C-280/91

Although companies and firms which have members with unlimited liability are there- fore not necessarily capital companies, Arti- The question has been referred in the course cle 3(2) provides that: of an appeal by the defendant Finanzamt against a judgment of the Hessisches Finan- zgericht, which held that capital duty was not payable on a particular transfer of part of 'For the purposes of the application of this a shareholding in the respondent partnership. Directive, any other company, firm, associa- tion or legal person operating for profit shall be deemed to be a capital company. H o w - * Original language: English. ever, a Member State shall have the right

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not to consider it as such for the purpose of By Article 4(2): charging capital duty.'

'The following transactions may be subject to capital duty: It appears that, pursuant to that provision, German law treats a limited partnership as a capital company, even where it has partners (a) an increase in the capital of a capital com- with unlimited liability ('general partners'), pany by capitalization of profits or of as long as one of those partners is itself a permanent or temporary reserves; capital company: see Case 270/81 Felicitas v Finanzamt für Verkehrsteuern [1982] ECR 2771, at paragraph 3 of the judgment, and see also Case C-49/91 Weber Haus v Finanzamt Freiburg-Land [1992] ECR I-5207. That is so, in particular, where one of the general Article 5 deals with the basis upon which the partners is a limited company of the form duty is assessed. According to Article 6: 'GmbH'; in such a case the entity in question is called a ' G m b H & C o . KG'.

Capital duty shall be charged in all such As we have already seen, limited partner- cases on the value of the share in the compa- ships of the form ' G m b H & C o . K G ' are ny's assets belonging to members with regarded as capital companies for the pur- unlimited liability for the company's obliga- poses of that implementation (see Article tions.' 5(2)(3) of the KVStG). However, by Article 6(1)(1) of the KVStG, the shares held by a general partner of such a partnership are not regarded as rights in the company for the purposes of capital duty. It appears therefore that contributions of capital made by such a partner are not liable to duty under the pro- visions of the KVStG, and that the German Government has accordingly exercised the 4. By Article 3(2) of the directive, therefore, option given to it by Article 6(1) of the a Member State has the option of exempting directive. from the payment of capital duty limited partnerships which have among their mem- bers persons with unlimited liability for the debts of the partnership. Alternatively, a Member State may include such partnerships within the scope of the tax. In that case, the The background to the case Member State still has the option of exempt- ing from capital duty the capital contributed by such a member: see Article 6(1). If how- ever the share of a general partner is con- verted into a limited partner share, by the liability of the partner becoming limited, capital duty becomes payable on the value of 6. The material facts of the case are set out the shareholding so converted: see Article only in part in the order for reference. 6(2). It is clear that the latter provision is Although a fuller account can be gleaned necessary to prevent the avoidance of tax; for from the documents contained in the otherwise a company could raise capital national file lodged at the Court, and in par- from contributions made by members with ticular from the judgment at first instance of unlimited liability, and then subsequently the Finanzgericht, it would have been prefer- allow such members to limit their liability to able if a summary of all the relevant facts had the amount of their shareholding, thereby been included in the order for reference. It is avoiding capital duty. to be noted, in particular, that it is only the order for reference itself, and not any of the documents in the national file, which is transmitted to the Member States and the Commission (and where appropriate to the Council) pursuant to Article 20 of the Stat- ute of the Court. A concise statement of all the relevant facts is accordingly necessary in order that those notified can decide whether 5. The directive was implemented in Ger- to submit written observations, and what many by the Kapitalverkehrsteuergesetz issues to address, as well as for the Court's 1972 (BGBl. I p. 2129), hereafter 'KVStG'. own purposes.

7. From the documents contained in the Schultheiss ('S') and to V, who were both national file, it appears that the applicant in members of VKG-B. As a result of that the main proceedings (and respondent in the transaction, S became a limited partner with appeal to the Bundesfinanzhof) is a limited a shareholding of DM 700 000, and the partnership formed by an agreement dated shareholding of V was increased to D M 1 March 1971. The original partners in the 9 100 000. By an agreement dated 8/11 July respondent were D r Hans Vießmann ('V') 1983, V transferred a portion of his share- and the Viessmann Elementa-Produktions-, holding to his wife, and further portions to Vertriebs-und Verwaltungsgesellschaft mbH each of his five children. After those trans- ('V-GmbH'). V was originally a limited part- fers, V was left with a shareholding in the ner with a shareholding of D M 1 800 000; respondent amounting to D M 4 641 000. V-GmbH was a partner with unlimited lia- Finally, by an agreement dated bility, and had made a capital contribution of 19/21 December 1983, S transferred his DM 50 000. In the course of 1972 and 1973, shareholding in the respondent to V, his wife V increased his shareholding by DM and five children. It appears that the purpose 3 000 000, bringing his total shareholding to of those transactions was to transfer VKG- DM 4 800 000. B's entire shareholding in the respondent to V and his family. It seems that the transfer of the shareholding from VKG-B to the six family members could not be made direcdy, but had to be effected by means of a prior transfer to V and S as members of VKG-B. O n 22 December 1983, the respondent made 8. On 15 August 1973 the firm Viessmann a declaration, for the purposes of the com- KG of Basle ('VKG-B') became a limited mercial register, that VKG-B had ceased to partner in the respondent, with a sharehold- be a member of the respondent and had ing of D M 5 000 000. O n 27 February divided its shareholding between V and the 1974 capital duty was paid in respect of the members of his family. D M 9 800 000 contributed by the two lim- ited partners (namely the D M 5 000 000 con- tributed by VKG-B and the DM 4 800 000 contributed by V). However, pur- suant to a members' resolution dated 14 Sep- tember 1976, V subsequently transferred DM 2 000 000 of his shareholding to VKG-B, and V's remaining interest was converted from a 10. For what follows, it is important to note limited to a general shareholding. Thus, V that paragraph II.2 of the agreement of now became a member with unlimited Labil- 8/11 July 1983 specifies that, on receiving the ity for the debts of the respondent. shares which are to be transferred to them, the six family members become members of the respondent with limited liability ('Kom- manditisten'). It is also to be observed that, both before and after that transfer, V remained a member of the respondent with unlimited liability ('Komplementär'). It 9. Pursuant to an agreement dated 4 July appears that, under German law, when the 1983, VKG-B transferred its entire share- shareholding of a limited partner is trans- holding in the respondent to D r Hermann ferred to a general partner, the latter remains

13. In its judgment at first instance the Finanzgericht held that no capital duty was Consideration of the question referred chargeable on the transfer of shares to the six family members. In reaching that conclusion, the Finanzgericht took into account the pro- visions of both Article 4 and Article 6 of the directive in interpreting the KVStG. As we have seen, however, the Bundesfinanzhof has 11. The transaction at issue in the present referred a question on Article 4 of the direc- proceedings is the acquisition of shares in the tive only. respondent by the six family members, pur- suant to the agreement of 8/11 July 1983. It will be recalled that those shares were acquired by way of a transfer of part of the shareholding of a general partner, by virtue of which the shares were converted from general partner shares to limited partner shares. 14. In answering a question referred for pre- liminary ruling, the Court is not of course limited to considering the specific provisions of Community law which are mentioned in the order for reference, but may furnish the national court with all the elements of Com- 12. The defendant Finanzamt decided that munity law it might require in order to the transaction was liable to capital duty decide the case. It seems to me that the under Article 2(1)(1) of the KVStG. The Finanzgericht was correct, in the present respondent challenged that decision on the instance, to take into consideration both ground, inter alia, that no further capital had Article 4 and Article 6 of the directive when been raised by the respondent after 1974, interpreting the national implementing pro- when capital duty had been paid in respect visions. As we have seen, although Article of the contributions made by V and by 4 contains an exhaustive list of the categories VKG-B (see paragraph 8 above). Thus duty of transaction which may give rise to a liabil- had already been paid in respect of the entire ity to capital duty, Article 6(2) adds a further shareholdings acquired by V and VKG-B. category which is applicable where a Mem- The respondent argued that the subsequent ber State has exercised its power under Arti- acquisition of shares by the six family mem- cle 6(1) to exclude certain contributions of bers resulted from transfers of parts of capital from liability to the tax.

15. It is clear, in my view, that the transac- limited partner shares in the same partner- tion at issue in the present proceedings does ship. not fall within any of the categories specified in Article 4. In particular, the conversion of part of the shareholding of a general partner of a limited partnership into a limited share- holding cannot be regarded as 'an increase in 17. It seems to me that, where a Member the capital of a capital company by contribu- State has exercised its power to exempt from tion of assets of any kind' for the purposes capital duty the contribution made by a gen- of Article 4(1 )(c), in so far as that conversion eral partner of a capital company, a charge to does not entail any further contribution of capital duty must arise whenever all or part assets to the company. N o r can such a con- of the shareholding thereby acquired is con- version be regarded as a capitalization of verted into shares held by limited partners of profits or reserves for the purposes of Article the company. As the Commission points out, 4(2)(a), since neither the accumulated profits the scheme of Article 6 of the directive is nor the reserves of the company are affected clear. A charge to capital duty normally by such a transformation. N o other category arises where a shareholding in a capital com- of transaction mentioned in Article 4 would pany is first acquired by a member of the appear to be even remotely relevant to the company. Under Article 6(1) of the directive, transaction at issue. however, such an acquisition can be exempted from liability to duty where that member has unlimited liability for the obli- gations of the company. Where, on the other hand, that condition ceases to be satisfied, a charge must be imposed pursuant to Article

case. The Commission points out that the means of the limitation of liability of the German Government has exercised its power original partner. Thus, when V transferred a under Article 6(1) of the directive to exclude part of his shareholding to the members of capital contributed by members with unlim- his family, he continued as a partner with ited liability, and shares held by such mem- unlimited liability. However, it does not bers, from the basis of assessment for capital seem to me that the scope of the third indent

I-980

VIESSMANN

partner to another person and by virtue of alsoarise where, as in the present case, part that transfer becomes a limited partner share. only of the general partner's shareholding is It is to be noted that someone who receives a transferred. Thus, it is sufficient if the por- general partner share might, depending upon tion transferred is converted, on transfer, the rules of national law and the terms of the into a limited shareholding; and it follows transfer, himself become a general partner. chat the company's liability to the charge is Where however the terms of the transfer are unaffected by the circumstance that the such that he instead becomes or remains a transferor continues as a partner with unlim- limited partner, a transaction has taken place ited liability. In such a case, the basis for whereby what would otherwise have been an assessment of the duty must be the value of unlimited liability has become a limited one. that part of the shareholding which has been That, in my view, is sufficient to bring the converted into a limited partner share, rather transaction within the wording of the third than the value of the entire shareholding. indent of Article 6(2). It is moreover to be observed that, if Article 6(2) were to be more narrowly construed, capital duty could be avoided by the simple device of raising capi- tal from a general partner and subsequently transferring the shareholding thereby acquired to a limited partner.

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21. It will be recalled that, in the present paragraphs 8 and 9 above). It seems to me case, capital duty has been paid in respect of that in such a case the Member State cannot the entire shareholding of the general part- be regarded as having exercised its power, ner, since all the shares acquired by V were under Article 6(1), to exclude the acquisition originally limited partner shares. The shares of a shareholding by a general partner from subsequently became general partner shares, liability to capital duty, since duty has in fact either by virtue of a members' resolution been charged and paid in respect of the converting V from a limited to a general shareholding in question. It follows that a partner or by virtue of a subsequent transfer charge cannot arise under Article 6(2) of the to V of shares held by a limited partner (see directive.

Conclusion

22. I am accordingly of the o p i n i o n t h a t the question referred b y the Bundesfinan- zhof should be answered as follows:

Article 6(2) of C o u n c i l D i r e c t i v e 6 9 / 3 3 5 / E E C m u s t be i n t e r p r e t e d as m e a n i n g that, w h e r e p a r t of t h e s h a r e h o l d i n g of a general p a r t n e r of a limited p a r t n e r s h i p is transferred t o a n o t h e r p e r s o n a n d b y v i r t u e of t h a t transfer b e c o m e s a limited p a r t - n e r share, a charge t o capital d u t y arises, p r o v i d e d that capital d u t y has n o t p r e v i - o u s l y been charged in respect of t h e s h a r e h o l d i n g transferred.