Opinion of the Advocate-General



Opinion of the Advocate-General

1. In the present case the Court has been asked by the Cour d’appel de Liège (Court of Appeal, Liège) (Belgium) essentially whether a company which owns a right of usufruct over shares in another company may or must be regarded as a parent company within the meaning of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (2) (‘the Parent/Subsidiary Directive’ or ‘the Directive’).

The Parent/Subsidiary Directive

2. The Parent/Subsidiary Directive seeks to eliminate the tax disadvantage suffered by companies from different Member States, by comparison with companies of the same Member State, where they seek to cooperate by forming groups of parent companies and subsidiaries. (3) It does this in two ways.

3. First, Article 4(1) provides, in so far as relevant:

‘Where a parent company, by virtue of its association with its subsidiary, receives distributed profits, the State of the parent company shall … either:

– refrain from taxing such profits or

– tax such profits while authorising the parent company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those profits …’

4. Second, Article 5 requires Member States to exempt from withholding tax profits which a subsidiary distributes to its parent company.

5. Article 3 defines ‘parent company’. It reads as follows:

‘1. For the purposes of applying this Directive,

(a) the status of parent company shall be attributed at least to any company of a Member State which fulfils the conditions set out in Article 2 [(4) ] and has a minimum holding of 25% in the capital of a company of another Member State fulfilling the same conditions;

(b) “subsidiary” shall mean that company the capital of which includes the holding referred to in (a).

2. By way of derogation from paragraph 1, Member States shall have the option of:

– replacing, by means of bilateral agreement, the criterion of a holding in the capital by that of a holding of voting rights,

– not applying this Directive to companies of that Member State which do not maintain for an uninterrupted period of at least two years holdings qualifying them as parent companies or to those of their companies in which a company of another Member State does not maintain such a holding for an uninterrupted period of at least two years.’

6. Since Article 3(1)(a) defines a parent company by reference to at least companies within Article 2 with a minimum holding of 25%, it is clear that Member States have the option of setting a broader definition so as to include, for example, companies with a minimum holding of a lower percentage. The minimum holding referred to in Article 3(1)(a) has, moreover, been reduced to 20% with effect from 2 February 2004 and to 15% with effect from 1 January 2007, and is to be reduced to 10% with effect from 1 January 2009. (5)

7. Article 1(2) provides that the Directive is not to preclude the application of domestic or agreement-based provisions required for the prevention of fraud or abuse.

Relevant Belgian law

Implementation of the Parent/Subsidiary Directive

8. The order for reference in the present case gives only the sketchiest of information about the national legislation at issue. On the basis of the little that it says, supplemented by the more helpful explanations given by Les Vergers du Vieux Tauves SA (‘the applicant’) and the Belgian Government in their written observations, the situation would appear to be as follows.

9. Belgium has opted for the exemption method under the first indent of Article 4(1) of the Directive. In summary, under the relevant legislation (6) dividends received from subsidiaries within the meaning of the Directive are, first, included in the basis of assessment of the parent company and, second, deducted as to 95% (7) from that basis of assessment in so far as the parent company has taxable profits. (8)

10. Article 202 of the Income Tax Code (‘Article 202’) (9) provided at the material time and in so far as is relevant:

‘1. From the profits from the tax period are also to be deducted, to the extent that they are included:

1 Dividends …

…

2. Income referred in paragraph 1(1) … is deductible only to the extent that at the date of declaration or payment the recipient company has a holding in the capital of the company making the distribution of not less than 5% …’

11. The 1992 Code replaced the 1964 Code. (10) Article 202 in part reproduces Article 111 of the 1964 Code as amended by the Law of 23 October 1991 implementing the Directive (‘the implementing law’). (11) The changes made to the 1964 Code by the implementing law included the abolition of the previous explicit requirement that a company receiving dividends must hold the shares giving rise to the dividends as a full owner in order to benefit from the favourable tax regime provided by Article 111. Article 202 has subsequently been amended so as to include such an explicit requirement, (12) but with effect only after the financial years at issue in the present case.

12. The Belgian Government has explained that the implementing law was intended to extend also to an area not covered by the Directive, namely relations between domestic companies, in order to avoid reverse discrimination against Belgian companies with Belgian subsidiaries, as compared to Belgian companies with subsidiaries in other Member States, with regard to the treatment of dividends.

Usufruct in Belgian law

13. Belgium explains that, in Belgian law, usufruct means ‘le droit de jouir des choses dont un autre a la propriété, comme le propriétaire lui-même, mais à la charge d’en conserver la substance’ (the right to enjoy things owned by another, as the owner himself, but conditional on preserving the substance). The usufructuary thus possesses only the usus and the fructus ; he has no right of disposal ( abusus ), which remains with the owner of the legal title. (13)

14. More specifically, usufruct over a share confers solely a right of enjoyment, namely a right to the profits arising from the share and not to the capital which it represents. Thus the usufructuary shareholder has no rights in the profits made by the company other than the right to receive dividends declared. Nor does he have any rights over reserves. Although the legal shareholder does not receive such reserves, they none the less increase his capital and, if the company is wound up while solvent, he will in effect receive a share of the accumulated reserves. In principle, and subject to the company’s statutes, that owner alone can exercise the voting rights attached to the shares. Finally, the usufructuary has no right of disposal, which remains with the legal owner.

The facts and the question referred

15. The order for reference is likewise extremely laconic as to the factual context. However, the following facts emerge from the written observations of the applicant and the Belgian Government. They appear to be common ground.

16. In June 1999 the applicant, a Belgian company, purchased usufructuary rights over shares in the company Narda SA (‘Narda’) for a period of ten years; another company, Bepa SA (‘Bepa’), acquired the legal ownership of the shares. After the ten-year period Bepa will become full owner of the shares. There were no shareholding links between the vendors of the shares on the one hand and the applicant and Bepa on the other. The applicant wished to acquire the shares in Narda in the short term with a view to optimising its financial resources and increasing its product range. Bepa wished to acquire the shares in the medium or long term for longer-term strategic, economic and financial reasons, by increasing the number of its subsidiaries.

17. It appears that Narda is a Belgian company. Its statutes provide that, where the usufruct and the legal ownership of a share are severed, the legal owner can vote only with regard to increases of capital and the prolongation or dissolution of the company; in other cases, the usufructuary can exercise all voting rights.

18. In 2000, 2001 and 2002 the applicant sought to deduct from its taxable basis dividends received from Narda. The Belgian tax authorities proposed to rectify the applicant’s tax declarations for those years and tax the dividends on the basis that the usufructuary right held by the applicant was not a ‘holding in the capital’ of Narda. The applicant lodged objections; by decision of 22 January 2004 the Belgian tax authorities dismissed those objections. The applicant successfully challenged that decision before the Tribunal de première instance de Namur (Court of First Instance, Namur). On appeal, the Cour d’appel de Liège has referred the following question to the Court:

‘Is the Law of 28 December 1992, which amended the wording of Article 202 of the 1992 Code of Taxation on Income by referring to Directive 90/435/EEC and required that the beneficial owner of dividends have a holding of capital in the company which distributed such dividends, in as much as that law does not explicitly specify that the holding must be as full owner and therefore implicitly permits the interpretation made by the respondent, that the mere holding of a right of usufruct of shareholdings in the capital of the company carries the right to tax exemption on such dividends, compatible with the provisions of that directive concerning holdings in capital, and in particular with Articles 3, 4 and 5?’

19. Written observations have been submitted by the applicant, the Belgian, French, German, Greek, Italian, Netherlands, Spanish and United Kingdom Governments and the Commission, all of which, with the exception of the French, German and Netherlands Governments, were represented at the hearing.

Admissibility

20. All the governments submitting observations raise the question of admissibility, although their views are divided. The applicant and the Commission both submit that the reference is admissible. The observations as to admissibility essentially focus on two issues, the paucity of information in the order for reference and the apparent absence of any Community element.

21. It may be useful briefly to recall the Court’s settled law on the admissibility of references from national courts.

22. The Court has ruled that Article 234 EC is an instrument of judicial cooperation by means of which it provides national courts with the points of interpretation of Community law which may be helpful to them in assessing the effects of a provision of national law at issue in the disputes before them. (14) In the context of this instrument of cooperation it is solely for the national court before which the dispute has been brought, and which must assume responsibility for the subsequent judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court. (15)

23. Consequently, when a reference for a preliminary ruling concerns the interpretation of Community law, the Court is as a rule bound to give a ruling. (16) Questions on the interpretation of Community law thus enjoy a presumption of relevance and the Court may refuse to rule on a question referred only where it is quite obvious that the interpretation of Community law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it. (17)

24. Moreover where, in regulating purely internal situations, domestic legislation provides the same solutions as those adopted in Community law, the Court has held that it is clearly in the Community interest that in order to avoid future differences of interpretation, provisions or concepts taken from Community law should be interpreted uniformly, irrespective of the circumstances in which they are to apply. (18)

Insufficient information

25. Germany, Italy, Spain and the United Kingdom submit that the order for reference contains insufficient information concerning the interpretation of the national legislation.

26. It is certainly true that the order for reference is succinct in the extreme and that the Court has ruled that the need to provide an interpretation of Community law which will be of use to the national court makes it necessary that that court define the factual and legislative context of the questions it is asking. (19) References which do not satisfy that requirement may indeed be dismissed as inadmissible.

27. However, the Court has tempered the rigour of that rule in certain circumstances, holding that the requirement is less pressing where the questions relate to specific technical points and enable the Court to give a useful reply even where the national court has not given an exhaustive description of the legal and factual situation. (20) The fact that, as in the present case, observations have been submitted by the governments of the Member States and the Commission, pursuant to Article 20 of the Statute of the Court of Justice, shows that the information supplied in the order for reference enabled them effectively to state their views on the questions referred to the Court; moreover, the information in the order for reference may be supplemented by those observations. (21)

28. In the light of the above I consider that the reference in the present case, while undesirably short on background information, should not be regarded as inadmissible on that ground alone.

Absence of Community element

29. Most of the governments submitting observations note that the order for reference does not indicate that there is any Community element on the facts of the present case. Rather, the referring court seeks an interpretation of national legislation which, while implementing the Directive in the context of parent companies and subsidiaries established in different Member States, applies equivalent provisions to parent/subsidiary relations in a purely national context.

30. It is indeed the case that the referring court does not indicate whether the main proceedings involve a subsidiary established in another Member State. It appears, moreover, that the answer is that they do not. However, the Belgian Government states in its written observations that Article 202(2) is intended to transpose the Directive while extending its effect to the national sphere and to a broader scope of application than is required by the Directive. It thus seems, as the applicant, France, Germany, Greece, the Netherlands and the Commission submit, that the situation is similar to that at issue in what one may call the Leur-Bloem line of cases, (22) where the referring court is asking for an interpretation of domestic legislation which, in addition to implementing a directive, applies to domestic situations analogous to the Community situations within the scope of the directive concerned.

31. As those parties point out, and as is apparent from the case-law summarised above, the Court has consistently held that it has jurisdiction to interpret provisions of Community law where the facts in the main proceedings relate to an internal dispute and the national legislation provides the same solutions for domestic situations as those adopted in Community law.

32. In the present case, there seems to be a single national provision for tax exemptions available to parent and subsidiary companies irrespective of whether the latter are incorporated in Belgium or in different Member States. Furthermore, it appears from the observations of the Belgian Government that Article 202(2) was rendered applicable to the domestic sphere in order to avoid reverse discrimination against Belgian companies on the basis of the place of establishment of their subsidiaries. This voluntary approximation of national law to the requirements of the Directive combined with the national court’s request for guidance in interpretation is to my mind sufficient to bring the reference for a preliminary ruling within the net of admissibility.

33. It is further argued by Belgium, Germany and the United Kingdom that an interpretation of the Directive is not relevant since Article 202(2) is wider in scope: it applies to revenues besides dividends and contains a significantly lower threshold for a holding in capital compared to the Directive.

34. In my view, however, the fact the national law does not transpose the Directive in identical terms does not necessarily mean that a request by a national court for an interpretation of the underlying directive should be regarded as inadmissible. Besides the obvious general point that directives are binding as to their result, the specific directive at issue in the present case allows a broad degree of discretion to Member States. It is moreover clear that both the national and Community provisions employ the same expression, ‘holding in the capital’, (23) with the sole difference that in Belgium a 5% holding is sufficient to entitle the parent to a tax exemption. The use of identical expressions suggests that the national legislator intended to apply the term in the same way.

35. On the basis of the Court’s settled case-law, bearing in mind that there is a single national provision which transposes the Directive and simultaneously governs internal situations, it is clearly in the Community interest that that provision should be interpreted in the same way when applied to cross-border and domestic situations.

36. Finally, the United Kingdom argues that, whatever interpretation of the Directive the Court could give, it will ultimately be for the national court to decide the internal question as it deems appropriate. On that basis, a ruling by the Court on the interpretation of the Directive would be neither directly nor indirectly applicable, and therefore wholly abstract. In similar vein, there was some discussion at the hearing of the relevance of Kleinwort Benson , (24) where one of the factors which led the Court to dismiss as inadmissible the reference before it was that the national legislation at issue did not require national courts to decide disputes before them by applying absolutely and unconditionally the interpretation of Community law provided to them by the Court. (25)

37. It is undeniable that, as the Directive does not govern internal situations, the judgment of the Court in the present case could be regarded in a sense as purely advisory – it will be open to the Member State to amend its legislation or simply disregard the ruling. That will, of course, always be the case in a Leur-Bloem- type situation. (26) Indeed, it is of the essence of that case-law. That has not, however, prevented the Court from ruling those cases admissible, and there is no ground to distinguish this case from the others.

38. I accordingly conclude that the reference in the present case is admissible.

Substance

39. By its question the referring court asks whether national legislation implementing the Directive which requires that the beneficial owner of dividends have a holding of capital in the company which distributed such dividends is compatible with the Directive in as much as it does not explicitly specify that the holding must be as full owner and therefore implicitly permits that the mere holding of a right of usufruct in shares carries the right to tax exemption on such dividends.

40. Before seeking to answer that question, it is – as several of the parties submitting observations have, explicitly or implicitly, suggested – appropriate to reformulate it.

41. It is settled case-law that the Court does not have jurisdiction to rule on the compatibility of provisions of national law with Community law. (27) Furthermore, in a reference for a preliminary ruling it is for the Court to provide an answer to the referring court which will be of use to it and enable it to determine the case before it. To that end, the Court may have to reformulate the question referred. (28) In the present case, it appears that the referring court is asking whether the Directive requires Member States to grant the advantageous tax treatment of dividends received by a parent company from a subsidiary which is enjoined by Article 4(1) in a situation where ownership of the shares in the subsidiary has been severed, so that dividends are received by one company by virtue of a right of usufruct while legal ownership remains with another company. If that question is answered in the affirmative, it will be sufficient to enable the national court to decide in favour of the applicant. If, however, it is answered in the negative, the question will arise whether Member States may none the less when implementing the Directive extend the advantageous tax treatment of dividends to the holder of a simple right of usufruct of shares.

Must the Directive apply to a right of usufruct?

42. Essentially, the applicant and the Commission consider that dividends received by a usufructuary must fall within the scope of Article 4(1), (29) while the Belgian, French, Greek, Italian, Netherlands, Spanish and United Kingdom Governments take the opposite view. The German Government considers that Article 4(1) does not apply to dividends received by a usufructuary unless the position of the usufructuary is, from the economic point of view, equivalent to that of the legal owner.

The aim of the Directive

43. All parties invoke the objective of the Directive. I am also of the view that that is the proper starting point for the analysis.

44. The first recital in the preamble states that the grouping together of companies of different Member States may be necessary in order to create within the Community conditions analogous to those of an internal market and in order thus to ensure the establishment and effective functioning of the common market; that such operations ought not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States; and that it is therefore necessary to introduce, with respect to such grouping together of companies of different Member States, tax rules which are neutral from the point of view of competition, in order to allow enterprises to adapt to the requirements of the common market, to increase their productivity and to improve their competitive strength at the international level.

45. The second recital notes that such grouping together may result in the formation of groups of parent companies and subsidiaries. The third recital states that the existing tax provisions which govern the relations between parent companies and subsidiaries of different Member States vary appreciably from one Member State to another and are generally less advantageous than those applicable to parent companies and subsidiaries of the same Member State; that cooperation between companies of different Member States is thereby disadvantaged in comparison with cooperation between companies of the same Member State; and that it is necessary to eliminate this disadvantage by the introduction of a common system in order to facilitate the grouping together of companies to ensure the functioning of the common market. The fourth and fifth recitals simply set out the two principal means by which those objectives are to be achieved, essentially anticipating the wording of Articles 4(1) and 5.

46. As might be expected, the Court has in its judgments on the Directive consistently focused on the objectives as set out in its preamble. It has stated that, as appears particularly from the third recital, the Directive seeks, by the introduction of a common tax system, to eliminate any disadvantage to cooperation between companies of different Member States as compared with cooperation between companies of the same Member State and thereby to facilitate cross-border cooperation (30) or the grouping together of companies at Community level. (31) More generally, the need for the Directive results from the double taxation to which groups comprising companies established in a number of States may be subject. (32)

47. The Directive is thus based on the premiss that the double taxation of dividends within a cross-border group will discourage the formation of such groups. It seeks to remove that obstacle by requiring Member States not to tax such dividends in the hands of the parent company. In the muscular wording of the preamble to amending Directive 2003/123, the objective of the Parent/Subsidiary Directive is ‘to exempt dividends and other profit distributions paid by subsidiary companies to their parent companies from withholding taxes and to eliminate double taxation of such income at the level of the parent company’. (33) The Court has, moreover, recently described the Directive as a ‘unifying or harmonising measure designed to eliminate cases of double taxation’. (34)

48. Against that background, I agree with the applicant and the Commission that it would be contrary to the aim of the Directive for a dividend received by a usufructuary to be subject to double taxation in circumstances where Article 4(1) would require relief where no usufructuary right had been created. As the Commission points out, the problem of double taxation does not disappear when ownership of shares is severed. In the absence of relief, dividends payable on such shares are liable to be taxed in the holder’s State of residence and also to be subject to deduction at source in the State of the subsidiary. That, as the preamble to the Directive states, disadvantages cooperation between companies in different Member States – which is precisely what the Directive seeks to eliminate.

49. The Member States which have submitted observations also base their arguments principally on the objectives of the Directive. While concurring that its aim is to facilitate the grouping of companies, they argue that the system of fiscal neutrality of dividends is not conceived as an end in itself but rather as a means to that end. The Directive therefore seeks to enable the grouping together, in the economic sense, of companies from different Member States so that they will be in a position to operate as though they were in a single market. That approach requires that the companies forming such a grouping are connected by economic and operational links and not purely financial links. That cannot be the case unless the parent company has a holding in the subsidiary which confers on it all the rights which are normally attached to the status of shareholder, namely the right to vote at all meetings, enabling the shareholder to direct the subsidiary’s economic activity, and the right to dividends, in order to benefit from the financial results flowing from that activity and those directions. In contrast, if those two situations are severed, there can be no question of a genuine grouping together of companies in the economic sense with the company in which they have a holding. The mere holder of a right of usufruct cannot therefore be regarded as part of a genuine group.

50. In my view, that argument assumes that the type of inter-company relationship which the Directive seeks to encourage is limited to groups in the conventional company law sense. The Directive does not, however, define its scope by reference to either of the criteria normally used to identify a group, namely on the one hand management on a central and unified basis (35) and on the other hand the existence of majority voting rights and/or the right to appoint or remove a majority of the board and/or dominant influence. On the contrary, the Directive in its original version required a minimum holding of 25%, and subsequent amendments have progressively reduced that minimum, which will be 10% as from 1 January 2009. (36) Such a holding is far from that normally regarded as triggering a group in the sense of control and structure.

51. A number of the Member States submitting observations note that if, as in the present case, one party has a right to dividends and a limited right to vote at general meetings and another has the right to vote for the most important issues (increase in capital, dissolution and prolongation), conflicts of interest may arise between the two. In particular, the interest of the usufructuary will essentially be to receive in the short term the highest amount of dividends whereas the legal owner will rather be interested by strengthening the company in the long term and may even prefer in the short or medium term that profits are re-invested in the company instead of being distributed. It cannot therefore be within the aim of the Directive for a usufructuary shareholder to be within its scope.

52. While it is obviously correct that there may be conflicts of interest between a usufructuary shareholder and the legal shareholder, I do not consider that that is relevant to the issue currently before the Court. The Directive, as explained above, aims to eliminate the economic double taxation of dividends in a group of companies which straddles borders. That aim is in my view best served by ensuring that the relief from such double taxation required by Article 4(1) of the Directive is made available for dividends arising in connection with shares in one company in such a group held by another company, notwithstanding how ownership of such shares is carved up. The concern – voiced in particular by Italy and the United Kingdom – that that approach may enable the tax exemptions prescribed by the Directive to be exploited by contrived arrangements may be met by appropriate national or bilateral measures targeting fraud or abuse, which are explicitly authorised by Article 1(2) of the Directive.

The scheme of the Directive

53. The first indent in Article 3(2) of the Directive contains a derogation which permits Member States to replace the criterion of holding in capital by that of holding voting rights. In support of their interpretation, Belgium and Italy invoke that derogation. They argue essentially that a Member State which makes use of it can exclude the usufructuary from the benefit of the Directive, since full ownership is necessary to have a full right to vote. In order for the different criteria used by the Directive to be coherent, the criterion of holding in capital must also require full ownership in order to benefit from the advantages conferred by the Directive.

54. I do not find that argument persuasive. As is usually the case with arguments based on a derogation, it can cut both ways. (37) Thus it could equally be argued that, if Member States can replace the criterion of holding in capital by that of holding voting rights, that must mean that it is not normally necessary to hold voting rights in order to benefit from the Directive. I accordingly do not consider that the option in the first indent of Article 3(2) assists in answering the question referred in the present case.

The wording of the Directive

55. In defining a parent company, Article 3(1)(a) of the Directive refers to a company which ‘has a holding … in the capital’ of another company which, if all other elements of the definition are present, will be its subsidiary. Article 4 of the Directive provides that the requirement to exempt dividends from tax or to authorise the parent to credit tax paid applies where a parent company receives distributed profits ‘by virtue of its association with its subsidiary’. France, Greece, Italy, the Netherlands, Spain and the United Kingdom invoke the wording of one or both of those provisions in support of their view.

56. I accept that it may seem anomalous to regard the holding of a simple right of usufruct as a ‘holding … in the capital’ of a company. The capital of a company is conventionally constituted by the shareholders contributing the value of their shares. The usufructuary, however, has not contributed capital.

57. Similarly, it may seem contrived to consider that a usufructuary holder of shares in a company receives dividends ‘by virtue of its association’ with the company. The usufructuary has no genuine association with the company; instead, its entitlement to dividends derives from a contractual arrangement with the legal shareholder.

58. I am not, however, persuaded by either of the above arguments that my understanding of the Directive is misconceived. It is settled case-law that Community legislation must be interpreted not solely on the basis of its wording, but also in the light of the overall scheme and objectives of the system of which it is a part. (38) I have explained above what I consider to be the scheme and objectives of the Directive and why my interpretation of its provisions is consistent therewith. The concepts of a ‘holding … in the capital’ of a company and a parent company’s ‘association with its subsidiary’ must be understood in that context, which is – again – not primarily a company law context.

59. I am reinforced in that view by the recent extension of the personal scope of the Directive effected by Directive 2003/123. (39) I have already mentioned that Directive 2003/123 relaxes the shareholding threshold required for a parent company to benefit from Article 4(1). In addition, it extends the list of companies covered by the Parent/Subsidiary Directive so as to include certain cooperatives, mutual companies, non-capital based companies, savings banks and associations, funds, and associations with commercial activity. It is evidently envisaged that a shareholder in such a company may be regarded as having a ‘holding … in [its] capital’, and receiving dividends ‘by virtue of its association’ therewith, notwithstanding that it will not have a holding in the subsidiary’s capital in a conventional sense. Similarly, Directive 2003/123 amends Article 4(1) of the Parent/Subsidiary Directive so that it applies where a parent company or its permanent establishment , by virtue of the association of the parent company with its subsidiary, receives distributed profits. This again suggests that the legislature does not regard it as incompatible with the aim of the Directive for Member States to be required to grant advantageous tax treatment to profits received in situations other than the conventional parent/subsidiary relationship.

60. Finally, I stress that the above analysis does not, in my view, require the Court to develop an autonomous Community notion of the right of usufruct. What is important in determining the scope of application of the Directive is not the precise mechanics which a given legal system permits a shareholder to deploy to engineer different variations on ownership. The decisive issue is rather, as the Commission suggests, that there has been a shareholding which meets the various criteria laid down by the Directive and that a dividend is paid by virtue of that holding.

May the Directive apply to a right of usufruct?

61. I have explained why I consider that the Directive requires Member States to grant the advantageous tax treatment of dividends received by a parent company from a subsidiary which is enjoined by Article 4(1) in a situation where ownership of the shares in the subsidiary has been severed, so that dividends are received by one company by virtue of a right of usufruct while legal ownership remains with another company. On that basis, it is not necessary to answer the second limb of the question referred in the reformulation which I suggested, (40) namely whether Member States may none the less when implementing the Directive extend the advantageous tax treatment of dividends to the holder of a simple right of usufruct of shares.

62. If, however, the Court were to take a different line from that which I have proposed above, it would need to answer that latter question. If so, I consider that that question should be answered in the affirmative. That conclusion to my mind follows incontrovertibly from the scheme of the Directive. As indicated above, (41) since Article 3(1)(a) defines a parent company by reference to at least companies within Article 2 with a minimum holding of 25%, it is clear that Member States have the option of setting a broader definition. I see nothing to prevent Member States casting that definition so as to include a usufructuary shareholder.

63. If the Court takes this line, it will be then for the national court to decide whether the national implementing legislation at issue does so define the concept as a matter of national law. It may be noted that the Belgian Government strenuously denies this.

Conclusion

64. For the reasons given above, I consider that the question referred by Cour d’ appel de Liège should be answered as follows:

Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States requires Member States to grant the advantageous tax treatment of dividends received by a parent company from a subsidiary which is enjoined by Article 4(1) in a situation where ownership of the shares in the subsidiary has been severed, so that dividends are received by one company by virtue of a right of usufruct while legal ownership remains with another company.

(1) .

(2) – OJ 1990 L 225, p. 6. The Directive has subsequently been amended but the main proceedings concern the original version only.

(3) – See the third recital in the preamble. The preamble is set out in more detail in points 44 and 45 below.

(4) – Article 2 defines ‘company of a Member State’ as any company which (a) takes one of a number of listed forms; (b) is tax resident in a Member State; and (c) is subject to one of a number of listed taxes.

(5) – Council Directive 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC (OJ 2004 L 7, p. 41).

(6) – Articles 202, 204 and 205 of the Code des impôts sur les revenus (Income Tax Code) 1992.

(7) – Article 4(2) of the Directive in effect authorises Member States which have opted for the exemption method to limit the exemption to 95% of dividends received.

(8) – The question whether such a system correctly implements the Directive is currently pending before the Court in Case C-138/07 Cobelfret , in which I delivered my Opinion on 8 May 2008.

(9) – Moniteur belge , 30 July 1992,in the version applicable at the relevant time. Article 202(2) was inserted (as Article 203(2), subsequently becoming Article 202(2)) by the Loi portant dispositions fiscales, financières et diverses (Law containing fiscal, financial and various provisions), 28 December 1992, Moniteur belge , 31 December 1992, mentioned by the referring court in its reference (see point 18 below).

(10) – Moniteur belge of 10 April 1964.

(11) – Loi du 23 octobre 1991 transposant en droit belge la Directive du Conseil des Communautés européennes du 23/07/1990 concernant le régime fiscal commun applicable aux sociétes mères et filiales, Moniteur belge of 15 November 1991.

(12) – Law of 24 December 2002, Moniteur belge of 31 December 2002.

(13) – For the sake of brevity, I shall refer to the holder of a right of usufruct over shares as a ‘usufructuary’ or a ‘usufructuary shareholder’, and to the holder of the legal title to those shares as the ‘legal owner’ or ‘legal shareholder’.

(14) – Case C-300/01 Salzmann [2003] ECR I-4899, paragraph 28; Case C-280/06 ETI [2007] ECR I-0000, paragraph 19.

(15) – Case C-306/99 BIAO [2003] ECR I-1, paragraph 88.

(16) – Salzmann , cited in footnote 14, paragraph 29; ETI , cited in footnote 14, paragraph 20.

(17) – Case C-379/05 Amurta [2007] ECR I-0000, paragraph 64.

(18) – Joined Cases C-297/88 and C-197/89 Dzodzi [1990] ECR I-3763, paragraph 37; Case C-28/95 Leur-Bloem [1997] ECR I-4161, paragraph 32; Case C-1/99 Kofisa Italia [2001] ECR I-207, paragraph 37; ETI , cited in footnote 14, paragraph 20.

(19) – Joined Cases C-320/90, C-321/90 and C-322/90 Telemarsicabruzzo [1993] ECR I-393, paragraph 5.

(20) – Case C-316/93 Vaneetveld [1994] ECR I-763, paragraph 13.

(21) – Case C-35/99 Arduino [2002] ECR I-1529, paragraphs 28 and 29.

(22) – See footnote 18.

(23) – That is also the case in the original French and Dutch versions of Article 202 and of the Directive. The French version of Article 3(1)(a) of the Directive refers to ‘toute société … qui détient, dans le capital d’une société … , une participation …’ while Article 202(2) requires that ‘la société … détienne dans le capital de la société … une participation …’; the Dutch version of Article 3(1)(a) of the Directive refers to ‘iedere vennootschap … die een deelneming … bezit in het kapitaal van een vennootschap’ while Article 202(2) requires that ‘de vennootschap … in het kapitaal van de vennootschap … een deelneming bezit’.

(24) – Case C-346/93 [1995] ECR I-615.

(25) – With particular reference to Kleinwort Benson , see Leur-Bloem , paragraphs 29 to 31; Kofisa Italia , paragraphs 29 and 30, both cited above in footnote 18; and ETI , cited in footnote 14, paragraphs 16 and 22. In none of those cases did the Court follow its approach in Kleinwort Benson.

(26) – See point 61 of the Opinion of Advocate General Jacobs in BIAO , cited in footnote 15.

(27) – See, for example, Case C-130/93 Lamaire [1994] ECR I-3215, paragraph 10.

(28) – See for example Case C-62/00 Marks & Spencer [2002] ECR I-6325, paragraph 32.

(29) – On the assumption – which also underlies the discussion which follows – that the other relevant elements of the Directive’s definition of the parent/subsidiary relationship to which it applies are present.

(30) – Joined Cases C-283/94, C-291/94 and C-292/94 Denkavit [1996] ECR I-5063, paragraph 22

(31) – Case C-294/99 Athinaiki Zithopiia [2001] ECR I-6797, paragraph 25.

(32) – Ibid., paragraph 5.

(33) – Recital 2.

(34) – Case C-194/06 Orange European Smallcap Fund [2008] ECR I-0000, paragraph 32.

(35) – The concept is used in the Seventh Company Law Directive (Seventh Council Directive 83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts (OJ 1983 L 193, p. 1)), whither it was imported from German legislation on group accounts. A representative of the UK Department of Trade, asked before the UK House of Lords Select Committee whether he could give any indication as to how the concept worked in Germany, replied: ‘We have been making considerable efforts, including sending some of our colleagues to Germany, to discuss with British firms of accountants who operate there and with the German Institute of Auditors how the system works but I cannot say that we have gained a satisfactory grasp of the situation or one that would be helpful to the Committee. It has been put to us that central and unified management is like an elephant in the sense that one recognises it when one sees it but you cannot describe it. I do not find this terribly helpful either.’ (House of Lords Select Committee’s 25 th Report (Session 1976-77, HL Paper 118) 11-12)

(36) – See point 6 above.

(37) – At the hearing the applicant did in fact invoke the same derogation in support of its position, arguing that the option for Member States to replace the criterion of holding in capital by that of holding voting rights demonstrates the legislature’s intention to enable the person exercising effective control, even – as in the applicant’s case – temporarily, to benefit from the exemption from tax provided by the Directive.

(38) – Case C-292/00 Davidoff [2003] ECR I-389, paragraph 24. The judgment in Davidoff is an extreme illustration of this proposition.

(39) – Cited in footnote 5.

(40) – See point 41 above.

(41) – See point 6.