justice under Article 177 of the law, because it leaves no discretion for EEC Treaty for a preliminary ruling: the Member States to depart from the rule that the amount on which duty is " 1 . Is Article 5 (2) of the Council charged must not be less than the Directive of 17 July 1969 concerning nominal value of the company's shares. indirect taxes on the raising of Moreover, the German Kapital- capital (69/335/EEC) to be in- steuergesetz is to be interpreted in terpreted as meaning that even accordance with the directive, because shares in limited partnerships the German legislature intended to [Kommanditgesellschaften] have a incorporate the directive into German 'nominal amount' within the law. meaning of that provision, and, if so, which element in a limited part- nership represents that nominal In addition, the Finanzgericht Hamburg amount? took the view that limited partners' shares had no nominal value.

The order making the reference was the "Pflichteinlage" [compulsory contri- received at the Court Registry on bution], which denotes the contribution 6 October 1981. in cash or in kind to be made by the partners, and the "Hafteinlage" or In accordance with Anicie 20 of "Haftsumme" [contribution for which a the Protocol on the Statute of the limited partner is liable], which is the Court of Justice of the EEC, written amount for which the limited partners observations were submitted by the are liable to creditors of the partnership. following:

the nominal value. Upon hearing the report of the Judge- Rapporteur and the views of the Advocate General, the Court decided to However, having come to the final open the oral procedure without any conclusion that there was doubt about preparatory inquiry. By order of these matters, by an order of 17 February 1982 the Court decided to 17 September 1981 the Finanzgericht refer the case to the Third Chamber Hamburg, stayed the proceedings and pursuant to Article 95 (1) of the Rules of referred the following questions to the Procedure.

There are doubts as to the practice of the 2. Observations of the Finanzamt jur German finance courts and tax auth- Verkehrsteuern orities of charging a limited partnership capital duty on the entry of a capital company into another limited partnership On the first question the Finanzamt für which is a general partner of the former Verkehrsteuern sutes that the term limited partnership. The question arises "nominal value" is not limited to the whether tax may be charged on a share and interest in the Gesellschaft mit transaction which represents a fiction for beschränkter Haftung, but is also purposes of capital duty, that is to say, applicable to limited partners' shares. where a company which continues to The assimilation made in the Kapiul- exist as a limited partnership is verkehrsteuergesetz, in accordance with henceforward to be regarded as a capital Directive 69/335/EEC, between a company. In view of the objective of Kommanditgesellschaft in which a capital duty laid down in Article 1 of Gesellschaft mit beschränkter Haftung is Directive 69/335/EEC, the charging of a general partner and true capital capiul duty presupposes corresponding companies implies that definitions, in so action by the members of the company far as they originate linguistically from for reasons connected with company law the vocabulary relating to true capital or considerations of company policy. companies, must be applied corre- There can be no question of that in a spondingly to Kommanditgesellschaften transaction which takes place outside the in which a Gesellschaft mit beschränkter company affected thereby. Such a Haftung is a general panner. Article transaction which does not alter the 3(1) (c) of the directive, pursuant to

which any company, firm, association or Member States there are capital legal person operating for profit, whose companies the shares in which do not members have the right to dispose of have a nominal value. Article 5 (2) of their shares to third parties without prior Directive 69/335/EEC, whereby capital duty is to be charged on the nominal authorization and are only responsible amount if it is higher than the actual for the debts of the company, firm, value of the shares in the company, is association or legal person to the extent not to be interpreted as meaning that of their shares, is to be regarded as a shares in each of the companies to which capital company for the purposes of the this provision is applicable, regardless of directive, has put the national legislature their legal nature, must always have a in a position to regard the Kommandit nominal value.

the affirmative. Kommanditgesellschaft under German law. Therefore the United Kingdom can make no observations on the second pan On the second question, the Finanzamt of the first question. für Verkehrsteuern states that the national legislature had to incorporate the directive into national law and On the second question the United therefore to adapt national law in Kingdom states that the question of the accordance with the harmonizing direct effect of Article 5(2) does not directive. That was done by means of arise in the present case, since the the Kapitalverkehrsteuergesetz, which taxpayer in question does not seek to remains directly applicable law for rely on its provisions before the national taxpayers and for the authorities. This court. The court making the reference initial position is to be taken into seems to have taken the point of its own consideration in answering the second motion. The question of the direct effect question. of a directive can arise only where a Member State has failed in its duty to implement the directive and a person claims the right to defend himself against J. Observations of the United Kingdom the activities of the Member State by relying on the provisions of the directive. It is in fact difficult to envisage a situation where a taxpayer would seek to On the first question the United rely on the direct effect of Article 5 (2) Kingdom states that under the laws of

in proceedings before a national court, as of taxation under Article 5 (2) of the purpose of that provision is to Directive 69/335/EEC represents an require Member Sutes to set a minimum absolute limit, below which it is not basis for the charge to capital duty. permissible to fall. That is also confirmed by the amendment of that provision as a result of Council Directive 74/553/EEC of 7 November 1974 A Member State may not invoke the (Official Journal 1974, L 303, p. 9). The direct effect of Article 5 (2) in term 'nominal amount' must have a proceedings before its national court, if, uniform interpretation for all Member for example, it considers that its States, because the . purpose of the implementing legislation is in some way directive is the harmonization of both defective. In fact the German authorities the structure and the rates of capital in the present case have not argued that duty. Article 5 (2) is directly applicable, but have simply referred to Article 5 (2) as providing support for their view that under German national law a limited In everyday language, the term "nominal partner's share can be said to have a amount" refers above all to the nominal value. In the view of the United pecuniary value printed on shares, Kingdom, the Federal Republic of securities or currency, which may be Germany has adopted the implementing different from the market or exchange measures required by Directive 69/335/ value of such documents. However, its EEC, by providing that duty shall be use is not limited to rights represented by charged on the nominal value if the documents. Thus one also speaks of the shares in the company have a nominal nominal amount in relation to shares in a value. German Gesellschaft mit beschränkter Haftung. However there are also companies, such as the bürgerlich- rechtliche Gesellschaft [unincorporated If Article 5 (2) is read together with the association], in relation to which it is other provisions of the directive, it fails generally agreed that one cannot speak to fulfil the criteria laid down by the of a nominal amount. Article 3 (2) of Court of Justice for producing direct Directive 69/335/EEC provides that effect, namely that it should be such companies shall also be deemed to unconditional and sufficiently precise; be capital companies, provided that they Articles 3 (2), 4 (2), 6, 8 and 9 allow operate for profit and that the Member Member States considerable discretion. States do not provide otherwise. A straightforward application of the term "nominal amount" to such companies is not possible. Accordingly, the second question should be answered in the negative. In order to ascertain whether a share in a company has a nominal amount within the meaning of Article 5 (2) of Directive 4. Observations of the Commission 69/335/EEC, it is necessary to refer to the spirit and purpose of the directive. Its object is to impose a tax on the raising of capital. Article 5 provides the criteria to On the first question the Commission be applied in valuing the capital raised, first of all points out that the adoption of which serves as the basis of taxation. The the nominal value as the minimum basis nominal amount is thereby regarded as

As to the second question, the Commission first of all points out that, For limited partners' shares the position according to the well-esublished is as follows: The limited partner's case-law of the Court of Justice, contribution is set at an amount to be directives may) also have direct effect on entered into the trade register, which individuals in the Member Sutes. That is limits the limited partner's contribution the case if they conuin a clear obligation in relation to creditors of the part- which is not subject to any reservation or nership. An agreement whereby a limited condition and leaves no discretion for partner's contribution is foregone or the Member States. delayed is of no effect as against the creditors of the partnership. It is, however, admissible in the articles of association to fix the contribution In so far as Article 5 (2) of Directive actually to be paid by the limited partner 69/335/EEC provides that the amount to the partnership at a level lower than on which the duty is to be charged is not the amount to be entered in the to be less than the nominal amount of commercial register for which the limited the shares in the company belonging to partner is liable. One speaks of the each member, those conditions are "Pflichteinlage" [compulsory contri- satisfied inasmuch as that provision lays bution], as opposed to the "Hafteinlage" down a clear and unconditional [contribution for which a limited partner obligation to observe a minimum limit is liable]. As between the partners it is for taxation. In order to ensure the also possible to forego payment of the uniform taxation in all Member States contribution or to repay it. The amount sought by the directive, taxation to be entered into the commercial according to the nominal amount in register therefore does not correspond to pursuance of Article 5 (2) should u k e the capital which must be paid in. place only in so far as the conditions Therefore that amount cannot be described above for the assumption of a considered the nominal amount within nominal amount exist. If there is no the meaning of Article 5 (2) of Directive nominal amount, duty may be charged 69/335/EEC. The other terms used in only in accordance with the other bases practice to denote the limited partners' for taxation laid down in Article 5. In shares, which were mentioned in the this regard also the framework for order making the reference, that is to uxation is laid down by the directive say, the share in the capital (an clearly and without any reservation.

2 Those questions arose in the course of a dispute between the Komman- ditgesellschaft Felicitas Rickmers-Linie KG & Co. and the German tax authority over the assessment of capital duty under the Kapitalverkehr- steuergesetz [Law on Capital Transactions Tax] of 17 November 1972, which was adopted by the Federal Republic of Germany in order to implement the above-mentioned directive. The dispute related to the determination of the basis of assessment on which capital duty must be charged in this case.

3 Article 1 of Directive 69/335 provides that capital duty is to be charged on contributions of capital to capiul companies, which are defined in Article 3 (1) of the directive. According to Article 3 (2), any other company, firm,

FELICITAS v FINANZAMT FÜR VERKEHRSTEUERN

association or legal person operating for profit is to be deemed to be a capital company. However, a Member State is to have the right not to consider it as such for the purpose of charging capital duty. As is clear from the order making the reference, in relation to a Kommanditgesellschaft the Kapitalverkehrsteuergesetz makes use of the option granted by Article 3 (2) of the directive to exclude certain categories of company, firm, association or legal person from capital duty. However, in paragraph 5 (2) (3), it provides that Kommanditgesellschaften which have among their general P»"ners either a capital company stricto sensu or another Kommanditgesellschaft which has among its general panners a capital company are to be subject to capital duty.

4 In relation to the basis of assessment of capital duty, Article 5 (2) of Directive 69/335, in the version in force at the material time, provides, so far as is relevant to this case, that "the amount on which the duty is charged shall n o t . .. be less than the actual value of the shares in the company allotted or belonging to each member or the nominal amount of such shares if the latter exceeds their actual value". In application of that provision, paragraph 8 of the Kapitalverkehrsteuergesetz provides that "In so far as membership rights have a nominal value, the value of the membership rights shall be . . . at least equal to the nominal value after deduction of the contri- butions outstanding on them".

" 1 . Is Article 5 (2) of the Council Directive of 17 July 1969 concerning indirect taxes on the raising of capital (69/335/EEC) to be interpreted as meaning that even shares in limited partnerships [Komman- ditgesellschaften] have a 'nominal amount' within the meaning of that provision, and, if so, which element in a limited partnership represents that nominal amount?

2. Is Anicie 5 (2) of Directive 69/335/EEC directly applicable, in the sense that a taxpayer may rely on it before a court so as to be taxed in accordance with it?"

s In the observations which it submitted to the Court, the plaintiff in the main action took the view that it was necessary first to reply to the question underlying the question put to the Court by the Finanzgericht Hamburg, namely, whether a transaction such as that concerned in this case may be considered as a transaction subject to capital duty within the meaning of the directive, even though it is a mere fiction so far as capital duty is concerned and does not affect the existence of the organization in question or alter its general legal and economic structure.

? However, that question, which involves the interpretation of Articles 3 (2) and 4 of the directive, was not raised by the Finanzgericht Hamburg, which expressed no doubt in its order making the reference that a transaction such as that concerned in this case was subject to capital duty. It is therefore unnecessary to give a ruling on that question in the framework of these proceedings for a preliminary ruling.

FELICITAS v FINANZAMT FÜR VERKEHRSTEUERN

1 3 On the other hand, the United Kingdom took the view in its written obser- vations that the concept of "nominal amount" within the meaning of Article 5 (2) of Directive 69/335 could be applicable only if the shares in the company had a recognized nominal amount under national law. During the oral procedure it stated that that was the case where, according to the determination made by the national court, the shares related to an amount representing the capital raised.

JUDGMENT OF 15. 7. 1982 — CASE 270/01

1« It should first be stated that the concept in question is contained in a provision of Community law which does not refer to the law of the Member States in order to determine its meaning and scope. The harmonization of taxes such as capital duty on the raising of capital, not only in relation to the rates but also to the structure thereof, implies that the basis of assessment is determined in each Member State on the basis of objective criteria, having a uniform scope within the Community and free from the influence of national laws. It follows that the interpretation of the concept at issue, considered in its entirety, may not be left to the discretion of each Member State. It is therefore necessary to provide the national court with criteria which will enable it to determine whether the organization in question fulfils the criteria laid down by the Community rules.

is According to its ordinary meaning "nominal amount" refers to an amount, in principle unchangeable and expressed in cash, which may be different from the true economic value. In the context of genuine capital companies, the expression is used to denote the quantified value of the member's compulsory contribution to the capital company, which cannot be waived either by the company or by the other members, and which characterizes in durable fashion the relationship between the member and the company.

i9 Having regard to the above-mentioned criteria, it should be noted that in a Kommanditgesellschaft such as that described by the Finanzgericht Hamburg, namely one in which the limited partners' contribution is not necessarily expressed in cash, in which the share in the capital may be subject to constant fluctuations and in relation to which the amount entered in the commercial register in respect of each limited panner is intended only to limit the latter's possible liability in relation to creditors of the Komman- ditgesellschaft, the shares do not have a nominal amount within the meaning of the provision in question.

20 However, the German tax authority has denied that the bodies mentioned in paragraph 5 (2) (3) of the Kapitalverkehrsteuergesetz, and in particular the plaintiff in the main action whose documents of constitution contain special provisions, in fact display such characteristics.

2i Nevertheless, the question whether bodies such as those covered by paragraph 5 (2) (3) of the Kapitalverkehrsteuergesetz constitute a type of organization which is different from that of the Kommanditgesellschaft in general is a matter purely of national law, as is the question, where relevant, of the legal structure of such an organization. It is therefore for the national court to determine the type of organization concerned in this case and to assess its characteristics, taking into account the criteria contained in the Community rules.

JUDGMENT OF 15. 7. 1982 — CASE 270/81

22 The answer to the first question should therefore be that the shares in a company have a nominal amount within the meaning of Article 5 (2) of Directive 69/335 when the legal structure of the type of company to which the company concerned belongs includes amounts fixed in cash, intended to quantify the value of the members' contribution to the raising of capital in that company and to characterize in durable fashion the relations between the members and the company. It is for the national court, taking into account the criteria for interpretation laid down by the Court of Justice, to carry out the necessary appraisal both of the relevant national rules and of the provisions of the company's documents of constitution in order to establish whether that is the case.

u Under those circumstances, it is not necessary to reply to the second question put by the Finanzgericht Hamburg.

Costs

28 The costs incurred by the United Kingdom and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action before the national court, the decision on costs is a matter for that court.

On those grounds,

T H E COURT (Third Chamber),

in answer to the questions referred to it by the Finanzgericht Hamburg by order of 17 September 1981, hereby rules that:

J. A. Pompe A. Touffait Deputy Registrar President of the Third Chamber

OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN DELIVERED ON 17 JUNE 1982

My Lordi, to the amount of their contributions to the partnership property, as recorded in the commercial register. This case has been referred to the Court by the Finanzgericht, Hamburg, for pre- liminary rulings on the interpretation of At all material times a general partner in Article 5 (2) of Council Directive 69/335 the plaintiff company was another of 17 July 1969 concerning Indirect Kommanditgesellschaft, the Rickmers- Taxes on the Raising of Capital, Official Linie KG which I shall call "the upper Journal, English Special Edition 1969 Kommanditgesellschaft". The defendant (II) p. 412. is the Tax Office for Transfer Duties in Hamburg.

The plaintiff is the Kommandit- gesellschaft Felicitas Rickmers-Linie KG On 10 April 1974 a company limited by & Co. A Kommanditgesellschaft is a shares, Hapag Lloyd AG, became a form of limited partnership consisting of general partner in the upper Komman- one or more general partners, whose ditgesellschaft. The defendant took the liability is unlimited, and one or more view that this was a transaction which limited partners, whose liability is limited required capital duty to be paid in