C-339/99

OPINION OF MR TIZZANO — CASE C-339/99

OPINION OF ADVOCATE GENERAL TIZZANO delivered on 7 February 2002 1

1. By order of 1 September 1999, the in order to create an economic union whose Verwaltungsgerichtshof (Higher Adminis- characteristics are similar to those of a trative Court), Austria, referred to the domestic market. It is inherent in this Court of Justice for a preliminary ruling objective that duty 'on the raising of under Article 234 EC four questions con- capital... by a company or firm should be cerning the interpretation of Council Direc- charged only once and that the level of this tive 69/335/EEC of 17 July 1969 concern- duty should be the same in all Member ing indirect taxes on the raising of capital States so as not to interfere with the (OJ, English Special Edition 1969 (II), movement of capital' (sixth recital). The p. 412, 'the Directive'). Essentially the Directive therefore envisages the harmon- Austrian court is asking the Court whether isation of the duty with regard both to its capital duty can be charged on certain structures and to its rates (seventh recital). payments made in consideration of the acquisition of shares in a public limited company upon an increase in the capital of the company.

3. With a view to such harmonisation, the chargeable transactions are expressly set out by Article 4 of the Directive; paragraph 1 of that article provides, in so far as concerns us here, that the following Relevant legislation transactions are to be subject to capital duty:

Community legislation '...

2. According to the first recital in its preamble, the purpose of Directive 69/335 is to promote the free movement of capital (c) an increase in the capital of a capital company by contribution of assets of 1 — Origina! language: Italian. any kind;

2 — Article 4(2)of Directive 69/335 was amended by Article 1 of Council Directive 85/303/EEC of 10 June 1985 (OJ 1985 L 156, p. 23).

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OPINION OF MR TIZZANO — CASE C-339/99

(d) in the case of an increase in the assets, 7. As regards the basis of assessment, as referred to in Article 4(2)(b): on the Paragraph 7 of the KVG provides that actual value of the services provided, '[t]he duty shall be computed: after deduction of the liabilities assumed and the expenses borne by the company as a result of the provi- sion of such services; 1. in the case of an acquisition of rights in the company (Paragraph 2(1)):

...'. (a) if consideration is to be furnished: on the value of the consideration. The consideration shall include the costs of the company formation or capital increase borne by the members, but not the capital duty payable in respect of the acquisition of rights in the company; National legislation

...'. 6. According to the order for reference, capital duty in Austria is regulated by the Kapitalverkehrsteuergesetz ('the KVG'). For present purposes, it may be noted that under Paragraph 2 of the KVG '[c]apital duty is chargeable on:

9. In January 1998, the Land and Élec- tricité de France International SA ('EDFI'), a subsidiary of Electricité de France ('EDF'), signed an 'equity participation agreement' ( 'Unternehmensbeteiligungsver- trag'), under which EDFI was to acquire a (iii) to pay the sum of ATS 350 000 000 substantial holding in ESTAG. into another account of the same trustee ('the guarantee account'). This account was to remain open for a maximum of two years, during which time EDFI would have the right, in specified circumstances, to repayment of the funds lodged therein.4 If that 10. Under the terms of the agreement, the right was not exercised, the sum paid Land was to increase ESTAG's capital by into the 'guarantee account' was to be issuing 166 668 new shares with a nominal transferred to ESTAG and/or its oper- value of ATS 1 000 each, bringing the share a t i n g c o m p a n i e s as f o l l o w s : capital up to ATS 666 668 000. It also ATS 100 000 000 to be transferred bound itself not to exercise its right of 13 months after the new shares were pre-emption and to permit only EDFI to issued and the balance of ATS 250 000 000 subscribe for the new shares, with a view to after 25 months. the latter acquiring a holding of 25% of ESTAG's share capital plus one share.

12. It is important to point out that the excerpts from the equity participation 11. EDFI, in return, agreed: agreement quoted by the national court appear to indicate that all the payments

3 — The trustee was to transfer the sum to ESTAG and/or to its operating companies in accordance with the parties' written instructions; if no instructions were received within the fortnight following the issue of the shares, he was to transfer the sum to ESTAG. 4 — Although not explicitly stated in the order for reference, it (i) to subscribe for the 166 668 new would appear from the case-file that EDFI would be entitled ESTAG shares in respect of a cumu- to repayment if the information supplied by the Land on the economic and legal situation of ESTAG proved to be lative nominal value of ATS 166 668 000; incorrect.

13. In accordance with the terms of the agreement, a resolution was passed at an extraordinary general meeting held on 16 April 1998 to increase the nominal share capital of ESTAG by ATS 166 668 000. At that meeting, the shareholders also 16. ESTAG appealed against this assess- waived their pre-emption rights and per- ment to the Finanzlandesdirektion, arguing mitted EDFI to subscribe for the new that EDFI had paid only ATS 166 668 000 shares. and that under Directive 69/335 the further sums paid by EDF — which were described as 'parent company contribu- tions' ('Großmutterzuschüsse') — should not have been assessed to capital duty. The Finanzlandesdirektion dismissed the appeal, ruling that the disputed assessment was fully in accordance with Community 14. Between April and May 1998, the law given that the basis of assessment was order for reference appears to indicate, 'the actual value of assets of any kind EDFI p a i d ESTAG the sum of contributed or to be contributed' within the ATS 166 668 000, equal to the nominal meaning of Article 5(l)(a) of the Directive. value of the new shares, while EDF paid the balance of ATS 5 433 332 000 into the trustee's accounts. Evidently, the trustee then transferred the 'shareholder's con- tribution' of ATS 5 083 332 000 to ESTAG and its operating companies 5 and retained the balance of ATS 350 000 000 in the 'guarantee account'. 17. ESTAG then challenged that decision 5 — It appears that ATS 3 733 332 000 was paid to ESTAG, before the Verwaltungsgerichtshof, arguing ATS 950 000 000 to Steirische Wasserkraft und Electri- zitäts, ATS 300 000 000 to Steirische Ferngas and essentially that the decision was incom- ATS 100 000 000 to Steirische Fernwärme. patible with the Directive, in that the

(2) Do payments which a new shareholder, allowed to acquire the new shares on The first two questions an increase in capital (where the pre- emptive right of the existing share- holders is excluded), makes not to the company increasing its capital but to 20. By the first two questions, which are its subsidiary companies amount to a best taken together, what is being asked in

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OPINION OF MR TIZZANO — CASE C-339/99

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ESTAG

of Article 4(1 )(d). Critically, in ESTAG's 26. This view finds confirmation, I believe, view, the payments in question were not in the provisions of the Directive setting out made by a member ·—· as required by the basis of assessment for the various Articles 4(2)(b) and 5(1 )(a) of the Direc- transactions subject to capital duty. In the tive — and they accrued in part to com- case of capital increases, as provided for panies other than the company which under Article 4(1 )(c) of the Directive, increased its capital. Article 5(1 )(a) provides that the duty is to be charged 'on the actual value of assets of any kind contributed or to be contributed by the members' and not 'on the nominal amount of such increase' as is provided, for example, in the case of 'an increase in the capital by capitalisation of profits, reserves or provisions' (Articles 5(l)(c) and 4(2)(a) respectively). 7If the duty is thus to be 24. For my part, let me say straight away charged on the actual value of the assets that, of the different ways of construing the contributed on a capital increase in con- disputed transaction, the best, in my view, sideration of shares in the capital, it seems is that suggested by the Austrian Govern- clear to me that it must be charged also on ment. any premium paid for that purpose.

ESTAG's operating companies). The ques- newly issued shares and thereby to acquire tion is whether these circumstances in effect the status of member. In practice, the have no bearing on the charge to duty, as situation brought about by the parent the Commission and the Austrian Govern- company making the payment is no dif- ment maintain, or whether they preclude it, ferent from what would ensue if the parent as ESTAG has argued. simply put the subsidiary in funds in order to make the payment, since in both cases it is still the subsidiary that obtains the benefit of the transaction and in both cases a credit of like value is (or ought to be) created in favour of the parent and against the subsidiary. 28. To begin with the case in which the premium is paid by the parent company, it is ESTAG's contention that the charge to duty cannot arise in that event because the party furnishing the consideration does not receive shares in the capital of the investee company in return (these go instead to its subsidiary) and hence does not acquire the status of member. That consideration can- 30. Looking beyond the formal arrange- not therefore be subject to duty since, in the ment, therefore, it may be seen that the case of an increase in the capital of a capital chargeable transaction was carried out, company, within the meaning of albeit indirectly, by the subsidiary: that is, Article 4(l)(c), '[t]he duty shall be by a company obtaining shares in the charged... on the actual value of assets of capital in return. If this proposition is any kind contributed or to be contributed accepted, there is clearly no further basis by the members'. 8 for ESTAG's submission that the relevant payment cannot be assessed to capital duty on the ground that it was made by a third party on whom the status of member was not conferred.

one company to another, both being con­ 33. The same reasoning applies, in my trolled by one and the same member, must view, where part of the consideration is be regarded as a service provided by a paid to subsidiaries of the company increas­ member within the meaning of the afore­ ing its capital. said provision of the Directive if it is clear from the circumstances of the case that the transfer in fact constitutes a payment by that member to one company through the other'. 9In that case, therefore, the Court treated as services provided by a member, within the meaning of the Directive, pay­ ments made by a member through the intermediary of a company under its con­ 34. The only argument advanced by trol, the Court thereby seeing fit to look ESTAG against the imposition of capital beyond the formal arrangement and ident­ duty in that situation is that the assets were ify the party which was 'in fact' behind the not contributed in consideration of shares payments in question. By the same token, in the capital of the recipient companies. but with roles reversed, I believe that assets But this argument is easily refuted by contributed by a member in the form of a pointing out, as the Commission and the payment made (on its behalf) by its parent Austrian Government have done in effect, company must be attributed to the member that the company undertaking the capital in question. increase is still an indirect recipient of the assets contributed. That company stands to gain a clear economic advantage from the contribution of assets to its subsidiaries, which may result in higher profits and will in any event mean a substantial increase in the value of its equity holdings.

The third question 36. In the light of the foregoing, I conclude that the answers to be given to the first two questions are:

37. By the third question, which obviously refers to the ATS 350 000 000 paid into the 'guarantee account', the national court asks whether payments not yet made constitute a 'contribution of assets of any kind' within — that payments which a new share- the meaning of Article 4(l)(c) of the holder, allowed to acquire the new Directive. shares on an increase in capital (where the pre-emptive right of the existing shareholders is excluded), does not make itself but makes through its parent company do amount to a 'con- tribution of assets of any kind' within the meaning of Article 4(l)(c) of the Directive; and 38. ESTAG submits that this question should be answered in the negative', arguing that, until the assets are transferred, not only is the beneficiary's identity not known but nor is it possible to determine whether the conditions for the charging of capital duty are in fact fulfilled. The Commission, on the other hand, contends that in the cases contemplated by Article 4(l)(a), (c) — that payments which a new share- and (d) the Directive allows Member States holder, allowed to acquire the new to 'postpone the charging of capital duty

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ESTAG

39. On this point, too, the approach I find most convincing is that suggested by the Austrian Government. For it is indeed the The fourth question case, as the Commission observes, that Article 5(l)(a) of the Directive allows Member States to charge the duty before the assets are contributed; moreover, it seems to me that this proposition is sup- ported by the fact that, according to the 41. By the fourth and final question, the same provision, the duty is to be charged Court is asked whether the capital duty to 'on the actual value of assets of any kind be paid by the company constitutes a contributed or to be contributed by the 'liability' or 'expense' deductible from the members'. 10 I agree with the Austrian basis of assessment under Article 5(1 )(a) of Government, however, that the charge to the Directive, which provides that, in the duty cannot arise before the fulfilment of cases contemplated by Article 4(1 )(a), (c) any conditions precedent to which the and (d), the duty is to be charged 'on the chargeable payment is subject: for it is only actual value of assets of any kind con- upon those conditions being met that the tributed or to be contributed by the members, after the deduction of liabilities assumed and of expenses borne by the 10 — Emphasis added. company as a result of each contribution'.

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OPINION OF MR TIZZANO — CASE C-339/99

42. ESTAG submits that this question of assessment necessarily precedes the should be answered in the affirmative, charging of the duty, the amount of which arguing that tax expenses, and capital duty naturally depends upon the sum on which it charges in particular, must be regarded as is computed. Clearly, therefore, to make deductible expenses. The opposite view is allowance for the amount of the charge to taken by the Commission and the Austrian duty in determining the basis of assessment Government, which maintain that capital would constitute a serious error not only of duty is not deductible from any of the logic, but also in law. transactions giving rise to payment of same.

excluded), does not make itself but makes through its parent company do amount to a 'contribution of assets of any kind' within the meaning of that provision.

(2) Article 4(1 )(c) of Directive 69/335 must be interpreted as meaning that payments which a new shareholder, allowed to acquire the new shares on an increase in capital (where the pre-emptive right of the existing shareholders is excluded), makes not to the company increasing its capital but to its subsidiary companies do amount to a 'contribution of assets of any kind' within the meaning of that provision.

(3) Article 4(1 )(c) of Directive 69/335 must be interpreted as meaning that payments not yet made do constitute a 'contribution of assets of any kind' within the meaning of that provision, provided that the conditions precedent to which they are subject have been fulfilled.

(4) Article 5(1 )(a) of Directive 69/335 must be interpreted as meaning that the capital duty payable by the company does not constitute a 'liability' or 'expense' deductible from the basis of assessment under that provision.

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