# C_2005143EN.01001502.xml

| 11.6.2005 | EN | Official Journal of the European Union | C 143/15 |
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11.6.2005

EN

Official Journal of the European Union

C 143/15

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Action brought on 4 March 2005 by the Commission of the European Communities against the Federal Republic of Germany

(Case C-112/05)

(2005/C 143/22)

Language of the case: German

An action against the Federal Republic of Germany was brought before the Court of Justice of the European Communities on 4 March 2005 by the Commission of the European Communities, represented by F. Benyon and G. Braun, with an address for service in Luxembourg.

The Commission claims that the Court should:

| 1. | declare that Paragraphs 2(1), 4(1) and 4(3) of the VW-Gesetz infringe Articles 56 EC and 43 EC; |
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1.

declare that Paragraphs 2(1), 4(1) and 4(3) of the VW-Gesetz infringe Articles 56 EC and 43 EC;

| 2. | order the Federal Republic of Germany to pay the costs. |
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2.

order the Federal Republic of Germany to pay the costs.

Pleas in law and main arguments

The Federal Republic of Germany's Gesetz über die Überführung der Anteilsrechte an der Volkswagen Gesellschaft mit beschränkter Haftung in private Hand (Law on the privatisation of equity in the Volkswagenwerk limited company; hereinafter ‘VW-Gesetz’) limits, by way of derogation from the provisions of the Aktiengesetz (Company Law), each shareholder's voting rights to a maximum of 20 % of the share capital. The Federal Republic of Germany and the Land Lower Saxony are each entitled to appoint two members of the supervisory board of VW AG, provided that they hold shares in the company. Resolutions of the general shareholders' meeting of Volkswagen AG, for which a majority of 75 % of the share capital represented at the time of voting is required under the Aktiengesetz, require a majority of more than 80 % of the share capital represented.

Those provisions are an infringement of the free movement of capital under Article 56 EC and the freedom of establishment under Article 43 EC.

The Annex to Directive 88/361/EEC includes among movements of capital not only investment in shares and securities, but also participation in undertakings or their acquisition in full.

The Court of Justice has previously held that the sphere of protection afforded by the free movement of capital covers any legislation which is liable to dissuade investors in other Member States from investing in a company and participating in its management and control. The aim of the prohibition in Article 56 EC is not merely to prevent discrimination against foreign market participants in relation to their domestic counterparts, but it applies to any measure which inhibits the exercise of the free movement of capital in any way. In the light of the Court's findings in relation to the prohibition of restrictions under Article 56 EC, the State-ordered ceiling on voting rights in the VW-Gesetz constitutes an indirect restriction on earnings and thus an infringement of the free movement of capital.

At general shareholders' meetings — at which the voting capital is not usually fully represented — the shares held by the Land Lower Saxony give it the 20 % of votes needed to block resolutions requiring more than 80 % of the capital represented. That provision of the VW-Gesetz constitutes an impediment by the exercise of State power, since it enables the Land to prevent unwanted changes to the status quo in so far as such changes have to be brought in under the category of resolutions for which, according to the Aktiengesetz, a higher quorum is required.

The right of the Federal Republic of Germany and the Land Lower Saxony to make appointments to the supervisory board under the VW-Gesetz, notwithstanding the provisions of the Aktiengesetz, restricts the rights of other shareholders to appropriate representation on the company's supervisory board. Since, as the Court has held on several occasions, a provision which restricts the acquisition of shares, or in some other way restricts the possibility of actual participation in the management of a company or in its control, constitutes a restriction on the free movement of capital, that statutory provision constitutes a restriction on the free movement of capital, contrary to Community law.

A restriction on the free movement of capital is justified only on the grounds referred to in Article 58 EC or on so-called overriding grounds relating to the public interest. According to the criteria established by the Court, such public interest measures must not be discriminatory, must be objectively necessary and must be proportionate in relation to the objective being pursued. In particular, those grounds must apply to all persons or undertakings pursuing an activity in the territory of the host Member State. General financial interests which are outside the scope of those grounds in Article 58 EC relating to tax law, as well as other economic aims of the Member State cannot, according to settled case-law, justify any restriction prohibited under the EC Treaty. By the standards of Article 56 EC and relevant case-law, the provisions of the aforementioned VW-Gesetz constitute indirect restrictions on earnings for which there is no relevant justification under Community law.

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