C-439/97

SANDOZ

OPINION OF ADVOCATE GENERAL LÉGER delivered on 20 May 1999 *

1. The questions referred by the Verwal- 3. Article 73b(1) of the Treaty provides: tungsgerichtshof (Administrative Court), Austria, concern the meaning and scope of Article 73b of the EC Treaty (now Article 56 EC) et seq. and of certain provisions of Council Directive 88/361/ '1. Within the framework of the provisions EEC of 24 June 1988 for the implementa- set out in [Chapter 4 of the Treaty entitled tion of Article 67 of the Treaty (hereinafter "Capital and payments"], all restrictions 'Directive 88/361' or 'the Directive').1 It is on the movement of capital between Mem- seeking to ascertain thereby whether a ber States and between Member States and national law which in essence enables the third countries shall be prohibited.' national tax authority to charge stamp duty equivalent to 0.8% of the value of a loan taken out by a resident borrower from a non-resident lender is compatible with the abovementioned Community provisions. 4. Article 73d(l)(b) of the EC Treaty (now Article 58(l)(b) EC), however, states:

' 1 . The provisions of Article 73b shall be Law without prejudice to the right of Member States:

The relevant Community provisions

2. Article 73b et seq., which entered into force on 1 January 1994, introduced the liberalisation of capital between Member (b) to take all requisite measures to pre- States and between Member States and vent infringements of national law and third countries. regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down * Original language: French. procedures for the declaration of capi- 1 — OJ 1988 L 178, p. 5. tal movements for purposes of admin-

2 —Joined Cases C-163/94, C-165/94 and C-250/94 [1995] 3 — BGBl. 1957, No 267, in the version published in the BGBl, ECR 1-4821, paragraph 2 of the operative part. of 1957, as amended by BGBl. 818/1993.

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11. Article 16 of the GebG distinguishes 14. Point (1) of Article 28(1) and Arti- between the case where the instrument is cle 28(6) of the GebG provide that, in the drawn up abroad and the case where it is case of legal transactions binding on both drawn up in Austria. parties, the signatories to the instrument are jointly liable to pay the duty.

15. Article 30 of the GebG, however, states that all parties to a legal transaction are 12. Under Article 16(1) of the GebG, if the responsible for payment of such duties. instrument is drawn up in Austria, the duty is payable either when it is signed by the contracting parties or when it is issued or sent by one of the signatories.

16. The rates of duty are laid down in Article 33 of the GebG and vary according to the type of transaction concerned.

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is recorded shall be deemed to constitute Directive 88/361/EEC and/or Arti- the relevant document.' cle 73b(l) of the Treaty shall not be fixed'.

22. Sandoz considers that the first sentence of the fourth subparagraph of Article 33 TP 8 of the GebG, as applied by the Facts and procedure national tax authority, is likely to discou- rage a resident borrower from approaching a lender who is not resident in Austria, normally a foreigner, in order to take out a 19. On 20 January 1995, Sandoz GmbH, loan which the parties agree will not be established in Vienna, Austria (hereinafter recorded in a written instrument. In cases 'Sandoz' or 'the appellant in the main where a loan is agreed but is not recorded proceedings'), took out a loan of ATS 220 in an instrument, a borrower approaching a million from Sandoz Management Services lender established in Austria is not required Brüssel SA, whose registered office is in to pay the duty provided for in the first Brussels, Belgium. No instrument recording subparagraph of Article 33 TP 8 of the the loan was drawn up although Sandoz GebG. The first sentence of the fourth recorded it in its books. subparagraph of that provision therefore constitutes an obstacle to the free move- ment of capital between a non-resident lender and a borrower resident in Austria.

'In the interests of equal fiscal treatment, provision is additionally made, in relation to stamp duty on loan and credit agree- 26. Pointing out that a borrower cannot be ments, for the following further changes: accused of an offence under Austrian tax law (Abgabenrecht) if the loan agreement is not recorded in a written instrument within the meaning of Article 15(1) of the GebG, the court making the reference concludes that the rule at issue, namely that laid down in the first sentence of the fourth subpar- agraph of Article 33 TP 8 of the GebG, does not appear to be justified according to Article 73d(l)(b). 8

— the entry in the books and records which the debtor is required to keep in Austria should be treated as an equiva- lent document not only in respect of 27. It also states 9 that certain Austrian loans and credits granted by members academic legal writers have expressed the of a company to that company but also view that the national provision at issue in relation to loans and credit granted represents a restriction on the free move- by lenders who neither reside in Austria ment of capital and discrimination against nor maintain their habitual abode, lending by foreigners to Austrian bor- their head office or their seat there' (point 77). 7 — Ibidem, p. 8. 8 — Ibidem, p. 9. 6 — Order for reference, English translation, p. 8. 9 — Ibidem, p. 9.

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rowers, which cannot be justified by the legislation and in which the loan is principle of fiscal cohesion developed in the entered are to be deemed to constitute judgments of the Court of Justice in Case a written instrument? C-204/90 Bachmann 10 and Case C-300/90 1 Commission ν Belgium. 1

'(1) D o Article 73b in conjunction with Answers to the questions A r t i c l e 7 3 d (in p a r t i c u l a r , A r t i ­ cle 73d(3)) of the EC Treaty and Arti­ cle 1(1) in conjunction with Article 4 of Directive 88/361/EEC concerning the movement of capital preclude the 29. By its first question, the court making maintenance in force of the first sen­ the reference seeks to ascertain whether tence of the fourth subparagraph of Article 73b et seq. of the EC Treaty, Article 33 TP 8 of the 1957 Gebühren- together with the provisions of the Direc- gesetz (Law on Stamp Duties, in the tive, preclude the maintenance in force of a version published in BGBl. 818/1993), national provision which charges to duty which provides that, where a loan is cross-frontier loans on the basis of what is granted by a lender not domiciled or known as an equivalent document, where ordinarily resident or not having its the same loan would not have been subject headquarters or seat in Austria without to duty if the borrower and the lender had any written instrument being drawn up both been Austrian residents. The second in a form attracting duty, the books question is a general question whether it is and records of account which are to be compatible with those same provisions of kept in Austria by the debtor in accor- the Treaty to impose duties on cross- dance with the relevant national tax frontier loan agreements in the same way as on loan agreements between Austrian residents. As this question constitutes a 10 — [1992] ECR I-249. preliminary to the first question, I shall 11 — [1992] ECR I-305. consider it first.

34. The Court has also ruled, in particular 32. In order to reply to this question it is in the judgment in Case C-222/97 Trüm- necessary to ascertain whether a national mer and Mayer,15 that 'inasmuch as Arti- rule like the one at issue does actually come cle 73b of the EC Treaty substantially within the scope of Article 73b(l), which reproduces the contents of Article 1 of provides that '... all restrictions on the Directive 88/361, and even though that movement of capital between Member States and between Member States and third countries shall be prohibited'. If the 12 — [1984] ECR 377. answer to this first question is in the 13 — That particular case concerned ensuring the current payment of allowances granted in connection with travel affirmative I shall go on to consider whe- for purposes of study, business, leisure or medical treat- ther the measure concerned comes within ment. 14 — Luisi and Carbone judgment, cited above, paragraph 21, the scope of the derogations to the principle emphasis added. of the free movement of capital contained 15 — [1999] ECR 1-1661, paragraph 21.

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44. The national rules at issue did not them if they took the loan out abroad. A preclude the denomination of a debt in a measure which involves a Member State foreign currency nor the possibility of offering persons taking out a loan exemp- securing such a debt, even by a mortgage, tion from duty is likely to persuade an they only precluded the mortgage securing individual or a company to take out a loan such a claim being denominated in a from an institution located in a State which foreign currency. offers this type of tax advantage or exemp- tion.

45. It is therefore clear from the Court's case-law that any restrictive measure, or even simply a minor interference, is liable 49. This is why, by laying down rules which result in depriving Austrian residents to constitute a restriction within the mean- of favourable conditions which are offered ing of Article 73b(l). to other Community nationals, the Aus- trian law is likely to reduce substantially the attractiveness of such a transaction and hence is likely to dissuade those concerned from proceeding with it. Hence, such a law 46. In my view, the Austrian law at issue does in fact constitute a restriction on the does constitute a restriction on capital free movement of capital within the mean- movements within the meaning of Arti- ing of Article 73b(l). cle 73b(l).

52. However, the Court has on several national law which made the transfer to occasions been asked to rule whether other Member States of large sums of liquid national measures constituting restrictions cash subject to a prior declaration or even on the free movement of capital were prior administrative authorisation was justified. compatible with Article 73b. As regards the prior declaration, the Court ruled that 'A prior declaration ... may be one of the requisite measures which Member States are permitted to take since, unlike prior authorisation, it does not entail suspension 53. In Case C-148/91 Veronica Omroep of the transaction in question but does still Organisatie 25 the Court was asked to rule allow the national authorities to exercise whether the provisions of the Treaty relat- effective supervision in order to prevent ing to the free movement of capital pre- infringement of their laws and regula- cluded legislation of a Member State which tions'. 28 prohibited among others a broadcasting organisation established in its territory from investing in a broadcasting company established or to be established in another Member State and from providing a bank guarantee to a television company to be set up in that other Member State. The Nether- 55. As regards prior authorisation, the lands Government justified those measures Spanish Government claimed that those by pointing out that the law at issue was measures did meet the requirements of designed to establish a pluralist and non- Article 73d(l)(b) since they were designed commercial radio and television broadcast- to combat crimes which are often linked to ing system, and thus formed part of a that type of transfer, such as money laun- cultural policy intended to safeguard, in the dering, drug trafficking, tax fraud and audio-visual sector, the freedom of expres- terrorism. As a consequence of the intro- sion of the various (in particular social, duction of those measures the competent cultural, religious and philosophical) com- Spanish authorities were able to identify ponents existing in the Netherlands. 26 The people who were making major transfers of Court accepted that such measures were in currency abroad (and thereby prevent such the public interest and justified the restric- operations taking place under cover of tions on the free movement of capital anonymity) and possibly conduct further introduced by Article 67 of the EEC investigations in order to establish whether Treaty. 27 there were any links between the opera- tions concerned and certain offences. The Spanish Government claimed that it was only under a system of prior authorisation that it was possible to ascertain whether the person making the transfer was involved in 54. Similarly, in the Bordessa judgment, a criminal offence, and consequently that cited above, the Court was asked whether a the system concerned had the advantage of effectively imposing criminal penalties on 25 — [1993] ECR I-487, paragraph 8. 26 — Ibidem, paragraph 9. 27 — Ibidem, paragraph 14. 28 — Paragraph 27.

59. The Court therefore held that the need to preserve the cohesion of the applicable tax system may justify rules which are 57. In Bachmann and Commission ν Bel­ likely to restrict the exercise of fundamen­ gium, cited above, the Court was asked to tal freedoms guaranteed by the Treaty, such rule whether Article 48 of the EEC Treaty as the free movement of capital. (which became Article 48 of the EC Treaty and which, following amendment, became Article 39 EC), Article 59 of the EEC Treaty (which became Article 59 of the EC treaty and, following amendment, became Article 49 EC), Article 67 of the EEC Treaty and Article 106 of the EEC 60. In the present case, the Austrian Gov­ Treaty (which became Article 73h of the ernment maintains that the purpose of the EC Treaty, and was repealed by the Treaty national law is to introduce an indirect of Amsterdam) preclude the legislation of a domestic tax which, in the current state of Member State making the deductibility of partial harmonisation of tax law, falls sickness and invalidity insurance contribu­ within the jurisdiction of the Member tions and pensions and life assurance States. Consequently, the factual criterion contributions conditional on those contri­ giving rise to the obligation, that is to say butions being paid in that State. the liability to pay the duty, is to be found in the existence of a loan recorded in a written instrument or in any other equiva­ lent document within Austria. The Austrian Government adds that the charges of duty 58. Replying to those questions in the on a loan recorded in a written instrument affirmative the Court added, however, that and taken out by an Austrian abroad is such measures were justified. Indeed, it justified in order to comply with the held that within the tax system at issue principle of equality for tax treatment for there existed a connection between the residents. The measure is therefore essential deductibility of contributions and the lia­ in order to prevent infringements of national laws and regulations in the field of taxation within the meaning of Arti­ 29 — Paragraph 30. cle 73d(l)(b).

62. First of all, it is necessary to determine whether the measure at issue constitutes a customs duty which is imposed on certain financial transactions due to the fact that they take place across frontiers, or a domestic tax to which all products are subject irrespective whether they cross 63. As I mentioned above, 35 the Austrian frontiers. This question is important law provides, in Article 15(1) in conjunc­ because, as the Court has consistently tion with Article 16(1) and the first sub­ held, 31 'customs duties are prohibited, paragraph of Article 33 TP 8 of the GebG, independently of any consideration of the that a loan taken out in Austria and purpose for which they were introduced recorded in a written instrument gives rise and the destination of the revenue obtained to liability to stamp duty at the rate of therefrom'. 32 In the second subparagraph 0.8% of the value of the loan. Moreover, of paragraph 9 of its judgment in Commis­ according to Article 15(1), in conjunction sion ν Italy, cited above, the Court held that with Article 16(2) and the first subpara­ 'any pecuniary charge, however small and graph of Article 33 TP 8 of the GebG, that whatever its designation and mode of duty is payable on all loan agreements application, which is imposed unilaterally entered into abroad between non-residents on domestic or foreign goods by reason of and residents, provided that they have some the fact that they cross a frontier, and connection with Austria. 3 6 which is not a customs duty in the strict sense, constitutes a charge having equiva­ 33 — See the judgments in Case 7/78 Thompson and Others [1978] ECR 2247; Case 7/68 Commission ν Italy [19681 ECR 617, and Bordessa and Others, cited above, para­ 30 — The Portuguese Government also makes this observation. graph 12. 31 — See the judgment in Case 24/68 Commission ν Italy [1969] 34 — See the judgment in Sanz de Lera and Others, cited above, ECR 193, paragraph 7. paragraph 2 of the operative part. 32 — Judgment in Joined Cases C-485/93 and C-486/93 Simitzi 35 — See points 10 to 17 of this Opinion. [1995] ECR I-2655, paragraph 14. 36 — Ibidem, paragraph 13.

64. A national measure introducing a duty the establishment and operation of the which applies, irrespective of the national- internal market within the time-limit laid ity of the parties or the place where the loan down in Article 7a of the EC Treaty (now, agreement is concluded, to all Austrian after amendment, Article 14 EC), that is to residents who take out such a loan, must be say within a period expiring on 31 Decem- regarded as indirect domestic taxation. The ber 1992. precise result of such a measure is, more- over, to prevent persons liable to pay the tax, through exercising the freedom provi- ded for in Article 73b(l), from unlawfully avoiding their obligations under domestic tax laws that come within the powers of the 67. There has, however, been only partial Member State, which has extensive powers harmonisation in this field (this is also the in this field. case as regards value added tax 39 and indirect taxes on capital 40). I must there- fore conclude that the right to determine taxes, in particular the right to charge 'stamp duty' on loan agreements, comes within the powers of the Member States. 65. It is quite clear that the EC Treaty does not contain, in respect of either direct or indirect taxation, provisions similar to those of Article 95 of the EC Treaty (now, after amendment, Article 90 EC). 37 The EC Treaty, apart from Article 220 of the 68. These powers are restricted by the need EC Treaty (now Article 293 EC), 38 is in to comply with Community law and its fact silent on this matter. general and fundamental principles. The Court has already ruled that 'the powers retained by the Member States must never- theless be exercised consistently with Com- munity law'. 41 66. The subject of taxation is also excluded from the scope of Article 100a of the EC Treaty (now, after amendment, Article 95 EC), which permits harmonisation mea- sures when adopted by qualified majority. However, under Article 99 of the EC 69. It is therefore necessary to determine Treaty (now Article 93 EC), harmonisation whether, in the context of the broad powers in the field of indirect taxation must be agreed unanimously by Member States where it is necessary in order to ensure 39 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1). 37 — Which provides that no Member State may impose 40 — Council Directive 69/335/EEC of 17 July 1969 on indirect 'directly or indirectly, on the products of other Member taxes on capital (OJ 1969 L 249, p. 25). States any internal taxation of any kind in excess of that 41 — Judgments in Case C-246/89 Commission v United King- imposed directly or indirectly on similar domestic pro- dom [1991] ECR 1-4585, paragraph 12; Case C-279/93 ducts.' Schumacker [1995] ECR I-225, paragraph 2 1 , and Case 38 — Which requires Member States to abolish double taxation C-250/95 Futura Participations and Singer [1997] ECR within the Community. I-2471, paragraph 19.

conferred on it, the Member State con- authorities can claim for purposes of meet- cerned complied with its obligations under ing their own financial requirements, which Community law. is what the improper objective of the first subparagraph of Article 33 TP 8 of the GebG in fact amounts to. The measure does not therefore achieve the purported objective, namely to ensure the legal cer- 70. Sandoz asserts that the first subpara- tainty of the transaction and the principle graph of Article 33 TP 8 of the GebG of proportionality is thereby infringed. infringes Article 73b(l), without being jus- tified on one of the grounds specified in Article 73d(l). Pointing out that a written instrument within the meaning of the GebG is in principle drawn up for reasons of legal certainty, it infers from this that the duty to be paid 'is regarded as corresponding to the 72. It is apparent from the Court's settled greater legal certainty provided by having a case-law that the principle of proportion- written instrument'. 42 The objective of the ality requires that measures adopted in Austrian provision at issue is therefore to rules as regulations must not exceed the ensure the legal certainty of a transaction. limits of what is appropriate and necessary in order to attain the objectives lawfully sought by the rules as regulations con- cerned, provided that where there is a choice between several appropriate means 71. Sandoz claims that the measure the competent legislature must select the adopted by the Austrian Government, means which are least restrictive and the which imposes stamp duty on any loan inconvenience caused must not be excessive agreement, whether it is drawn up abroad in relation to the objectives sought. 43 or in Austria, does not meet the stipulations of the Court's case-law regarding compli- ance with the principle of proportionality. It observes that the general practice fol- lowed in Austria is no longer to draw up a written instrument for this type of transac- tion (loan) or to substitute for such an instrument another document which is not 73. The first subparagraph of Article 33 TP subject to payment of a duty. Since that 8 of the GebG must be viewed as a measure measure is no longer appropriate to introducing an indirect tax on loans taken requirements, it is therefore no longer out in Austria or loans which, although necessary. It also points out that legal taken out abroad, have some particular certainty, although in itself worthy of connection with Austria. The main objec- protection, does not constitute a necessary tive pursued by that measure is therefore, or proportionate ground which the public quite specifically, to ensure equality of tax treatment for Austrian residents and not, as

81. It is apparent therefore that a national measure such as that provided for in the 76. In the light of the details of this case, it first subparagraph of Article 33 TP 8 of the must be concluded that the principle of GebG constitutes a restriction on the free proportionality has not been infringed. movement of capital between Member States within the meaning of Article 73b(l) which is justified by the need to ensure equal tax treatment for Austrian residents. It must therefore be regarded as a measure which is essential in order to prevent 77. It is apparent therefore that a national [infringements of] national tax laws. It measure such as the first subparagraph of Article 33 TP 8 of the GebG constitutes a restriction on the free movement of capital 44 —Judgment in Case 283/83 Racke [1984] ECR 3791. whith is justified under Article 73d(l)(b). 45 — Schumacker judgment, cited above, paragraph 30.

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follows that the abovementioned national [measures to prevent infringements of the measure comes within the scope of the laws and regulations of the Member States, derogations from Article 73b(l) provided inter alia in the field of taxation] may not for in Article 73d(l)(b). Moreover, such a have the effect of impeding capital move- measure is not disproportionate and does ments carried out in accordance with not constitute arbitrary discrimination Community law'. within the meaning of Article 73d(3).

First question

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86. I have already shown when considering 88. As was apparent from my considera- the second question that a national measure tion of the second question, the Treaty does such as the first subparagraph of Article 33 not define the terms used in Arti- TP 8 of the GebG constitutes a restriction cle 73d(l)(b). The Court's case-law shows, on the free movement of capital. 46 This moreover, that the Court determines the conclusion is all the more applicable in the meaning of those terms on the basis of the case of a provision such as the first sentence facts of the case. 47 of the fourth subparagraph of Article 33 TP 8 of the GebG, under which the duty levied on loans taken out by Austrian residents, both in Austria and abroad and recorded in a written instrument, is applied also to loans taken out by Austrian resi- dents abroad and recorded in an 'equiva- lent' document. Such a measure is undoubt- edly likely to dissuade resident borrowers 89. Thus, in Trummer and Mayer, cited from taking out a loan recorded in this above, the ground put forward in order to form abroad since they can only enjoy justify regulations prohibiting the denomi- exemption from payment of the duty if they nation in a foreign currency of a mortgage take the loan out in Austria. securing a debt was the concern to ensure the foreseeability and transparency of the mortgage system. It was claimed that such a ground constituted an overriding factor serving the public interest. 48

91. As regards the national measure at 93. As regards the last objective, it is clear issue contained in the first sentence of the both that the Austrian law permits bor- fourth subparagraph of Article 33 TP 8 of rowers to take out a loan without recording the GebG, I do not consider that that it in a written instrument and that this type measure either is appropriate for attaining of loan must be recorded in the debtor's the lawful objectives stated by the national books. The Austrian law also provides that legislature. when this type of loan is taken out in Austria it is exempt from the stamp duty provided for in the first subparagraph of Article 33 TP 8 of the GebG. 50 So, by introducing a rule whereby a resident borrower who takes out such a loan abroad must pay the contested duty, the principle of equality of tax treatment for residents is in fact infringed, since the tax system applying to Austrian residents who are in a similar situation differs depending on where the loan agreement is concluded. The national measure at issue may there- fore compromise the attainment of the objective described.

94. As regards the risk of infringements, 96. Moreover, the national measure at issue which the measure is designed to combat, it appears to me to conflict with the Direc- should be made clear that it will exist tive, in particular the second paragraph of whether the loan is taken out in Austria or Article 4 thereof, which applies to the abroad. I do not know whether the Aus- extent that it still has the same indicative trian legislature has introduced measures to value for the purposes of defining the combat such infringements by Austrian Treaty provisions on the free movement of residents taking out loans in Austria and capital. 51 The second paragraph of Arti- if so what the provisions of such measures cle 4 of the Directive reads: 'Application of are. I shall consider both hypotheses. If the those measures and procedures may not Austrian law does not contain measures to have the effect of impeding capital move- combat the risk of infringements by Aus- ments carried out in accordance with trian residents as a result of this type of Community law'. transaction, it must be inferred from this that it is prepared to tolerate that risk. However, if such measures exist, they are not the same as the measures contained in the national provision at issue. The Aus- trian Government has not, however, pro- vided evidence that the measures thus adopted cannot be applied to circumstances in which infringements are committed by resident borrowers who enter into agree- ments abroad. In both cases it must be concluded that the contested measure is inappropriate to attain the objective described.

99. Consequently, such a provision is likely to impede capital movements carried out in accordance with the provisions of Commu- nity law and is therefore contrary to the second paragraph of Article 4 of the Direc- tive.

102. It follows therefore that a national provision such as that contained in the first sentence of the fourth subparagraph of 100. It follows, therefore, that a national Article 33 TP 8 of the GebG constitutes a provision such as the first sentence of the restriction on the free movement of capital fourth subparagraph of Article 33 TP 8 of within the meaning of Article 73b(l) which the GebG infringes the second paragraph of does not come within the scope of the Article 4 of the Directive. derogation from the above principle con- tained in Article 73d(l)(b).

54 — Moreover, Article 73d(3) also precludes such a provision. This is the view of all the intervening parties, including the Austrian Government. Indeed, at the pleadings the Com- mission announced, and was not contradicted by the Austrian Government's representative, that the contested national law was going to be amended so that all resident 101. Since I am of the opinion that the borrowers, wherever a loan recorded in an 'equivalent' document is taken out, will be liable to pay the contested restriction on the free movement of capital duty.

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Conclusion

(2) Article 73b(l), Article 73d(l)(b) and the second paragraph of Article 4 of Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty must be interpreted as precluding a national law which requires resident borrowers who take out a loan from a non-resident lender that is recorded in a document which is the equivalent of a written instrument to pay duty equivalent to a certain percentage of the value of the loan, when resident borrowers who take out similar loans from resident lenders are not liable to pay such a duty.

There is therefore no call for a reply to the question as to whether such a law is compatible with Article 73d(3).

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