IV —

Nevertheless these considerations do not dispose of the problem. Although some gold and silver coins are in certain respects goods which can in some, if not all of the Member States, perfectly legally be the subject-matter of banking transactions, subject to payment of any VAT which may be chargeable, they are goods of a very special kind which, as I am going to explain, could and can be assimilated ‘to capital’ by reason of the circumstances and conditions of and methods used in the transactions of which they are the subject-matter. I would now like to dispose straightaway of an objection which is bound to be raised against me. The point has often been made that, although all money is perforce goods, at least to begin with, all goods have in certain respects from an economic standpoint the characteristics of capital. This is so, for example, in the case of diamonds, paintings by great masters, stamps, silver tableware or even sugar. (1) But in this category of goods having a value as ‘capital’ there are some goods which have these characteristics in a very high degree and which owing to their small compass and the ease with which they can be bought and sold and their durable nature are eminently suited, I would say, to use neutral words, for putting away or investing. This immediately brings to mind precious metals, or ‘monetary’ gold and silver, which offer high value in a small compass and have incomparable physical properties (resistance to deterioration, homogeneity, divisibility). Furthermore, in the good old days of ‘bimetallism’ or of the ‘gold standard’, gold or silver coinage combined both the characteristics of goods and of a monetary symbol. The value of the goods matched perfectly the value of the monetary symbol since the convertibility into ‘hard cash’ of paper money at any time was guaranteed. Such an approach furthermore was adopted in the early nineteenth century (the metallist theory of John Stuart Mill). According to this realistic conception of money as goods, money was only considered to have a value because it was ‘just like any other goods’. But nowadays such a conception has been universally abandoned: goods which have become a currency are no longer like any other goods and the advocates of the theory of nominalism have had no difficulty in proving this. Until we go back to those happy days of the gold standard, coins made from this metal still exist and continue to be minted; gold (and to a lesser extent silver) in the form of bars, ingots or coins is one of the few forms of capital which almost invariably keeps or even increases its value. Gold and especially ‘monetary gold’ is used as an insurance against devaluation. This monetary gold even attracts some ‘agio’ compared with gold bars because of the minting involved although primarily because of the great ease with which it can be handled. Consequently, even though transactions in gold or silver coins which are legal tender take the form of ‘commercial’ transactions, they may be regarded as a form of investment or, if you prefer, of putting assets away. In these circumstances it is not surprising that public authorities are interested in this gold and silver. (2) The Krugerrand occupies a very special place among the gold coins officially quoted and currently dealt in. Although the ‘Kruger’ is officially quoted in rands it is not strictly speaking legal tender since the coin does not bear any indication of its nominal value, apart from mentioning in two languages ‘one ounce of fine gold’; it would be more exact to say that it is a metal. However it is certainly not sought after so energetically for the bearded effigy ‘Uncle Paul’ on its obverse or the ‘springbok’ on its reverse side but simply because it weights 33.93 grammes, contains 31.10 grammes, that is 22 carats or one troy ounce having a gold content of 916666 parts per 1000. There are two other reasons for its popularity: at the beginning of 1976 its premium over its value in gold was only 4 %, the reason being that it is still minted on a large scale. At the same time the margin between the selling and the purchase price over the counter at the banks is the iowest of all the gold coins (4.14 %). In practice its price fluctuations are the same as the price differences of the gold ingot and this is the characteristic of all coins which are put away or invested: they do not circulate because they are a ‘monetary symbol’ but because of their intrinsic value. The krugerrand is ‘a slice of an ingot’. During the first four months of 1978 some 2.5 million of them have been sold compared with 800000 during the same period of the preceding year. According to an advertisement in the ‘Wall Street Journal’ the Germans and the Swiss buy nearly 45000 Krugerrands each week. This ‘rush’ undoubtedly reflects the renewal of interest shown in the yellow metal, the growth of the budget deficit increased by the efforts made to revive the economy giving rise to fears that the rate of depreciation of some currencies (especially at that time the pound sterling) could not be arrested. The reason why I have laid some stress on these characteristics which the specialist publications set out is not to induce Your Lordships to buy some Krugerrands but to show that the national court clearly cannot fail to take account of them in order to decide the case before it in view of the date of the transactions giving rise to the criminal proceedings and the particular circumstances in which they have been carried out. We must not forget that the imports covered altogether more than 100 kilogrammes of gold. (3) I find confirmation of the special nature of gold in the domestic provisions of the Member State in which the coins in this case have been ‘put into free circulation’. In the German Law on Foreign Trade ‘Außenwirtschaftsgesetz’ of 28 April 1961, gold has a special position (Section VI) after Trade in Goods (Section III), Provision of Services (Section IV) and Capital Movements (Section V). According to Article 24 of this law transactions in gold between residents and non-residents as well as the exportation and importation of gold may be restricted for the purpose of preventing a reduction in the purchasing power of the mark or maintaining the equilibrium of the balance of payments, without prejudice to the restrictions provided for in Articles 8 to 13 relating to trade in goods. Similarly Article 1 of the Belgian Law of 11 September 1962 relating to the importation, exportation and transit of goods provides: ‘For the purpose of this law: (a) goods shall mean: everything regarded as such for the application of customs legislation with the exception of minted gold or gold ingots, both coin and paper money which are legal tender in Belgium or abroad, and also all securities whatsoever, whether Belgian or foreign, public or private whether they be in the form of share certificates or bearer securities …’ Article XX of GATT provides: ‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (I) … (c) relating to the importation or exportation of gold or silver;’ Similarly Article 12 of the Convention establishing the European Free Trade Association (EFTA) lays down: ‘Provided that such measures are not used as a means of arbitrary or unjustifiable discrimination between Member States or a disguised restriction on trade between Member States nothing in Articles 10 and 11 shall prevent the adoption or enforcement by any Member State of measures, … (f) relating to gold or silver.’ (4) It is now advisable to find out whether this ambivalent nature of monetary gold — both goods and a ‘security’ — universally recognized by economists is or is not part of Community law. (a) As far as the Treaty itself is concerned Article 67 (1) states that ‘During the transitional period and to the extent necessary to ensure the proper functioning of the Common Market, Member States shall progressively abolish between themselves’ restrictions on movement of capital. The following articles lay down the time-limits to be complied with and the measures to be adopted by the Member States and the Community to implement this general principle. The capital here referred to comprises in addition to payments relating to trade in goods, services and capital itself, that category of factors of production made up of ‘sources of finance’ or ‘financial resources’ which are the subject-matter of intra-Community capital transactions or movements between banks and financial institutions by book entries (settlements between banks by entries) without being accompanied by any physical delivery of the monetary symbols or coin. Although that does not emerge from the Treaty nevertheless the possibility cannot be ruled out that ‘capital’ may be understood as comprising certain ‘securities’ having an intrinsic financial value, that is to say not only financial assets which indicate the value of the securities recording the ownership of the capital, and the actual capital which serves to indicate the tangibility of capital assets as production factors, but also monetary capital which represents the value of the capital assets expressed in terms of money. (b) Although the Treaty itself does not provide any other particulars on what must be understood by ‘capital’ we fortunately have a text whose validity is not challenged. This text is in the First Directive adopted on 11 May 1960 by the Council, added to and amended by a Second Directive of 18 December 1962 which are the only general measures adopted to date by the Council of Ministers to implement Article 67 of the Treaty apart from the Directive of 21 March 1972 on regulating international capital flows and neutralizing their undesirable effects on domestic liquidity. Even though these texts are in essence concerned with putting in concrete form the principle laid down by Article 67 with regard to exchange restrictions with non-Member countries the definitions contained in them seem to me to apply also in the more general context of ‘capital’. The Directive of 11 May 1960 only contains obligations imposed upon the Member States which could confer rights and impose obligations upon individuals as far as concerns the capital movements set out in List A, B and C of Annex I thereto. The movements of capital set out in List D of Annex I are dealt with in Articles 4 to 7. Article 4 provides: ‘The Monetary Committee shall examine at least once a year the restrictions which are applied to the capital movements set out in the lists contained in Annex I to this Directive; it shall report to the Commission regarding restrictions which could be abolished’. Article 5 (1) states in particular: ‘1. The provisions of this Directive shall not restrict the right of Member States to verify the nature and genuiness of transactions or transfers, or to take all requisite measures to prevent infringements of their laws and regulations.’ Article 6 in effect merely repeats the provisions of Article 71 of the Treaty. Finally Article 7 provides, inter alia, that ‘Member States shall make known (to the Commission) not later than … after (its) entry into force … any amendement of the provisions governing the capital movements set out in List D of Annex I …’. This is what the United Kingdom did when it notified the Commission on 15 April 1975 of the restrictions on the importation of gold coins which entered into force on the following day and also, on 15 July 1974, of the restrictions on the exportation of silver coins which were imposed on that date. The Government of the United Kingdom advanced as the reason for the restrictions on the importation of gold coins its serious balance of payments problems. As far as concerns the restrictions on the exportation of silver coins the aim of this government was to prevent the melting down of these coins abroad for the purpose of extracting the pure metal, a restriction already in force within the United Kingdom, except in the case of the Royal Mint since such melting down could only do harm to the taxpayer. As far as I am aware the Commission has not initiated any procedure against the United Kingdom on this ground for failure to fulfil an obligation under the Treaty. The movements of capital set out in List D concern, inter alia,‘Physical import and export of financial assets’. This expression is set out in annex II which forms an integral part of the directive (Article 10) and covers as well as ‘securities’ (not included under TV)‘means of payments of all kinds’ and ‘gold’, which are suited for short term transactions of a particularly volatile nature. Thus, even though the categories of capital falling within Article 67 (1) primarily cover tangible and intangible financial assets, the possibility cannot be ruled out, in the light of the directive, that this article also refers to ‘monetary’ capital specified in List D. In this field of terminology I would add that the English word ‘assets’, to which the French word ‘valeurs’ in the nomenclature annexed to the directive corresponds, is rendered in French in other Community texts by the words ‘capital’‘capitaux’. Let me quote the expressions ‘capitaux d'exploitation’ (working assets), ‘revenus des capitaux mobiliers’ (income from capital assets), ‘transfert de capital à l'intérieur et à l'extérieur’ (transfer of assets at home and abroad), ‘formation de capital fixe’ (fixed asset formation). (c) Finally, having regard to the classification of the transactions at issue I would like to endeavour to state how ‘monetary’ gold and silver are treated for the purpose of turnover tax. Under the common system of a uniform basis of assessment of value added tax the supply of goods or services effected for consideration within the territory by a taxable person acting as such and the importation of goods and the obtaining within the territory of the supply of services shall be subject to this tax in the Member States (Article 2 of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment.) It must be remembered that this directive is in keeping with the aim of creating conditions for the free movement of goods, services and capital between Member States. The Commission's proposal submitted to the Council on 29 June 1973 (Official Journal C 80 of 5 October 1973) provided that the Member States shall exempt, as well as certain activities of a general nature, ‘banking operations’ and in particular dealings in currencies other than for collection, and in gold to be used as coin and credit transfers (Article 14 B (h)). The aim of this measure was to abolish zero rating (involving the retention of the right to deduct) in order to reduce the distortions of international competition. The reason for the measure is that banking transactions are not concerned with the goods; although the attendant transactions are in some respects of a commercial nature in respect of which commission is charged for services rendered, they are generally regarded as being in fact transactions which do not add any value to the actual operation, for example to the amount which is the subject of credit or a loan. Value added tax is a tax on consumption which only applies to products and services and transactions in gold to be used as coin and does not fail within this definition. In the Commission's Amendments to the proposal, presented by the Commission to the Council on 12 August 1974, gold to be used as coin [monetary gold] was defined as ‘gold of a standard of at least 900/1 000, for authorized financial institutions’. Nevertheless, although the actual dealings in currencies other than for collection and in gold to be used as coin, as thus defined, were exempted in that there was no physical delivery of the ‘goods’ in its normal commercial meaning, according to the last version of the text proposed by the Commission to the Council ‘this exemption shall not cover “supplies of services” relative to such transactions’. Article 13 of the text finally adopted by the Council on 17 May 1977 provides: ‘B. Without prejudice to other Community provisions, Member States shall exempt (by 1 January 1978 at the latest) the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse … (d) (4) transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items; “collectors' items” shall be taken to mean gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest’. Thus dealings in collectors' items, even over bank counters, are regarded as commercial transactions subject to VAT; on the other hand within the Member States dealings in ‘monetary’ gold and silver coin are exempted. Furthermore for the purpose of stimulating capital transactions, the negotiation of banking transactions or of credit is itself exempted specifically from turnover tax. It must indeed be noted that the text no longer mentions gold to be used as coin but currency used as legal tender thus having in view in particular gold or silver coins which are ‘normally used as legal tender’. The importation and exportation of gold by Central Banks which are undoubtedly ‘capital movements’ giving this expression a wide meaning are exempted by virtue of Article 14 (1) (j) and 15 (11). Therefore the question to be determined is what is meant by ‘currency used as legal tender’ and ‘gold and silver coins … which are not normally used as legal tender …’. This question is not only relevant for the purpose of avoiding distortions of international competition but also from the point of view of the Community's own resources, since, as Your Lordships are aware, a proportion of VAT has at present to be channelled into Community funds: compliance with the time-limit of 1 January 1978 automatically entails the allocation to the European Economic Community of a portion of VAT receipts as its own resources and is therefore a prerequisite of its financial independence. That is a matter for the Court of Auditors to consider. Moreover this directive could confer rights and impose obligations upon individuals. The Commission's replies to your questions to it on this point seem to me to be very vague and incomplete if not indeed inaccurate. If I have correctly understood the explanations which have been given it would appear that only two Member States have to date complied with the provisions of the Sixth Directive. In the Grand Duchy of Luxembourg, the Member State where the Court has its permanent residence, pursuant to Article 1 of the Grand-Ducal Regulation of 24 December 1977, ‘Exemption from value added tax shall only apply: … (2) to deliveries and imports of gold coins which, when the transaction is effected, are legal tender in their country of origin; (3) to deliveries and imports of gold coins other than those referred to at (2) above, in so far as such coins are officially quoted and do not consist of collectors' items of a numismatic nature …’. I have satisfied myself that dealings in krugerrands are in fact exempted. Moreover the Commission tells us that the Federal Republic of Germany has considered charging VAT on dealings in gold coins, which, although they are legal tender, that is to say are monetary gold, are traded mainly for their value as a precious metal or for their numismatic value. This is aimed especially at certain coins used as legal tender in their country of origin such as krugerrands. In the context of these proceedings it is not for Your Lordships to determine whether and by whom the Council Directive of 17 May 1977 has not been correctly applied. For my own part I will merely confirm that at the present time krugerrands fall within the definition of monetary gold; that dealings in, which includes the negotiation of, these coins in the Member States where such negotiation is permitted are exempted from VAT on the ground that the coins in question are ‘legal tender in their country of origin’ or coins ‘officially quoted’; furthermore that no action for failure to fulfil an obligation under the Treaty has been initiated by the Commission under this head; that the English silver coins are legal tender in their country of origin; that all those concerned have been involved, at least in part, in an operation to which the parties gave the semblance of a ‘bimetallic barter’ — which did not even materialize since the AGOSI company still claims to be the owner of 1550 Krugerrands — and that the silver coins are in any case ‘means of payment of all kinds’ within the meaning of the 1960 Directive. If I accept that Krugerrands are ‘legal tender’, at least in their country of origin, the same reasoning must apply to silver coins of sixpence, one shilling and two shillings, which are at least ‘de jure’ means of payment, even though it was not the nominal value of these coins that interested AGOSI, as well as half crowns which can still be changed at the Bank of England and which have been used, at least partially, ‘de facto’ as means of payment. On the other hand dealings in collectors' items of a numismatic nature are subject to VAT, their character as ‘goods’ prevailing over their character as ‘capital’, although the boundary between numismatics, jewellery and ‘assets put away’ is at times loosely drawn.