C-4/97

2. By Decree-Law No 394 of 30 September 1992, the Italian Republic introduced an (3) share-premium reserves and equalisation annual ad valorem tax on the net assets of, interest paid by those subscribing for inter alia, capital companies, at a rate of 0.75% 2 new shares or units; (hereinafter 'the Italian tax').

* Original language: English. 1 — OJ, English Special Edition, First Series 1969 (II), p. 412 (here- inafter the [capital duty] Directive'). The Directive has been amended on a number of occasions (Directive 73/79/EEC, OJ 1973 L 103, p. 13; Directive 73/80/EEC, ibid., p. 15; Directive 74/553/EEC, OJ 1974 L 303, p. 9; (4) revaluation reserves included on the bal­ Directive 85/303/EEC, OJ 1985 L 156, p. 23), though only ance sheet on the basis of specific legal the last is material in the present case (see section II, Delow). 2 — Gazzetta Ufficiale della Repubblica Italiana No 230, 30 Sep- provisions, including those of the insur­ tember 1992, p. 3; the Decree-Law has subsequently been ance companies mentioned in Article 36 converted into Law No 461 of 26 November 1992, GURI No 281, 28 November 1992, p. 5. of Law No 295 of 10 June 1978;

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(5) statutory reserves, reserves required The net assets do not include the following: under the statutes of the company, reserves to which special arrangements apply to cover specific situations and overdue refunds of tax overpaid, and other reserves or funds regardless of the tax regime applicable thereto; — funds included on the balance sheet to cover specific burdens or liabilities and those which constitute asset adjustment items;

NONWOVEN v DIREZIONE REGIONALE DELLE ENTRATE PER LA TOSCANA

rect tax on capital contributions compatible 7. To this end, the Directive seeks to harmo­ with Community law and in particular with nise the conditions under which Member Directive 69/335/EEC?' States may charge duty on contributions of capital to capital companies (Article 1). Arti­ cle 4 lists the types of transactions which must, or may, be subjected to capital duty. Article 7, as last amended by 4 Directive 85/303/EEC, fixes the maximum rate of capital duty at 1%, subject to certain 5. Observations have been submitted by the exceptions which are not relevant here. Arti­ applicants, the Italian Republic, the Hellenic cle 10 prohibits Member States from charging Republic and the Commission. any taxes other than capital duty:

II — The capital duty directive

'(a) in respect of the transactions referred to in Article 4;

6. In Ponente Carni, the Court identified the objectives of the Directive in the following terms:

(b) in respect of contributions, loans or the provision of services, occurring as part of the transactions referred to in Article 4;

8. The applicants argue that the Italian tax has an equivalent effect to an increase in the rate of the tax on the raising of capital, or a re-imposition of the capital duty. The very 9. The applicants argue that the Italian tax existence of a company's capital presupposes should be classified for the purposes of Com­ that capital has been raised, and the imposi­ munity law as an indirect tax because of its tion of an annual tax on the capital raised is 6 effects, not its denomination. They rely on therefore a tax a posteriori on the raising of Germany v Commission, and the Court's capital. In its view, the tax on assets has an case-law on the notion of taxes having an economic effect which is equivalent to capital equivalent effect to customs duties in Arti­ duty, imposed at a later date than that of the 7 cles 9 and 12 of the Treaty. In their view, the capital contribution, and is therefore a capital classification of taxes as 'direct' or 'indirect' duty. The imposition of such a tax over the is essentially an economic matter, and the three years following the creation of a com­ Directive, contrary to its title, is not limited pany and the payment of the registration duty exclusively to indirect taxes; in particular, of 1%, for example, would be exactly the Article 10 does not make any distinction same as paying a single tax on the raising of between these and direct taxes. They also rely capital of 3.25% (= 1% +3 x 0.75%), though on the fact that the tax base of the Italian tax the Directive only permits capital duty up to is wider than that of the capital duty allowed a maximum of 1%. The deferment in time of under the Directive. The applicant appears to such imposition does not render it compat­ accept that the Italian tax would be illegal ible with the Directive, the sixth recital of which expressly states that 'duty on the raising only in so far as it affects the original capital of capital within the common market by a of the company. company or firm should be charged only once'. The applicants rely on paragraph 31 of the judgment in Ponente Carni, where the Court held that '[the] fact that the charge is due not only on registration of the company but also in each subsequent year, cannot of itself free the charge from the prohibition laid 10. For its part the Commission argues that down by Article 10 ... any other interpreta­ the notions of 'capital contributed' to a com­ tion would deprive the provisions of Article 10 pany and its 'assets' are fundamentally dif­ of any practical effect since it would enable ferent. While the net assets of a company are Member States to burden capital companies represented by the sum of the 12 accounting with an annual fiscal charge the chargeable items listed at Article 2 of the Ministerial event for which would be merely the main­ Decree of 7 January 1993 implementing the tenance of the company in the register'; 5they

13. The first matter to be clarified is whether the tax comes within the scope of the Direc­ 11. Italy, largely supported by Greece, con­ tive. I agree with the applicants that the des­ tends that the Directive only applies to indi­ ignation of a particular national tax as being rect taxes, those which are imposed on the direct or indirect is not decisive in this regard; transfer of wealth from one person to another; as the Court held in Bautiaa, 'the nature of a the basic taxable amount of the contested tax, tax, duty or charge must be determined ... ac­ by contrast, is determined by the net assets of cording to the objective characteristics by a company, and the tax is therefore a direct which it is levied, irrespective of its classifica­ 8 tax outside the scope of the Directive. Any tion under national law'. Similarly, the annual tax on assets will apply to goods which have character of the Italian tax, though normally 9 already been taxed when they were trans­ indicative of a direct tax, does not suffice to 10 ferred to the person subject to the tax on take it outside the scope of the Directive. assets. The two taxes in question are different Having regard to its objective characteristics, in character and have different economic however, it does not appear to me that the effects. In any case, the Directive only seeks Italian tax can be considered an indirect tax to eliminate indirect taxes having the same on the raising of capital within the meaning characteristics as capital duty, whereas the of the Directive. Italian tax fulfils neither of these criteria. The concept of 'charges having equivalent effect' is only used in the context of customs duties within the meaning of Articles 9 and 12 of the Treaty.

capital to capital companies': more specifi­ 15. I am conscious of the soundness of the cally, as the Court stated in Solred, 'the Direc­ remarks of Advocate General Jacobs in Den- tive is aimed in particular at achieving har­ kavit to the effect that 'the contribution made monisation of the factors involved in the by the directive to the free movement of fixing and levying of capital duty in the Com­ capital is a relatively modest one ... [it] plainly munity, by means of the elimination of tax does not seek to remove all the tax obstacles obstacles which interfere with the free move­ to the integration of capital markets arising 1 ment of capital'. 1The types of transactions from the differences in taxes on the wealth which must be subjected to capital duty, listed and profits of undertakings. Moreover, the in Article 4(1), are all transactions whereby mere fact that a tax is imposed on a company capital or assets are transferred to a capital by reason of its legal form is not of itself suf­ company in the taxing Member State, whether ficient to bring it within the scope of the pro­ 12 through the formation of such a company hibitions in Article 10 ...'. Nor, I might add, (paragraphs (a) and (b)), an increase in the is the fact that a tax imposed on a capital capital of an existing company through the company takes into account the amount of its contribution of assets (paragraph (c)), an subscribed capital sufficient to bring the tax increase in assets through the contribution of within the scope of the Directive; the tax in rights equivalent to members' rights (para­ question in the present case, however for­ graph (d)), or the transfer of its effective centre mally described, is clearly a tax on the wealth of management or registered office from a of capital (and other) companies, rather than

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NONWOVEN v DIREZIONE REGIONALE DELLE ENTRATE PER LA TOSCANA

tive. In particular, the last recital in the pre amble to the Directive expressly applies to indirect taxes which, though legally distinct from capital duty, have 'the same characteris tics as the capital duty or the stamp duty on securities [the imposition of which] might frustrate the purpose of the measures pro vided for in this Directive'. In Società Immo- biliare SIF, the Court noted that 'the specific event giving rise to the registration charge, the mortgage registration fee and the Land Register fee is not the contribution of immov able property to a capital company', but

13 the Directive. However, the reliance on the erence. I agree with the Commission that it effects of the charges at issue in Società Immo- would not be right to isolate one element of biliare SIF is based on the text of the Direc the tax base and treat it separately from the tive, and may not, in my view, be extended to others. Furthermore, taken to its logical con the effects of taxes other than those contem clusion, the reasoning of the applicants could plated by the Directive. Moreover, as the have very far-reaching effects which were not, Court noted in Ponente Carni, 'the object of in my view, intended by the Directive.

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15 17 impose on the subsidiary. There the national a matter for the Member States themselves.' tax authorities sought to impose tax on a parent company which had granted an interest- free loan to a subsidiary company, on the basis of the estimated value of the interest which notionally accrued to the former. The transaction itself was held to be covered by Article 4(2)(b) of the Directive, while Article 10(b) clearly prohibits taxes on 'loans . . . occurring as part of the transactions referred to in Article 4'. Given the economic identity of parent and subsidiary company, the taxing of the parent company could be said to be

16 cle 10: immobiliari', or, for convenience, 'the Invim') 18 in Società Immobiliare SIF. The Court noted that '[the] Invim taxes the appreciation in the value of immovable property accruing to the owner when it is alienated for consid eration or, in the case of immovables owned by companies, the notional appreciation in 19 value on the expiry of a 10-year period'. Though the imposition of the Invim when the immovable property was contributed to SIF could be said to have economic effects c which are equivalent to a duty on an increase [t]he directive is intended to harmonise the in the capital by a contribution of assets, taxes, charges and dues imposed on the raising within the meaning of Article 4(1)(c), and of capital, within the confines of its field of hence was capped at 1%, the Court found that the Directive did not apply to the Invim. In reaching that conclusion, the Court took 15 — Case C-287/94 Frederiksen v Skatteministeriet [1996] account of the fact that the Invim taxed the ECR I-4581. 16 — The answer given by the Court was that 'Article 10 .

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NONWOVEN v DIREZIONE REGIONALE DELLE ENTRATE PER LA TOSCANA

the contribution itself, that the basis of assess­ other formalities. It does not prohibit a ment did not correspond to that established Member State's taking account of the amount by Article 5(1)(a) of the Directive, and that it of capital in the calculation of a tax on net was the contributor, not the company, which assets, or in any way limit the powers of the was liable to pay it. Member States in respect of the imposition of such a tax.

21. Finally, while some of the parties have referred to Article 10 to illustrate that the imposition of the Italian tax is compatible 22. I am therefore of the view that the Italian with the Directive, in my view this provision tax is neither a capital duty nor an indirect demonstrates rather that the tax falls outside tax with the same characteristics as capital the scope of the measure. Article 10 prohibits duty, and that its imposition in the circum­ taxes other than capital duty in respect of 'the stances described in the order for reference in transactions referred to in Article 4', certain the present case is not incompatible with the ancillary transactions, and registration and Directive.

V — Conclusion

23 . In view of the foregoing , I recommend to the Court that it answer the question referred to it by the Commissione Tributaria Provinciale di Firenze by order of 18 October 1996, registered at the Court on 9 January 1997, as follows: