C-43/00

I-382

ANDERSEN OG JENSEN

National law

5. Article 15(c) of the Fusionsskattelov (Danish Law on the taxation applicable to mergers) states:

(i) "branch of activity" shall mean all the assets and liabilities of a division of a company which from an organisational point of view constitute an independent business, that is to say capable of '1. In the event of a transfer of assets, functioning by its own means.' companies may be taxed in accordance with the rules of Article 15(d) where both the transferring and the receiving company meet the definition of a company of a Member State given in Article 3 of Direc- tive 90/434/EEC. This applicability shall be conditional upon authorisation having been obtained from the Ligningsråd. The Ligningsråd may lay down special con- 4. In accordance with Article 9 of the ditions for such authorisation. Directive, transfers of shares, as defined above, shall be subject to the provisions of Article 4, which states:

7. The referring court also points out that it is apparent from the preparatory docu- 8. From the order for reference, it is appar- ments to the Fusionsskattelov that ent that Randers Sport A/S, a limited company having a share capital of DKK 300 000, the applicant in the main action, operated a wholesale and retail business in sports equipment. In 1996, with a view to introducing a generation change 'The draft Law seeks to incorporate into in the management of this company — Danish tax legislation those changes which which was to be achieved, inter alia, by are required in order to comply with the appointing two of its associates to the merger directive. Board of Directors — the shareholders of Randers Sport decided to transfer their shares to a new company, namely Randers Sport Nyt A/S, whose shareholders would include, in addition to the Randers Sport company itself, the two associates men- The draft Law also seeks to lay down rules tioned above. corresponding to those of the merger directive which apply to mergers, transfers of assets and exchanges of shares regarding companies which are all established in Denmark. 9. The specific object of forming the Randers Sport Nyt company was to isolate the capital accumulated by the applicant company over the years, and to enable the two associates referred to above to acquire, for a minor consideration, sizeable blocks of shares in the new company, with low capitalisation. For this purpose, Randers Sport had taken out a sizeable loan in the amount of DKK 10 million, on the under- The term "transfer of assets" is defined in standing that the sum loaned would remain Article 15(c)(2) in the same manner as in with this company, whilst the liability for Article 2(c) of the merger directive. The the loan debt would be transferred to

Randers Sport Nyt, which would involve a company by the transferring company, considerable reduction in the value of the its principal shareholders or any third recipient company. In order to provide the parties. funds necessary for its own business activ- ity, the recipient company obtained work- ing capital from a bank which in turn required, by way of security, a lien on the shares of that company. This complex operation also provided that, in addition to the amount loaned, the transferring 11. Clarifying the reasons for its decision, company would also retain a small block the Ligningsråd explained, with regard to of shares in a third company, which at that the first condition, that the connection time was in the process of liquidation. between the asset (i.e. the amount loaned) and the liability (i.e. the obligation to repay the loan) in question was such that they could not be shared among the transferring and the recipient company. The Lignings- 10. By letter dated 6 June 1996, the råd also explained that the second con- applicant company applied to the Lignings- dition sought to ensure that the recipient råd (highest administrative authority in company was capable of operating with its Denmark competent to settle various issues own resources. of taxation law) for authorisation to carry out the planned transfer of shares with the benefit of the tax exemption laid down in Article 15(c) and (d) of the Fusionsskatte- lov. By letter of 20 November 1996, the Ligningsråd replied that the operation in 12. Although it challenged the decision of question could qualify as a 'transfer of the Ligningsråd, Randers Sport carried out shares' within the meaning of this provi- the planned transfer in accordance with the sion, and be exempted from the relevant conditions laid down by that administrative capital gains tax, subject to the following authority. However, on 15 March 1997, it conditions: brought before the Vestre Landsret an action against the Skatteministerium (Min- istry of Finance), in order to have the conditions imposed by the Ligningsråd declared unlawful, inasmuch as these con- (i) the amount loaned and the correspond- ditions were, in its opinion, based on a ing debt liability should remain with mistaken interpretation of the term the transferring company, or alter- 'transfer of assets' contained in Directive natively be transferred together to the 90/434. In its defence statement, the recipient company, and defendant challenged the admissibility of the action, arguing that the applicant com- pany had no legal interest in the outcome of the case, since it had acted in accordance with the conditions stipulated by the Lig- (ii) no security in the form of a guarantee, ningsråd. By order of 27 March 1998, this lien, deposit or similar provision could plea was dismissed. However, the Vestre be made available to the recipient Landsret, in view of its fundamental uncer-

'(1) Must the provisions of Directive 90/434/EEC (the merger directive) be understood as meaning that it is contrary to the provisions of that directive, in particular Article 2(c) and (i) thereof, for the authorities of a Member State to refuse to treat an (4) Must the provisions of the merger arrangement as being covered by the taxation directive, in particular directive's provisions on the transfer of Article 2(i) thereof, be understood as assets where the effect of the arrange- meaning that it is contrary to those ment in question is that all of the provisions for a condition to be transferring company's assets and lia- imposed, before an arrangement can bilities are transferred to a second be treated as being covered by the company (the receiving company) with asset-transfer provisions of the direc- the exception of a minor block of tive, under which the transferring com- shares and the proceeds of a loan taken pany, the principal shareholders in out by the transferring company? person or any other third party may not provide security for the benefit of the receiving company, on the ground that it is indicated that the future cash requirements of the receiving company are to be financed by working credit (2) Does it have any bearing on the answer from a financial institution which to Question 1 that it can be assumed wishes to obtain a lien on the shares that the transferring company took out of the receiving company?' the loan in question with a view to reducing the net value of the assets and liabilities to be transferred to the receiving company, inasmuch as the loaned proceeds are to remain in the transferring company while the debt liability is transferred to the receiving company? 13. The following participated in the pro- ceedings before the Court: the parties to the main action, the Netherlands Government, and the Commission, which presented their (3) Does it have any bearing on the answer submissions both in writing and orally in to Question 1 and/or Question 2 that it the course of the hearing.

15. Although this aspect could prompt doubts on the admissibility of this refer- ence, I would point out, as did the Vestre Landsret, that the Fusionsskattelov, as can 16. In view of this clear instruction issued be seen clearly from its preparatory docu- by the Court in its case-law, as well as the ments, has incorporated Directive 90/434 large measure of similarity which exists into national law and, in so doing, has between the situations in question, I do not rendered the solutions provided by the believe that the reference made by the Directive applicable to issues of a purely Vestre Landsret can be declared inadmiss- domestic nature. As the Commission ible. observes, the Court has already had occa- sion to point out, specifically with reference to Directive 90/434, that it has 'jurisdiction 3 — Case C-28/95 Leur-Bloem v inspecteur der Belastingsdienst/ Ondernemingen Amsterdam 2, [1997] ECR I-4161, under Article 177 of the Treaty to interpret paragraphs 32 to 34.

I - 387

OPINION OF MR TIZZANO — CASE C-43/00

The first three questions 19. Therefore, for a transfer of assets to take place, three conditions need to be met:

20. In relation to the case under review, the first condition does not give rise to any particular problem, since there is no doubt that the transferring company has not been dissolved. However, a more difficult issue here is to ascertain whether all or one or more branches of the company's activity 18. In order to reply to the referring court, have actually been transferred to the recipi- it is necessary first of all to recall that, ent company. pursuant to the definition contained in the Directive itself, a transfer of assets consists in 'an operation whereby a company transfers without being dissolved all or one or more branches of its activity to another company in exchange for the 21. According to the applicant in the main transfer of securities representing the capi- action, a transfer of the entire business of a tal of the company receiving the transfer' company occurs whenever the assets and [Article 2(c)]. liabilities transferred to the recipient com-

I - 388

ANDERSEN OG JENSEN

I-389

OPINION OF MR TIZZANO — CASE C-43/00

to the shareholders in the form of a 26. For the sake of completeness, I would benefit — in which case it would also point out that, according to the Com- obviously have been subject to normal mission, the case under review also failed to taxation. Whatever may have been the meet the third condition under Article 2 of purpose for which the amount loaned was the Directive, namely the condition that the intended, even if this purpose was merely transfer must be carried out in exchange for financial, this sum was definitely intended the transfer of securities representing the for a different activity from that transferred capital of the recipient company. The to the recipient company, and therefore Commission considers that, in the case constituted, at least potentially, a separate under review, the recipient company, in branch of activity remaining with the exchange for the transfer, should have transferring company. Therefore, in the taken over the liability attached to the loan case under review, it cannot be claimed taken out by the transferring company; that the entire activity of Randers Sport therefore the operation in question was in was to be transferred to the receiving reality a sale of some description and company. On the contrary, the incongru- would not as such come within the terms ous nature of the operation in question is of the definition in Article 2 of the Direc- evidenced precisely by the fact that the tive. However, it seems to me that the recipient company was to acquire the Commission has overlooked the fact that, activity of marketing the sports equipment, in exchange for the various assets and together with the obligation to repay a sum liabilities transferred to Randers Sport Nyt, intended for a different activity which, Randers Sport was obliged to acquire cleared of the liability relating to it, was shares exclusively in the recipient company. to remain with the transferring company. In those circumstances I cannot see what could constitute the sale and purchase to which the Commission refers.

30. All the parties seem substantially to agree that, under Article 2 of the Directive, the company receiving the transfer must be 28. In conclusion, I propose that the reply commercially independent and must be to the first three questions should be that capable of operating by its own means. there is no transfer of assets within the However, their opinions differ in relation meaning of Article 2(c) and (i) of Directive to the case under review, essentially 90/434 in the case of an operation under because they make a different assessment which the transferring company retains the of the conditions imposed in this regard by proceeds of a loan taken out by it and the the Ligningsråd. liabilities attached to this loan are trans- ferred to the recipient company, and that this is so regardless of the object pursued by this allocation of the assets and liabilities of the loan. However, there may be a transfer of assets within the meaning of Article 2(c) 31. More particularly, the Danish Govern- and (i) of the Directive where, on a transfer ment has justified the imposition of this of a branch of activity, the transferring condition on the grounds that, in its view, company retains an independent sharehold- the fact that the transferring company had ing in a third company. to grant a lien over the shares of the recipient company in order to guarantee the working capital obtained by the latter is evidence of its inability to function by its own means. In the same vein, but without reaching a specific conclusion on the con- dition imposed by the Ligningsråd, the Netherlands Government maintains that The fourth question the notion that the recipient company is operating independently must be dismissed where, because of the terms on which the transfer was made (including the existence 29. By its fourth question, the referring of a considerable liability remaining with court is in effect seeking to establish the recipient company), the latter is inca- whether Article 2(c) and (i) of Directive pable of operating without a guarantee 90/434 allows the appropriate authorities provided by the transferring company of the Member States to decide that the which enables it to obtain working capital. exemption from capital gains tax laid down The applicant company in the main action in Article 4 of the Directive does not apply and the Commission, on the other hand, where the transferring company or third accuse the Ligningsråd of having imposed parties provide a surety in favour of the the conditions in absolute terms, without

specifically seeking to ascertain the actual 33. The question whether such an assess- degree of independence of the recipient ment has actually been carried out by the company. Ligningsråd and whether the conclusion reached by the latter is correct, are issues which must be decided by the referring court in the light of the circumstances of this particular case. As regards the issues that concern us here, I would confine myself to pointing out that, for the purpose of making this assessment, it may be important to establish whether, under the relevant national legislation, the action taken by the transferring company — which granted a lien over the shares of the recipient company in order to enable

However, the same conclusion should be reached ·— in fact, all the more so — where the entire activity of a company is being transferred. Nevertheless, I agree with the applicant in the main action, the Commission and the 34. In conclusion, I would propose that the Netherlands Government that for this pur- reply to the fourth question should be that pose, the national authorities should make where there is a transfer of assets within the an assessment on a case-by-case basis, in meaning of Article 2(c) and (i) of Directive order to take into account the circum- 90/434, the recipient company must be stances of each individual case. More independent of the transferring company, particularly where the recipient company and have adequate means for the purpose guarantees a loan taken out by the trans- of conducting its own business activity — ferring company, the national authorities where appropriate by taking out a loan must assess whether such a guarantee is under normal market conditions.

I-392

ANDERSEN OG JENSEN

Conclusion

In the light of the foregoing, I propose that the four questions referred by the Vestre Landsret be answered as follows:

There is no transfer of assets within the meaning of Article 2(c) and (i) of Directive 90/434 where the arrangement in question envisages that the trans- ferring company is to retain the proceeds of a loan taken out by the latter and that the liabilities relating thereto are to be transferred to the recipient company; this is so regardless of the objective pursued by this allocation of assets and liabilities attached to such loan. However, there may be a transfer of assets, within the meaning of Article 2(c) and (i) of the directive, where, in the event of the transfer of a branch of activity, the transferring company retains an independent shareholding in a third company.

For there to be a transfer of assets within the meaning of Article 2(c) and (i) of Directive 90/434, the receiving company must be independent of the transferring company and have adequate means enabling it to carry on its own business activity — where appropriate by taking out a loan under normal market conditions. Where the transferring company guarantees a loan taken out by the recipient company, the national authorities must assess whether this guarantee is essential for the purpose of enabling the recipient company to carry on its own activity. If the answer to this question is in the affirmative, the conclusion must be that the latter is not capable of functioning by its own means.