C-251/98

BAARS

OPINION OF ADVOCATE GENERAL ALBER delivered on 14 October 1999 *

A — Introduction his shareholding in Ballyard being then worth NLG 749 800. He applied for the undertaking exemption in the amount of NLG 442 400 (calculated according to the method described at paragraph 4 below) in respect of his shareholding in Ballyard, to 1. The Gerechtshof (Regional Court of be deducted from his assets taxable in the Appeal), The Hague, asks the Court to Netherlands. He relied on Article 7(2) and interpret Articles 6, 52, 73b and 73d of the (3) of the 1964 Dutch Wealth Tax Law. 1 EC Treaty (now, after amendment, Arti- cles 12, 43, 56 and 58 EC) in relation to a provision of Dutch wealth tax legislation granting an allowance against wealth tax in respect of a substantial shareholding in an undertaking established in the Netherlands. 4. Article 7(2) of that law provides that, where a taxable person carries on one or more businesses, capital invested therein is to be disregarded when determining that person's taxable assets in the following amounts: 2. Mr Baars, the appellant in the main proceedings, is a Dutch national resident in the Netherlands. His company, Ballyard Foods Limited ('Ballyard'), produces cheese in Ireland; it is established in Dublin. He is the sole shareholder, and seeks an 'onder- nemingsvrijstelling' — an exemption in — where the assets do not exceed respect of an undertaking — in respect of NLG 135 000: 100% of the capital so his tax assessment in the Netherlands. invested;

3. On 1 January 1994, Mr Baars declared — where the assets exceed NLG 135 000: for wealth tax assets of NLG 2 650 600, NLG 135 000, plus 50% of the

8. The Gerechtshof has referred the follow- ing questions for a preliminary ruling:

6. The Dutch tax authority disallowed the exemption, and assessed Mr Baars's tax- able assets at NLG 2 650 000. He appealed against that decision. '1. Must Articles 6 and/or 52 of the EC Treaty be interpreted as meaning that a 2 — Wet op de Inkomstenbelasting 1964, Stb. 1990, 103. restriction in a provision of a Member 3 — Wet op de Vennootschapsbelasting 1969, Stb. 469. 4 — Pursuant to Article 39(3) of the Income Tax Law, cited in State's wealth tax legislation which footnote 2 above, a substantial shareholding exists when, exempts assets invested in shares in an over the preceding five years, a taxable person has owned, directly or indirectly, solely or together with their spouse or undertaking — provided that the relative (the degree of kinship being precisely laid down) at shares form a substantial holding — least one third, and, solely or together with their spouse, at least seven hundredths, of the nominal capital. from wealth tax to which the share-

I - 2790

BAARS

holder is liable but which restricts that rules are indeed compatible with freedom exemption to shares in companies of establishment, are they also consonant established in that Member State is with the rules governing the free movement incompatible with those articles? of capital?

2. If Question 1 is to be answered in the negative, must Articles 73 b and 73d of the EC Treaty be interpreted as mean- ing that a restriction such as that 11. The parties differ on the question of referred to in Question 1 is incompa- which Community rules apply. tible with those articles?'

Assessment

14. The provisions concerning the funda- 12. The right of establishment includes, as mental freedoms regulate the right to the second paragraph of Article 52 of the pursue an activity, viewed from a particular EC Treaty states, the right to set up and economic angle. However, the same activity manage undertakings, in particular compa- may well merit protection under various nies or firms within the meaning of the heads, and hence fall within the scope of second paragraph of Article 58. It follows several fundamental freedoms. that such activities cannot, simply by virtue of their nature, be excluded from the scope of the right of establishment and be subject solely to the provisions on capital move- ments.

16. In Bachmann, 8the Court decided that the rules on capital movements do not cover restrictions which flow indirectly 19. In his Opinion in Safir, 12 Advocate from the restriction of other fundamental General Tesauro suggested that whether a freedoms. situation was governed by the rules on the free movement of capital, or by those on the freedom to provide services, should turn on whether the national measure concerned directly rendered the transfer of capital impossible or more difficult; where it did, he suggested, the free movement of 17. In Svensson and Gustavsson, 9 the capital constituted a lex specialis in rela- Court held that a provision which makes tionship to the freedom to provide services. lending by banks more difficult may con- stitute an infringement of both Article 59 of the EC Treaty (now, after amendment, Article 49 EC) and Article 67 of the EC Treaty (repealed by the Treaty of Amster- dam).

20. Advocate General Mischo adopted a similar approach in his Opinion in Ambry. 13 He declined to apply the provi- sions on capital movements to rules barring non-resident credit institutions from lod- 18. In Parodi, 10 the Court proceeded from ging certain securities, since the rules in the principle that the rules relating to the question did not hinder money movements freedom to provide services and those between Member States — the Court, too, relating to capital movements operate in held that it was the freedom to provide parallel. It held that, in the case of restric- services which had been infringed, and left tions on capital transactions associated open the question of whether such rules with the provision of services, the freedom might also infringe Article 73b of the to provide services would only cease to Treaty. 14 apply 'where there is a restriction on the

21. In Case C-302/97, Konle,15 concerning 23. Cogent reasoning underpins that case- a provision of Austrian law which made it law. Originally, the only fundamental free- more difficult for foreigners to acquire doms fully fleshed out in the Rome Treaties land, the Court held that the right of were the free movement of goods, the free establishment and the provisions on capital movement of persons and the freedom to movements were both applicable. How- provide services. Initially, free movement of ever, since the Court found that there had capital was to be achieved through second- been a breach of Article 56 EC (formerly ary legislation; not until the Treaty of Article 73b of the EC Treaty), it did not go Maastricht was it incorporated into the on to consider whether the provisions were EC Treaty as a fully-fledged fundamental compatible with the right of establishment. freedom. If one were to follow the Dutch Advocate General La Pergola had adopted Government and construe the rules on the opposite approach, descrying an in- capital movements broadly, seeing them as fringement of the right of establishment, extending into areas initially protected by and accordingly seeing no need to address other fundamental freedoms, and indeed the issue of capital movements. 16 Both displacing the latter, then the advent of the Judgment and Opinion, though, rest on the free movement of capital would have had premise that both fundamental freedoms the effect of restricting the other funda- apply in parallel. mental freedoms, since the reservations in regard to the movement of capital would have to be read into the other fundamental freedoms. It is clear, though, that there was no such intention to restrict existing, directly applicable fundamental freedoms through the institution of the fundamental freedom of capital movements. On the contrary, the intention was to add a further fundamental freedom to those already in existence, and extend the range of pro- tected cross-frontier economic activities. 22. The case-law cited above is incompa- tible with the view, seemingly held in the present case by the Dutch Government, that capital-movement rules and other fundamental freedoms are generally mutually exclusive. In Svensson and Gus- tavson, Parodi, Ambry and Konle, the Court held that they could indeed apply in parallel. Moreover, Konle specifically concerned the relationship between the free movement of capital and the right of 24. However, Articles 73d(2) and 52(2) of establishment, a relationship central to the the EC Treaty do seem to support a present case. limitation of parallel applicability in certain cases. Thus Article 52(2) must mean that a restriction of capital movements is not per 15 — Judgment in Case C-302/97 Konle [1999] ECR 1-3099, se an infringement of the right of establish- paragraph 22. ment. A national measure which directly 16 — Opinion of Advocate General La Pergola in Konle, ECR I-3099/3103, point 22. regulated only the transfer of capital, and

2. Where the right of establishment is directly restricted such that the ensuing 25. Conversely, Article 73d(2) demon- obstacle to establishment leads indir- strates that any measure directly restricting ectly to a reduction of capital flows the right of establishment must be judged between Member States, only the rules by the criteria pertaining to that funda- on the right of establishment apply. mental freedom; there is no scope for the alternative application of the rules relating to capital movements. This rule applies only to the right of establishment; Arti- cle 73d(2) contains no such restriction governing the concurrent application of the free movement of capital and other 27. The above principles fail to categorise fundamental freedoms. That is why capital- cases in which a national measure both movement rules were applied in the Svens- directly hampers capital flows and directly son and Gustavsson and Ambry cases, both affects the right of establishment. Konie of which concerned measures directly was such a case; it concerned the purchase affecting the freedom to provide services. of land for residential purposes in another Member State.

28. The purchase of land for residential purposes is a necessary extension of the right of establishment, being an instance of 26. These observations on the respective the exercise of that fundamental freedom. ambit of the free movement of capital and The Austrian Government prohibited the

I - 2795

OPINION OF MR ALBER — CASE C-251/98

exercise of that freedom — a direct restric- II. Application of these principles to the tion of the right of establishment. present case

30. The Court concluded that both the rules on the free movement of capital and 32. The rules at issue in these proceedings those on the right of establishment were concern solely a substantial shareholding applicable. There is therefore a third rule (the Dutch term is 'aanmerkelijk belang') in governing the relationship between the two a foreign undertaking. The purpose of freedoms: requiring the shareholding to be a 'sub- stantial' one is apparent from the national legislative context. Essentially, the allow- ance is available to the owner of an under- taking. A shareholder is not assimilated to an owner by the mere fact of holding shares: he must possess a substantial share- holding, sufficient to secure for him a measure of influence in business decisions. 3. Where there is direct intervention The rules are thus not directed generally to affecting both the free movement of the investment of capital with a view to capital and the right of establishment, obtaining a return, but specifically to both fundamental freedoms apply, and business activity per se. The right to found the national measure must satisfy the an undertaking in the form of a company requirements of both. limited by shares in another Member State

I - 2796

BAARS

is directly affected by the denial of the tax entitled to a say whose views he must heed. concession. It follows then, according to Only the legal form of the undertaking the criteria I have proposed above, that the distinguishes him from a sole trader; like rules relating to the right of establishment the latter, he is in a position to direct the must in any case apply to these proceed- activities of the business in question. ings.

I - 2797

OPINION OF MR ALBER — CASE C-251/98

exercise their powers in a manner which assets by the Dutch tax authority — once does not infringe Community law. Specifi- in respect of company tax, and then again cally, they may not impose taxes which in respect of wealth tax; however, that make it more difficult to exercise the cannot justify the unequal treatment. Com- fundamental freedoms guaranteed by the panies established abroad are denied the Treaty. 19 allowance whether or not there is any company tax in the State where they are resident. The Dutch rules are consequently discriminatory: they eliminate double taxa- tion only on the capital of domestic com- panies. If wealth tax on substantial share- holdings in a company is to be reduced on 38. Refusing an exemption when assessing account of the company tax paid by that to wealth tax a shareholder who owns a company, such an abatement cannot turn substantial share in an undertaking estab- on whether company tax is levied in the lished in a Member State other than the Netherlands or in another State. Netherlands constitutes conduct likely to render less attractive, and hence to impair, the development of business activities in other Member States. It actually treats the entrepreneur (or, as the case may be, the shareholder) less favourably, depending on which Member State the undertaking is established in.

40. It would be possible to prevent double taxation without such discrimination by restricting the undertaking exemption to situations where tax is payable in the (c) Justification Member State in which the company is established. Since the aim may be achieved in a non-discriminatory manner, the provi- sions at issue in these proceedings cannot be justified.

42. In regard to the issue raised in the first question concerning the general prohibition of discrimination based on nationality contained in Article 6 of the EC Treaty (now, after amendment, Article 12 EC), as the Commission quite properly points out, 44. My answer to the first question will it is expressly provided that that article enable the referring court to decide the must yield to Treaty provisions which are issue before it. The second question, posed more specific. As the Court has consistently in the event of the first being answered in held, the general prohibition of discrimina- the negative, would then not need to be tion applies only in situations where dis- considered. I shall, however deal with it, in crimination is not expressly prohibited by case the Court declines to follow mc, and specific Treaty provisions. 21 There is considers only the provisions on capital accordingly no scope for the general pro- movements to be relevant. hibition of discrimination to apply in the present case.

43. It follows that the first question should (a) The scope of the capital-movement be answered in the following terms: provisions

Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes a 45. The Dutch Government considers thai- it is only the provisions on capital move- 20 — Sec ICI (cited in footnote 18), paragraph 28. ments which apply to the present case. It 2 1 — S e e Case C-18/93 Carsica Fernes Italia [1994] UCU 1-1783, paragraph 19. Sec also the Opinion of Advocate believes, however, that the undertaking General La Pergola of 24 June 1999 in Casc C-35/98 exemption does not constitute a hindrance Vcrkooi/en [1999] ECR 1-4071, paragraph 37, and the judgments cited there; also Case C-203/98 Commission v to capital flows: there is no obstacle to Belgium [1999] ECR 1-4899, paragraph 11. investment by persons resident in the

47. The tax exemption at issue may have an indirect effect on capital flows between At the hearing the Commission discussed Member States as it is available only to the interpretative criteria which it believed undertakings pursuing activities in the should be applied. First, the Treaty of Netherlands, thereby rendering investment Maastricht was intended to achieve pro- in an undertaking that is not established in gress in the field of the free movement of the Netherlands less attractive than invest- capital: to follow the Dutch Government ment in a company that is. However, the would be a retrograde step. Secondly, the movement of capital is not directly individual chapters in the Treaty must be affected, since there are no obstacles to it interpreted consistently — thus free move- as such. It is not the transfer of capital to ment of capital and the right of establish- another State which is made less attractive, ment must be consistent with each other. but the use thereof. Accordingly, a provision incompatible with the right of establishment will generally be incompatible with the free movement of capital. Strictly speaking, the present case does not concern the compatibility of a national tax provision with the free move- ment of capital in the narrow sense of the 48. I have already shown that a national term, and the point at issue is thus the same measure may fall within the ambit of a as the question of the compatibility of the number of fundamental freedoms. In the provision in question with the right of present case, therefore, the fact that free- establishment. dom of establishment is in point does not

52. The Commission, however, maintains that there is discrimination against inves- tors who invest in limited companies estab- lished in other Member States: they have to 50. In this connection, contrary to the pay more tax than investors in companies position in regard to the right of establish- resident in the Netherlands to whom the ment, the size of the shareholding acquired contentious exemption is available. This, is immaterial. The provisions in question the Commission claims, makes investment afford protection even when all a compa- abroad less of an attractive proposition ny's shares are held or acquired, since than investment in the Netherlands, and otherwise the protection enjoyed by an infringes Article 1 of Directive 88/361 24 investor would be inversely proportionate (in the present case, presumably Arti- to the size of his shareholding. However, if cle 73b of the EC Treaty is meant). the holding in a company reaches a size which enables the investor to exercise a decisive influence over the undertaking's decision-making, the right of establishment will supplement free movement of capital. Such an investment would then addition- 53. As the Dutch Government quite rightly ally fulfil the criteria set out in Arti- points out, the rules governing the exemp- cle 52(2), and would be protected by the tion do not distinguish according to the EC Treaty under two separate heads.

23 — Declaration N o 7 on Article 73d of the Treaty establishing 22 — Directive 88/361 (cited m footnote 17), Annex I Point III: the European Community, attached to the Final Act of the Operations in securities normally dealt in on the capital Treaty on European Union. market. 24 — Directive 88/361 (cited i n footnote 17).

56. That line of argument is unconvincing. As the Court has consistently held, a discriminatory limitation, as here, must be founded on an explicit exception in the Treaty. 54. Article 67(1) of the EC Treaty (repealed by the Treaty of Amsterdam) contained an express prohibition of discri- mination on the basis of the place of investment. The repeal of Articles 67 to 73 of the EC Treaty by the Treaty of Amsterdam was not intended to limit the 57. Even if, contrary to the approach I have scope of the free movement of capital; it taken here, one were to regard the rules as occurred because the articles in question being non-discriminatory, they could not be had become superfluous once the free saved by mandatory public-interest rea- movement of capital was brought about sons. Owners of foreign companies or by the EC Treaty itself. As in the past, shares in foreign companies are denied the however, they may serve as pointers to the exemption, regardless of any taxation scope of that fundamental freedom. It borne by the company in the State in which follows that one must presume that, in the it is established. Only if the company is field of capital movements, discrimination established in the Netherlands will there be on the basis of the place of investment no multiple taxation of the same assets: continues to be prohibited. otherwise, it will continue to occur. It is that preferential treatment of undertakings established in the Netherlands which con- stitutes the obstacle to investment in another Member State.

55. The Dutch Government seeks to justify confining the allowance to companies resi- dent in the Netherlands by pointing out that the aim is to prevent the same assets 58. The Dutch Government's reference to being taxed twice — once in respect of the Article 73d(1)(a) of the EC Treaty is like- I - 2802

'The Conference affirms that the right of Member States to apply the relevant provi- Articles 73b and 73d of the EC Treaty (now, after amendment, Articles 56 EC and 58 EC) must be interpreted as preclud- 25 — Sec Bachmann, cited in footnote 7. 26 — See the Declaration on Article 73d of the EC Treaty (cited ing a provision of a Member State's tax law in footnote 23). such as that referred to in the first question.

I - 2803

OPINION OF MR ALBER — CASE C-251/98

C — Conclusion

62. On the basis of the foregoing, I propose that the Court should respond in the following terms to the request for a preliminary ruling:

(1) Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes a rule in a Member State's wealth tax legislation limiting the grant of a tax- free allowance in respect of a substantial shareholding in a company to shareholdings in companies resident in that Member State.