C-56/98

OPINION OF MR COSMAS — CASE C-56/98

O P I N I O N OF ADVOCATE GENERAL COSMAS delivered on 2 0 May 1999 *

I — Introduction II— The Community legal framework

3. The aim of Directive 69/335 is to encourage the free movement of capital, 1. In the present case, the Tax Litigation with a view to creating an economic union Section of the Supremo Tribunal Adminis- whose characteristics are similar to those of trativo (Supreme Administrative Court), a domestic market. 2 That objective is Portugal, requests the Court of Justice to pursued through the harmonisation of interpret certain provisions of Council indirect taxes levied on contribution of Directive 69/335/EEC of 17 July 1969, capital to companies, stamp duty on secu- concerning indirect taxes on the raising of rities and other indirect taxes having the capital 1 (hereinafter 'the Directive'). same characteristics as capital duty or stamp duty on securities. According to the eighth recital in the preamble to the Direc- tive, 'the retention of other indirect taxes with the same characteristics as the capital duty or the stamp duty on securities might frustrate the purpose of the measures provided for in this Directive and those taxes should therefore be abolished'. 2. The national court essentially asks whe- ther the Directive covers notarial charges for the drawing up — as required under national law — of public instruments recording amendments to memoranda and articles of association or increases in share capital; and, if so, whether those charges may nevertheless be regarded as permissible 4. As provided by Article 1 of the Direc- by virtue of the derogation provided for in tive, 'Member States shall charge on con- Article 12(1)(e) of the Directive, under tributions of capital to capital companies a which Member States may collect 'fees or duty harmonised in accordance with the dues.' provisions of Articles 2 to 9 and hereinafter called "capital duty"'.

'3. Formation, within the meaning of para- 8. Article 5 5 sets out the method of calcu- graph (1)(a) shall not include any alteration lating the tax which in general terms is of the constituent instrument or regulations based upon the actual or nominal value, as of a capital company, and in particular: appropriate, of the assets contributed.

(a) The conversion of a capital company 9. In addition, Article 7 initially estab- into a different type of capital com- lished variable rates within which Member pany; States could freely establish the rates in their respective territories and provided for 3 —Directive 85/303 of 10 June 1985 amending Directive 69/335 (OJ 1985 L 156 p. 23). 4 — Articles5 and 6 or Directive 69/335 concern the basic 5 — As amended by Council Directive 74/553/EEC of 7 Novem- taxable amount. ber 1974 (OJ 1974 L 303 p. 9).

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the obligatory or optional application of to in paragraph (1) or submit them to a reduced rates, depending on the type of single rate which shall not exceed 1%. taxable transaction.

3. ...' 10. Specifically, in respect of transactions such as those mentioned above, Arti- cle 7(1)(a) of the Directive initially provi- ded that the rate of capital duty could vary between 1% and 2%. This rate was later reduced to 1% as from 1 January 1976. 6 12. Article 10 of the Directive provides:

company, firm, association or legal ceedings and by the Portuguese Govern- person operating for profit may be ment that the Portuguese Code governing subject by reason of its legal form.' the notarial profession, enacted by Decree- Law No 47619 of 31 March 1967 provides that certain acts must be recorded in public instruments.

13. Article 12(1) of the Directive sets out an exhaustive list of taxes and duties other than capital duty which, by derogation from Articles 10 and 11, may be levied on capital companies in respect of transactions listed therein. 7 16. Under Article 89(e) of the Code, these acts include 'acts which incorporate com- mercial companies, change their form, dissolve them or put them into ordinary liquidation ... and those which amend any memorandum of association'. 14. More specifically, Article 12 of the Directive— in particular Article 12(1) thereof — provides that, by way of deroga- tion from Articles 10 and 11, Member States may charge duties paid by way of fees or dues.

17. Charges for drawing up notarial instru- ments are set forth in the Table of Notarial Charges (hereinafter 'the Table'), in the version annexed to Decree-Law No 397/83 of 2 November 1983. III— The national legal framework

A — The calculation of notarial charges 18. Article 1 of the Table defines the value of notarially attested acts. Under Arti- cle 1(2)(e), the legal value of a notarially attested act in respect of the amendment of the memorandum and articles of associa- 15. It appears from the observations sub- tion of a company is equal to the entire mitted by the appellant in the main pro- share capital. Under Article 1(2)(f), for an increase of capital, the value is equal to the amount of the increase. Finally, Artic- 7 — See, on that point, Case 2/94 Denkavit Internattonaal and le 1(2)(g) provides that, that, for increases Others (19961 ECR I-2827, paragraph 21, and Case C-38/86 Dansk Sparinvest [1988] ECR 409, paragraph 9. in capital where a partial alteration has

20. More specifically, Article 5 of the Table provides that where the act recorded in a public instrument is of a certain value, the 23. Portuguese notaries carry out their charges payable are to comprise a fixed duties as part of the public service; they charge and a variable charge, to be applied are employed by the State, with the same in accordance with a sliding scale. In rights and duties as other civil servants. 8 concrete terms, where the act in question They are personally liable, however, in is of a certain value, variable charges are to respect of the instruments which they draw be applied in addition to the fixed charges up and can be compelled to pay damages to set out in Article 4 of the Table: 'for every persons harmed as a result. PTE 1 000, the sum of PTE 10 is payable on values up to PTE 200 000; PTE 5 on v a l u e s between PTE 2 0 0 000 and PTE 1 000 000; PTE 4 on values between PTE 1 000 000 and PTE 10 000 000; and P T E 3 on v a l u e s in e x c e s s of 24. The remuneration of notaries is made PTE 10 000 000'. up partly of a fixed amount and partly of a variable amount. The fixed amount is determined in accordance with the same criteria as are applied to all other civil

8 — Under Article 4 of Decree No 55/80 of 8 October 1980, 21. Under Article 27, the charges set out in which regulates the keeping of public records and the Article 5 are halved in the case of instru- provision of notarial services, notaries are attached to the Ministry of Justice, under the supervision of the Director ments recording the fact that the period for General for Public Records and Notarial Services.

27. In other words, the charges collected are used to pay the salaries of notaries and their staff and the cost of acquiring and 30. The charges for entry in the commer- maintaining their offices and equipment. cial register and the national register of

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bodies corporate are treated as receipts of at first instance to be set aside, claiming the Fund. that the charge should be revoked and the monies reimbursed. It maintained that the contested charge was really a tax, the level of which should therefore be set, not by the Government, but by Parliament, that the amount demanded was out of all propor- tion to the services provided and that the levying of that charge was incompatible IV — Facts with the Directive.

3 1 . The Portuguese company Modelo SGPS SA (hereinafter 'Modelo') decided to increase its share capital from PTE 7 240 000 000 to V — The questions referred for a prelimin- PTE 14 000 000 000 and to change its ary ruling name and registered office.

37. To my mind, the order for reference clearly fails to provide sufficient informa- (3) Must Articles 10 and 12(1)(e) of Direc- tion concerning the factual and legal con- tive 69/335/EEC be interpreted as pre- text in which the questions arose; nor does cluding notarial charges for recording it give sufficient details of the facts on in a public instrument as required by which the questions are based. 9 law resolutions to increase capital or to amend articles of association from being varied according to the amount of the capital or the increase therein, rather than according to the cost of the service provided? 38. To be more precise, the national court merely rehearses the arguments put for- ward by Modelo, without sufficiently describing the event giving rise to the notarial charge, the rules governing the notarial profession in Portugal, the method by which the Sixth Notarial Office, Oporto, calculated the charge in this case (4) If so, is it permissible, in the light of or the nature of the change made to Articles 10 and 12(1)(e) of Directive Modelo's memorandum and articles of 69/335/EEC, for the amount of the association. Neither does it indicate whe- aforementioned charges manifestly and ther other charges were levied in relation to unreasonably to exceed the actual cost the instrument recording the increase in of the specific service provided?' Modelo's capital.

39. Those elements are essential if the Court is to be able to decide whether the charge at issue falls within the scope of the VI — Admissibility Directive. Should it be found that the charge is indeed covered by the Directive,

4 1 . In the words of the Court, 'it is moreover essential that the national court should give at the very least some expla- nation of the reasons for the choice of the Community provisions of which it requests an interpretation and on the link 43. Indeed, one of the aims of Article 177 it establishes between those provisions of the EC Treaty (now Article 234 EC) is to and the national legislation applicable to encourage judicial co-operation, and dialo- the dispute'. 11 Such information 12 serves gue between the Court of Justice and the national courts. In my view, therefore, the Court can give a useful reply to the national 10 — See Joined Cases C-320/90 and C-321/90 Telemarsicab- court, even where the order for reference ruzzo [1993] ECR I-393, paragraph 6; Case C-316/93 fails to provide all the requisite informa- Vaneetveld [1993] ECR I-763, paragraph 13; Case C-83/91 Meilicke [1993] ECR I-4871, paragraph 26; Case tion. C-157/92 Banchero [1993] ECR I-1085, paragraph 4; Case C-386/92 Monin Automobiles [1993] ECR I-2049, paragraph 6; Case C-191/96 Modesti [1996] ECR I-3937, paragraph 4; Case C-196/96 Lahlou [1996] ECR I-3945, p aragraph 4; Case C-326/95 Banco de Fomento e Exterior 1996] ECR I-1385, paragraph 6; Case C-167/94 Grau 13 — See, for example, Modesti, Lahlou and Grau Gomis and Others, cited in footnote 10 above, paragraphs 5, 5 and 10 Gomis and Others [1995] ECR I-1023, paragraph 8; and respectively. Case C-458/93 Saddik [1995] ECR I-511, paragraph 12. 14 — See Joined Cases 141/81 to 143/81 Holdijk and Others 11 — See Grau Gomis and Others, cited in footnote 10 above, [1982] ECR 1299, paragraph 6; see also Modesti, Lahlou paragraph 9. and Banco de Fomento e Exterior, cited in footnote 10 12 — That is to say, information of the kind referred to above. above, paragraphs 5, 5 and 7 respectively.

47. Accordingly, I conclude that the ques- tions referred by the Supremo Tribunal

50. It should be recalled that the notarial 15 — See Vaneetveld, cited in footnote 10 above, paragraph 14, charges at issue here were occasioned by and Telemarsicabruzzo and Others, cited in footnote 10 above, paragraph 9; see also the Opinion of Advocate the fact that Modelo increased its share General Jacobs in Vaneetveld, points 6 and 9. 16 — See Vaneetveld and Banco de Fomento e Exterior, cited in capital and changed its company name and footnote 10 above, paragraphs 13 and 8 respectively. registered office.

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51. The legal characterisation of those members of one of the liberal professions charges must be identified. That is to say, whose business is carried on indepen- it must be determined to what extent the dently, 17 even they may be civil servants imposition of such charges by reason of an or public officials; (b) under Portuguese increase in share capital or a change in the law, as noted above, notaries are employed name or registered office of a capital by the State, with the same rights and company falls within the scope of Article 4, duties as other civil servants and answer- and, consequently, whether it is caught by able to the Ministry of Justice; (c) lastly, in the prohibition laid down in Article 10 of some legal systems, 18 the notarial profes- the Directive. sion does not exist in any properly defined form 19or is virtually unknown. 20

52. The points to be addressed are: the rules governing the notarial profession in the various Member States; the substantive legal content of the concept of tax; the body of rules laid down by the Directive; and, lastly, the question to what extent the 54. In almost all the Member States, 21 the notarial charges constitute a tax or duty charges payable in respect of acts which, by prohibited under Article 10 of the Direc- law, must be drawn up or authenticated by tive. a notary, are set out in a table established by law, decree or ministerial order, or even by decision of a professional association or organisation. 22

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55. In the legal systems considered above, and without specific consideration, by an notarial charges are collected either by the individual to the State for the financing of notaries or — where the notarial profession official business'. 24 That definition com­ is not recognised as such — by the persons prises several elements: (a) payment made or authorities which undertake notarial by an individual to the State; (b) the tasks. compulsory nature of that payment, given that the payment of tax is not voluntary; (c) the lack of any specific consideration; and (d) the fact that the purpose of taxation is to enable the State to accomplish its business, that is to say, to discharge the responsibilities inherent in the role of the 56. Under Danish and Finnish law, the State, 25 one of which — manifestly — is charges collected are paid to the State. In the operation of various public services. Portugal, they are paid to the Fund, which is a State body. In all the other legal systems, the charges — net of registration fees and stamp duty — pass to the notary. By contrast once again with Danish and 58. In return for payment of tax, the State Finnish law, under which the notarial does not provide the taxpayer with any profession is not recognised, Portuguese specific consideration. Consideration law also provides, as described above, that arises, if ever, in the case of fees or licences. part of the monies collected are to be These are paid in exchange for specific retained by the notary. services provided by the State and generally serve to cover specific expenditure incurred by the State in so doing.

the Court, whatever its classification under dues; [i]t follows that the interpretation of national law. Accordingly, I do not consider the term at issue, considered in its entirety, it appropriate to attempt an analysis of cannot be left to the discretion of each Community law concepts, such as 'capital Member State'. 27 Those concepts are quite duty', on the basis of theories and concep- distinct from those used in national law. tual distinctions proper to national law. This means that they have their own That follows naturally from the principle content, which cannot be determined — that Community law takes precedence over in the case of each of the fifteen Member national law. Otherwise, it would be pos- States — by reference to analyses, distinc- sible, by founding on distinctions and tions and theories proper to national law. precepts of national law, to re-fashion the scope of Community legislation along lines quite alien to the intentions of the Com- munity legislature.

61. One of the indirect charges levied by the State is the duty charged on contribu- tions of capital to capital companies, namely the capital duty provided for in the Directive. 28

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by means of the elimination of tax obsta- through the formation of a capital com- cles which interfere with the free movement pany (Article 4(1)(a) and (b)), or through of capital'. 30 an increase in the capital of a capital company by contribution of assets (Arti- cle 4(l)(c)). 31

63. According to the second recital in the preamble to the Directive, 'the indirect taxes on the raising of capital in force in the Member States at the present time, namely the duty chargeable on contribution 66. The fact that the transfer of capital or of capital to companies and firms and the assets constitutes the primary characteristic stamp duty on securities, give rise to of transactions subject to capital duty is discrimination, double taxation and dispa- confirmed by Article 4(3). 32 In order to rities which interfere with the free move- avoid double taxation, Article 4(3) ment of capital and which, consequently, excludes from the concept of 'formation' must be eliminated by harmonisation'. (of a capital company) certain transactions which, albeit important for the existence in law of the capital company, do not entail any transfer of capital.

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provision of services occcurring as part of ect taxes with the same characteristics as such transactions. 33 These are the taxes 34 capital duty fall within the scope of Arti- which the Directive was intended either to cle 10 of the Directive. It also held that 'the harmonise or to abolish. various charges and duties levied on the registration of a capital company fall within the scope of the aforementioned provisions and are, in principle, prohibited, subject to the derogating provisions of Article 12' (paragraph 30). Rejecting the argument put forward by various Govern- ments in their written observations, the 68. Although the taxes referred to Arti- Court held that '[t]here is no reason based cle 10(c) are not levied on capital contribu- on the wording of the provision or on its tions as such or the transfer of securities as objectives which makes it possible to such, they must be prohibited if the aim of refrain automatically from applying Arti- the Directive is to be attained. The taxes in cle 10 in cases where the product of the questions are levied in respect of certain formalities connected with the legal form of charge contributes to the financing of the the company, that is to say, they are related department responsible for keeping the to the means used to raise capital. They fall, register in which companies are registered; therefore, in a category similar to that of [o]n the contrary, by enabling Member the other prohibited taxes. If such charges States to impose a charge, other than were not prohibited, there would be a capital duty, on capital companies in lacuna in the rules harmonising tax laws respect of one of the essential formalities in this area, since the existence of such for their formation, the amount of which charges would frustrate the aims of the moreover would not be restricted by the Directive as effectively as the retention of provisions of Community law, the inter- other charges on the raising of capital or pretation proposed by the abovementioned the transfer of securities. 35 Governments would run counter to the objectives of the Directive'. 37

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(d) Notarial charges as capital duty 73. First, the notarial charges are levied on the basis of legislation enacted by the Portuguese Republic. 38 However, that fac- tor alone is not enough to justify their classification as taxes.

70. That said, in order to classify notarial charges under Portuguese law in the light of the Directive, it is necessary to identify their objective characteristics. 74. Secondly, the chargeable event is essen- tially the notary's provision of services to the client 39 (consisting in the drawing up of a public instrument recording an increase in capital and a change in the name and registered office of the capital company), not the transaction itself. In other words, the chargeable event is not the same as that 71. In my view, if regard is had to those giving rise to capital duty, as authorised by characteristics, the notarial charge levied the Directive (in the case of an increase in under Portuguese law in connection with capital). an increase in share capital or a change in the name or registered office of a capital company cannot be considered to be an indirect tax on the raising of capital for the purposes of the Directive. That view is based on an analysis of those objective characteristics, that is to say, the body of factors and criteria which enable us to 75. Thirdly, the basis on which notarial classify the charges at issue in the light of charges are calculated is the share capital the Directive. It is important, therefore, to following the increase. However, the fact determine the extent to which those that the amount of the charge depends on charges possess the characteristics of a the amount of share capital subscribed is tax, the latter concept being extrapolated not sufficient to bring the charge at issue from an analysis of Community law. within the scope of the Directive. That would be the position only if there were other evidence to indicate that the notarial

77. In the fourth place, the charges paid to a notary for drawing up a public instru- ment are compulsory in nature, since that formality is not a matter of choice. 42 80. To my mind, although part of the However that is not sufficient in itself to remuneration received by Portuguese notar- characterise the notarial charges as a tax. ies is fixed, the fact that they also receive a percentage of the charges proportional to the monies collected reflects the ethos of 40 — It is clear from the cases contemplated in Article 4(3) that the liberal professions; it indicates that the changes in the name or registered office of a capital company are not equated with the formation of a capital notarial profession seeks financial gain, and company and, accordingly, are not subject to capital duty. 41 — Such as when — pursuant to Article 1(2)(f) of the Table 'w this distinguishes the notary from the civil the case of an increase in capital, where the legal value servant proper. It is for the national court corresponds to the amount of the increase, and pursuant to Article 1(2)(g) in the case of further amendments to the to assess whether it is open to notaries to memorandum and articles of association — the value of try to increase the percentages retained by the capital following the increase is taken into account in calculating the charges. attracting new clients; if so, it would be all 42 — It should be recalled that, under the national legislation at issue here, it is compulsory to engage the services of í the more apparent that the notarial profes- notary and to have a public instrument drawn up. The sion as it operates in the Portuguese legal Portuguese Code governing the notarial profession system is not substantially different from approved by Decree-Law No 47619, provides that a notarially attested instrument is indispensable for certain the notarial profession in other Member transactions. Pursuant to Article 89(e) of the Code, these include the formation of commercial companies, change: States, where it is recognised as one of the made thereto, and amendments made to memoranda and liberal professions. articles of association.

83. Lastly, it should not be forgotten that Portuguese notaries practise their business at their own risk, being personally liable in respect thereof so that they they may be compelled to pay damages to persons 82. Furthermore, even though the charges harmed as a consequence. are intended to enable the Fund — which is a body governed by public law 4 3 — to finance its activities, that does not mean that they are used to subsidise State busi- ness; to my mind, this reflects rather the corporatist logic which generally informs the rules governing the liberal professions. 84. By way of conclusion, it is clear from Further support for that view lies in the fact the foregoing that, even though the body of that under Portuguese law the charges rules governing notaries under Portuguese collected are used, on the one hand, to law constitutes a special regime, 45 the charges collected by notaries for the provi- sion of their services 46 do not constitute 43 — To my mind, of course, the fact that the Fund is not a public service but a legal person — a public body — is not charges which fall within the scope of the decisive evidence that the notarial charges at issue do not Directive. There is no need, therefore, to constitute a tax. The Court has held, on the subject of taxation for the address the other questions referred. purposes of Articles 9, 12 and 95 of the EC Treaty (now, after amendment, Articles 23 EC, 25 EC and 90 EC), that a pecuniary charge need not necessarily be levied for the benefit of the State. Accordingly, any pecuniary charge which is imposed unilaterally on domestic or foreign goods 44 — In concrete terms, as Modelo pointed out at the hearing, by reason of the fact that they cross a frontier is prohibited the amounts paid may also be allocated to other public under Articles 9 and 12, even if it is not imposed for the objectives (such as the financing of a university; invest- benefit of the State (the charge at issue in the case then ments made by the Ministry of Justice; the construction of before the Court being a contribution which importers of prisons; the transportation of case-files; various police and uncut diamonds had to pay to a social fund for diamond judicial expenses; the running of prisons; and so on).

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VIII— Conclusion

Having regard to the foregoing, I consider that the following answer should be given to the questions referred by the Supremo Tribunal Administrativo:

The charges payable to notaries for the drawing up, as required by Portuguese law, of public instruments recording amendments to the memoranda and articles of association of capital companies, or an increase in their share capital, do not fall within the scope of Council Directive 69/333/EEC of 17 July 1969 concerning indirect taxes on the raising of capital.

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