CELEX: 62018CJ0640
Reference for a preliminary ruling
Directive 78/660/EEC
Annual accounts of certain types of companies
Principle that a true and fair view must be given
Acquisition of a financial fixed asset by a public limited company
Entry as a charge in the profit and loss account of a discount relating to a non-interest-bearing debt due after one year and entry of the purchase price of the fixed asset as an asset in the balance sheet after deduction of the discount

This request for a preliminary ruling concerns the interpretation of Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article [44(2)(g) EC] on the annual accounts of certain types of companies (
OJ 1978 L 222, p. 11
).
The request has been made in proceedings between Wagram Invest SA and the Belgian State regarding the corporate tax due by that company for the 2000 and 2001 tax years.
Legal context
EU law
The third recital of Directive 78/660 states:
‘Whereas it is necessary … to establish in the Community minimum equivalent legal requirements as regards the extent of the financial information that should be made available to the public by companies that are in competition with one another’.
Under Article 2 of that directive:
‘…
3.   The annual accounts shall give a true and fair view of the company’s assets, liabilities, financial position and profit or loss.
4.   Where the application of the provisions of this Directive would not be sufficient to give a true and fair view within the meaning of paragraph 3, additional information must be given.
5.   Where, in exceptional cases, the application of a provision of this Directive is incompatible with the obligation laid down in paragraph 3, that provision must be departed from in order to give a true and fair view within the meaning of paragraph 3. Any such departure must be disclosed in the notes on the accounts, together with an explanation of the reasons for it and a statement of its effect on the assets, liabilities, financial position and profit or loss. The Member States may define the exceptional cases in question and lay down the relevant special rules.
…’
Article 31(1) of that directive provides:
‘The Member States shall ensure that the items shown in the annual accounts are valued in accordance with the following general principles:
…
(c)
valuation must be made on a prudent basis, and in particular:
(aa)
only profits made at the balance sheet date may be included,
(bb)
account must be taken of all foreseeable liabilities and potential losses arising in the course of the financial year concerned or of a previous one, even if such liabilities or losses become apparent only between the date of the balance sheet and the date on which it is drawn up,
(cc)
account must be taken of all depreciation, whether the result of the financial year is a loss or a profit;
(d)
account must be taken of income and charges relating to the financial year, irrespective of the date of receipt or payment of such income or charges;
(e)
the components of asset and liability items must be valued separately;
…’
Under Article 32 of that directive:
‘The items shown in the annual accounts shall be valued in accordance with Articles 34 to 42, which are based on the principle of purchase price or production cost.’
Article 35 of Directive 78/660 provides:
‘1.
(a)
Fixed assets must be valued at purchase price or production cost, without prejudice to (b) and (c) below.
(b)
The purchase price or production cost of fixed assets with limited useful economic lives must be reduced by value adjustments calculated to write off the value of such assets systematically over their useful economic lives.
(c)
(aa)
Value adjustments may be made in respect of financial fixed assets, so that they are valued at the lower figure to be attributed to them at the balance sheet date.
(bb)
Value adjustments must be made in respect of fixed assets, whether their useful economic lives are limited or not, so that they are valued at the lower figure to be attributed to them at the balance sheet date if it is expected that the reduction in their value will be permanent.
(cc)
The value adjustments referred to in (aa) and (bb) must be charged to the profit and loss account and disclosed separately in the notes on the accounts if they have not been shown separately in the profit and loss account.
(dd)
Valuation at the lower of the values provided for in (aa) and (bb) may not be continued if the reasons for which the value adjustments were made have ceased to apply.
(d)
If fixed assets are the subject of exceptional value adjustments for taxation purposes alone, the amount of the adjustments and the reasons for making them shall be indicated in the notes on the accounts.
2.   The purchase price shall be calculated by adding to the price paid the expenses incidental thereto.
3.
(a)
The production cost shall be calculated by adding to the purchasing price of the raw materials and consumables the costs directly attributable to the product in question.
(b)
A reasonable proportion of the costs which are only indirectly attributable to the product in question may be added into the production costs to the extent that they relate to the period of production.
4.   Interest on capital borrowed to finance the production of fixed assets may be included in the production costs to the extent that it relates to the period of production. In that event, the inclusion of such interest under “Assets” must be disclosed in the notes on the accounts.’
Belgian law
Article 24 of the Royal Decree of 30 January 2001 implementing the Companies Code (
Moniteur belge
of 6 February 2001, p. 3008, ‘the Royal Decree of 30 January 2001’), provides:
‘The annual accounts shall give a true and fair view of the company’s assets, liabilities, financial position and profit or loss.
If the application of the provisions of this Title would not be sufficient to satisfy that requirement, additional information must be given in the notes on the accounts.’
The first paragraph of Article 29 of that royal decree, which appears in Chapter II, headed ‘Valuation rules’, provides:
‘In exceptional cases where the application of the valuation rules laid down in this Chapter would not lead to compliance with the requirement in [the first paragraph of] Article 24, those rules must be departed from and that Article must be applied.’
Article 35 of that royal decree provides:
‘Without prejudice to the application of Articles 29, 57, 67, 69, 71, 73 and 77, assets shall be valued at their acquisition value and entered in the balance sheet at that value, after deduction of any related depreciation and reductions in value.
“Acquisition value” means either the purchase price defined in Article 36, the production cost defined in Article 37 or the transfer value defined in Article 39.’
Under Article 67(2) of the Royal Decree of 30 January 2001:
‘Where receivables are entered in the balance sheet at their nominal value, there shall be an accompanying entry under accruals and deferred income and an accompanying inclusion in profit and loss,
prorata temporis
, on a compound-interest basis:
…
(c) of the discount on receivables which are non-interest-bearing or which are subject to abnormally low interest, where those receivables:
1. are repayable by a date more than one year from the date on which they were first entered in the company’s balance sheet, and
2. relate either to amounts recorded as income in the profit and loss account or to the transfer price of fixed assets or branches of activity.
…’
Under Article 77 of that royal decree, Article 67 of that decree applies in a similar manner to debts of a corresponding nature and duration.
The dispute in the main proceedings and the questions referred for a preliminary ruling
By an agreement of 10 January 1997, Wagram Invest, which has its head office in Belgium and which, at the material time, was named SCRL HDB de promotion et de gestion, purchased from its manager shares in IENA SA for Belgian francs 24000000 (BEF) (EUR 594 944.45), payable in 16 six-monthly instalments of BEF 1500000 (EUR 37 184.02), interest free, with the last six-monthly instalment due on 10 July 2004.
By a second agreement, of 10 March 1999, Wagram Invest purchased from its manager more shares in IENA for BEF 31760400 (EUR 787 319.75), payable in 12 six-monthly instalments of BEF 2646700 (EUR 65 609.97), interest free.
The price which served as the basis of those two agreements for the transfer of shares in IENA was the price paid by the shareholders of that company when they subscribed for a capital increase shortly beforehand.
In order to record those share purchase transactions in its accounts, Wagram Invest made the following accounting entries:
–
it entered the debt to the manager as a debt becoming due after one year in its balance sheet liabilities at its nominal value, being BEF 24000000 (EUR 594 944.45) and BEF 31760400 (EUR 787 319.75);
–
it entered the 2005 shares purchased on 10 January 1997 as an asset at a present value of BEF 18233827 (EUR 452 004.76) and the 1993 shares purchased on 10 March 1999 at a present value of BEF 25871302 (EUR 641 332.82);
–
it entered the discount consisting of the difference between the nominal value of the debt and the present value of the fixed asset, being BEF 5766173 (EUR 142 939.69) and BEF 5889098 (EUR 145 986.93), in the prepayments and accrued income account (account 4901); and
–
at the end of each financial year, it entered as a finance charge a proportion of deferred charges corresponding to the discount on the debt.
At the end of the 2000 tax year, Wagram Invest recorded in its accounts the sum of BEF 1970339 (EUR 48 843.42) by way of a proportion of charges, being BEF 1000506 (EUR 24 801.89) for the shares purchased in 1997 and BEF 969833 (EUR 24 041.53) for those purchased in 1999.
At the end of the 2001 tax year, Wagram Invest recorded in its accounts the sum of BEF 2676318 (EUR 66 344.19) by way of a proportion of charges, being BEF 843090 (EUR 20 899.65) for the shares purchased in 1997 and BEF 1833228 (EUR 45 444.53) for those purchased in 1999.
The discount rate used to calculate present value was the market rate applicable to such debts at the time when they were first entered in the balance sheet, being 8%.
Following an inspection, the Belgian tax authority took the view that it was obliged to reject the discount charges recorded in the accounts and deducted for the 2000 and 2001 tax years and, notwithstanding that Wagram Invest disagreed, sent it a tax assessment on 28 October 2002.
On that basis, the tax authority assessed Wagram Invest as being liable for two additional corporate tax payments for the 2000 and 2001 tax years, on 20 and 18 November 2002 respectively.
As no decision was made by the head of that authority, within the six-month period applicable, on the objection filed by Wagram Invest on 18 February 2003, Wagram Invest brought an action before the tribunal de première instance de Namur (Court of First Instance, Namur, Belgium) on 10 March 2005.
By judgment of 20 December 2007, that court declared that the application for annulment of the decision of the tax authority was unfounded and upheld the disputed additional tax payments.
Wagram Invest brought an appeal against that judgment before the Cour d’appel de Liège (Court of Appeal, Liège, Belgium), which, in a judgment of 14 October 2011, upheld the judgment given at first instance.
Wagram Invest appealed on a point of law on 2 July 2014. The Cour de cassation (Court of Cassation, Belgium), by judgment of 11 March 2016, quashed the judgment of the Cour d’appel de Liège (Court of Appeal, Liège) and referred the case to the Cour d’appel de Mons (Court of Appeal, Mons, Belgium).
Whilst that court acknowledges that the accounting method used by Wagram Invest is compliant with the provisions of Belgian law, in particular Article 77 of the Royal Decree of 30 January 2001, it questions whether such a method is compliant with Article 2(3) to (5) of Directive 78/660, read in conjunction with Article 32 of that directive.
In those circumstances, the Cour d’appel de Mons (Court of Appeal, Mons) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1)
Does the notion of a true and fair view under Article 2(3) of [Directive 78/660], where a public limited company purchases a financial fixed asset, authorise a discount relating to a non-interest-bearing debt becoming due after one year to be entered as a charge in the profit and loss account, and the acquisition price of the fixed asset to be entered as an asset in the balance sheet after deduction of that discount, in the light of the valuation principles set out in Article 32 of that directive?
(2)
Must the expression “in exceptional cases” that is a proviso for application of Article 2(5) of [Directive 78/660] and that allows application of a (different) provision of that directive to be excluded be interpreted as meaning that the provision in question can apply only on condition that it is found that compliance with the provisions of the directive, together with, where applicable, additional disclosure in the notes on the accounts in accordance with Article 2(4) of that directive, cannot adversely affect compliance with the principle that a true and fair view must be given?
(3)
Must Article 2(4) of [Directive 78/660] be applied as a priority with the effect that the possibility, under Article 2(5) of that directive, of excluding application of a provision of the directive can be utilised only if additional disclosure cannot ensure effective implementation of the principle that a true and fair view must be given enshrined in Article 2(3) of that directive and, even then, only in exceptional cases?’
Consideration of the questions referred
As a preliminary point, it should be observed that the dispute in the main proceedings is of a fiscal nature. Directive 78/660, the interpretation of which is sought in the present case, is not intended to lay down the conditions in which the annual accounts of companies may or must serve as a basis for the determination by the tax authorities of the Member States of the basis for assessment and the amount of taxes, such as the corporate tax at issue in the main proceedings (see, to that effect, judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
).
However, the Court has recognised that annual accounts may be used by Member States as a reference base for tax purposes, which is the case in Belgian law (see, to that effect, judgments of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraphs
and
, and of 15 June 2017, Immo Chiaradia and Docteur De Bruyne,
C‑444/16 and C‑445/16
,
EU:C:2017:465
, paragraph
).
First question
By its first question, the referring court asks, in essence, whether, in the case of the acquisition, by a public limited company, of a financial fixed asset for which payment of the price is to be by long-term, interest-free instalments, under conditions similar to those of a loan, the principle of a true and fair view laid down in Article 2(3) of Directive 78/660 is to be interpreted as precluding the use of an accounting method which provides for the entry as a charge, in the profit and loss account, of a discount relating to a non-interest-bearing debt becoming due after one year relating to that acquisition, and the entry of the purchase price of the fixed asset as an asset in the balance sheet, after deduction of that discount.
By way of a preliminary point, it should be emphasised that Directive 78/660, according to the third recital thereof, is designed only to establish minimum conditions as to the extent of the financial information to be made available to the public (judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
and the case-law cited).
Compliance with the principle that a true and fair view must be given is the primary objective of Directive 78/660. According to that principle, contained in Article 2(3) of that directive, annual accounts must give a true and fair view of the assets, financial position and the profit and loss of the company (see, to that effect, judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
and the case-law cited).
In that regard, the Court has held that that principle requires that the accounts reflect the activities and transactions which they are supposed to describe and that the accounting information be given in the form judged to be the soundest and most appropriate for satisfying third parties’ needs for information, without harming the interests of the company concerned (judgment of 14 September 1999, DE + ES Bauunternehmung,
C‑275/97
,
EU:C:1999:406
, paragraph
).
The Court has ruled, in addition, that the application of the principle that a true and fair view must be given must, as far as possible, be guided by the general principles contained in Article 31 of Directive 78/660, within which the principle of making valuations on a prudent basis set out in Article 31(1)(c) is of particular importance (judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
and the case-law cited).
In accordance with the provisions of Article 31(1)(c) of Directive 78/660, taking account of all elements – profits made, charges, income, liabilities and losses – which actually relate to the financial year concerned ensures observance of the requirement of a true and fair view (judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
and the case-law cited).
In addition, the principle that a true and fair view must be given must also be understood in the light of the principle contained in Article 32 of Directive 78/660, pursuant to which the items shown in the annual accounts are to be valued based on the principle of purchase price or production cost (see, to that effect, judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
).
Under that article, the true and fair view which the annual accounts of a company must give is based on a valuation of the assets not on the basis of their real value, but on the basis of their historical cost (judgment of 3 October 2013, GIMLE,
C‑322/12
,
EU:C:2013:632
, paragraph
).
In this case, where a contract for the acquisition of a financial fixed asset provides for the payment of the price by long-term, interest-free instalments, the Belgian legislature regarded the acquisition, which, formally, is a single transaction, as a transaction made up, in reality, of two elements, being, on the one hand, the actual acquisition of the financial fixed asset and, on the other, an implicit loan.
In those circumstances, the nominal value of the price paid for the acquisition of the financial fixed asset, which corresponds to the historic cost of that fixed asset, consists, in reality, of two elements, being, on the one hand, the present value of the purchase price of the fixed asset, corresponding to the price paid excluding the imputed interest on the loan, and, on the other, an amount corresponding to that imputed interest.
Thus, the accounting method at issue in the main proceedings, providing, on the one hand, for the entry as an asset of the present value of the price paid for the financial fixed asset, being the nominal value excluding imputed interest, and, on the other, the entry under prepayments and accrued income of a discount representing imputed interest, the amount of which corresponds to the difference between the nominal value of the debt incurred for the acquisition of the fixed asset and the present value of that debt, provides a true and fair view of both elements of that transaction.
As the European Commission emphasises, that accounting method, where it is applied in normal market conditions, gives precedence to the substance of the transaction over its form, as it means that the value of the fixed asset is taken into account in accordance with the principle that a true and fair view must be given, based on an evaluation which takes account of all the relevant factors, including, in this case, finance charges, even though such charges, as they are imputed, are not formally part of the nominal value of the purchase price of the asset concerned.
In the light of all the foregoing considerations, the answer to the first question is that, in the case of the acquisition by a public limited company of a financial fixed asset, for which payment of the price is to be by long-term, interest-free instalments, under conditions similar to those of a loan, the principle of a true and fair view laid down in Article 2(3) of Directive 78/660 is to be interpreted as not precluding the use of an accounting method which provides for the entry as a charge in the profit and loss account, at the market rate, of a discount relating to a non-interest-bearing debt becoming due after one year relating to that acquisition, and the entry of the purchase price of the fixed asset as an asset in the balance sheet after deduction of that discount.
Second and third questions
In the light of the answer given to the first question, it is not necessary to answer the second and third questions.
Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Second Chamber) hereby rules:

In the case of the acquisition by a public limited company of a financial fixed asset, for which payment of the price is to be by long-term, interest-free instalments, under conditions similar to those of a loan, the principle of a true and fair view laid down in Article 2(3) of Council Directive 78/660/EEC of 25 July 1978 based on Article [44(2)(g) EC] on the annual accounts of certain types of companies is to be interpreted as not precluding the use of an accounting method which provides for the entry as a charge in the profit and loss account, at the market rate, of a discount relating to a non-interest-bearing debt becoming due after one year relating to that acquisition, and the entry of the purchase price of the fixed asset as an asset in the balance sheet after deduction of that discount.

[Signatures]
(
*1
)	Language of the case: French.