OPINION OF ADVOCATE GENERAL

TIZZANO

delivered on 17 January 2006 1( )

Case C-509/04

Magpar VI BV

v

Staatssecretaris van Financiën

(Reference for a preliminary ruling, from the Hoge Raad der Nederlanden (Netherlands))

(Directive 69/335/CEE – Indirect taxes on the raising of capital – Capital duty – Exemption)

1. The present case concerns two questions referred to the Court of Justice for a preliminary ruling under Article 234 EC by the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), (the ‘Hoge Raad’) on the interpretation of Article 7(1) of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, ( ) as amended by Directives 73/79 EEC ( ) and 85/303/EEC ( ) (‘Directive 69/335’ or, simply, ‘the Directive’).

I – Legal background

Relevant Community law

2. According to the first recital in the preamble, the purpose of Directive 69/335 is to promote the free movement of capital. It is inherent in this objective that ‘duty on the raising of capital ... by a company or firm should be charged only once and that the level of this duty should be the same in all Member States so as not to interfere with the movement of capital’ (sixth recital). The Directive therefore envisages the harmonisation of the duty with regard both to its structures and to its rates (seventh recital).

3. Article 1 of the Directive therefore provides that: ‘Member States shall charge on contributions of capital to capital companies a duty harmonised in accordance with the provisions of Articles 2 to 9 …’.

4. It should be noted that those parts of Article 7 which are relevant to this case provide that:

‘1. …

(a) the rate of capital duty may not exceed 2% or be less than 1%;

(b) this rate shall be reduced by 50% or more when one or more capital companies transfer all their assets and liabilities, or one or more parts of their business to one or more capital companies which are in the process of being formed or which are already in existence.

This reduction shall be subject to the condition that:

– the consideration for the contributions shall consist exclusively of the allocation of shares in the company or companies, although Member States shall have the right to extend application of the reduction to cases in which the consideration for contributions consists of the allocation of shares in the company or companies together with a payment in cash not exceeding 10% of the nominal value of the shares;

– the companies taking part in the transaction have their effective centre of management or their registered office within the territory of a Member State;

…’.

5. Article 7(1) was amended by Directive 73/79 EEC, which inserted sub-section (bb), which provides that:

‘(bb) the rate of capital duty may be reduced by 50% or more where a capital company which is in the process of being formed or which is already in existence acquires shares representing at least 75% of the issued share capital of another capital company. Where the said percentage is reached by means of two or more transactions, the reduced rate shall apply only to the transaction whereby this percentage is reached and to subsequent transactions.

However, the amount of the duty which by virtue of this provision is not charged shall become due if the company which acquires the shares does not retain, for a period of five years from the date of the transaction qualifying for the reduced rate, all the shares in that other company, and at least 75% of its share capital, which it held following that transaction, including shares acquired before the transaction and held at the time thereof. However, the reduced rate shall remain applicable if during the relevant period the shares in question are transferred in the course of a transaction qualifying for the reduced rate in accordance with paragraph 1 or subparagraph 1(b) or on the liquidation of the company which acquired the shares.

This reduction shall be subject to the condition that:

– the consideration for the shares acquired shall consist exclusively of the allocation of shares in the acquiring company, although the Member States may extend application of the reduction to cases where the consideration for the shares acquired consists of the allocation of shares in the acquiring company together with a payment in cash not exceeding 10% of the nominal value of these shares,

– both companies taking part in the transaction, the company acquiring the shares and the company whose shares are acquired, have their effective centre of management or their registered office within the territory of a Member State.’

6. Lastly, reference should be made to Directive 85/303, which substituted the following provision in Article 7:

‘1. Member States shall exempt from capital duty transactions, other than those referred to in Article 9, which were, as at 1 July 1984, exempted or taxed at a rate of 0.50% or less.

The exemption shall be subject to the conditions which were applicable, on that date, for the grant of the exemption or, as the case may be, for imposition at a rate of 0.50% or less.

….’.

7. Since the new version of Article 7(1) makes express referral, with regard to exemption from capital duty, to ‘the conditions which were applicable, (as of 1 July 1984), for the grant of the exemption or, as the case may be, for imposition at a rate of 0.50% or less’, the conditions laid down by Article 7(1)(b) and (bb) of Directive 69/335, as amended by Directive 73/79, must apply.

National law

8. In the Netherlands capital duty is governed by the Wet op belastingen van rechtsverkeer (Law on the taxation of legal transactions); (the ‘WBR’). ( ) According to Article 32(1) WBR, capital duty is to be levied in respect of the acquisition of share capital in entities established in the Netherlands.

9. Article 37 of that Law provides that:

‘1. In accordance with conditions to be laid down by rules of a general nature, contributions of capital shall be exempt from duty in the following cases:

a. in the case of merger, division or internal restructuring;

…

2. The exemption provided for at subparagraph (1)(a) shall apply only where:

a. a body with capital divided into shares obtains, in exchange for the allocation of its own shares, exclusively shares in another such body, and, as a result of that transaction, acquires at least 75% of the shares in that body or holds at least 75% of its share capital;

b. a body with capital divided into shares obtains, in exchange for the allocation of its own shares, exclusively the entire assets and liabilities of another such body, its entire business or the entire business of a part of it.

…’. ( )

10. It should also be noted for the purposes of the present case that Article 14 of the Order implementing the WBR ( ) provides that:

‘1. The amount of duty which by virtue of Article 37(1)(a) of the (WBR) is not charged in the case of a merger under Article 37(2)(a) of the (WBR) shall become payable, however, by the body if, within five years following the allocation of the shares, that body no longer holds all the shares it acquired in the other body or those shares it already held at the time of that transaction, or at least 75% of the shares in that other body.

2. Paragraph 1 shall not apply in the case of a disposal of shares in the course of a merger or internal restructuring under Article 37(2) of the (WBR), or in the case of the dissolution or liquidation of the body which had acquired the shares’. ( )

11. Lastly, reference should be made to Article 2:311 of the Netherlands Civil Code, under which legal persons involved in a merger, with the exception of the transferee, cease to exist as soon as the merger becomes effective.

II – Facts and procedure

12. In 1998 M.J. Hoffman Beheer BV (‘Hoffman’, or the ‘transferring company’) entered into partnership with four other limited companies under the name of Magnus Management Consultants. Each of those five companies (the ‘old companies’) had a sole shareholder – a natural person – who held all of the issued share capital.

13. In August 1998 Magpar VI BV (‘Magpar’, or the ‘acquiring company’) was established together with four other limited companies. Each of those five companies (the ‘new companies’) acquired, in return for an allotment of its own shares, all of the shares in the old companies. As a result of that exchange of shares, Magpar obtained all of the shares in Hoffman, one of the old companies.

14. The contribution of the Hoffman shares to Magpar was exempt from capital duty on the basis of the combined provisions of Articles 37(1)(a) and 37(2)(a) of the WBR (the ‘exempt transaction’).

15. On 31 August 1998 Magnus Holding N.V. (‘Magnus Holding’) was established in the course of a merger transaction. Under that transaction: (i) the assets of the old companies (including Hoffman’s) were transferred under universal title to Magnus Holding and (ii) the new companies (including Magpar) – each of which together held all of the shares in each of the old companies – acquired shares in Magnus Holding in proportion to the amount they had contributed.

16. On the same date, Coöperatie Pym UA (the ‘cooperative’) was established and thirteen limited liability companies, including Magpar, became members. Magpar transferred its shares in Holding to the cooperative in return for membership rights in the cooperative.

17. On 27 November 1998 the stock of Magnus Holding was quoted on the Amsterdam Exchange.

18. On 5 February 1999 Magpar was issued with a tax notice for NLG 87 782 in respect of capital duty, from which, as previously noted, it had initially been exempt.

19. In particular, it was alleged that Magpar had breached the prohibition on the disposal of shares under Article 14 of the implementing Order of the WBR in that, within five years of the exempt transaction, it had ceased to hold its shares in Magnus Holding, namely the shares acquired in the course of the merger in consideration for the shares which were the subject of the exemption (the shares in Hoffman). In other words, the Netherlands tax authorities considered that the obligation that arose to retain the Hoffman shares for a period of five years must be deemed to have been transferred to the shares in Magnus Holding, which had acquired the transferring company, and which had been held by Magpar prior to being transferred to the cooperative.

20. Since Magpar’s appeal against that decision was rejected by the Inspecteur der Belastingdienst/Ondernemingen (Netherlands tax inspector), it brought proceedings before the Gerechtshof te Arnhem (Regional Court of Appeal, Arnhem).

21. That action was also unsuccessful, however. Magpar therefore brought an appeal in cassation before the Hoge Raad. As it entertained doubts as to the interpretation of Article 7(1) of the directive, that court decided, by order of 10 December 2004, to stay the proceedings pending before it and to refer the following questions to the Court of Justice for a preliminary ruling:

‘1. Is Article 7(1)(bb) of Directive 69/335/EEC, as amended by Directive 73/79/EEC, to be interpreted as meaning that if a company, within five years after the acquisition of shares in the course of a share merger that is exempt from capital duty, ceases to hold those shares because the company in which the shares were held has been the subject of a merger, the requirements referred to in the abovementioned provision of the Directive are to apply to the shares in the acquiring company?

2. Is it relevant to the above question that the company in which the shares were held ceased to exist as a result of the coming into force of a legal merger with another company (Article 2:311(1) BW), so that it is not possible to speak of a disposal of shares in the literal sense?’

22. The Netherlands Government and the Commission submitted written observations in the proceedings thus instituted.

III – Legal assessment

Question 1

23. In essence, by its first question the Hoge Raad asks the Court of Justice to provide clarification on the scope of the prohibition on disposals under Article 7(1)(bb) of the Directive, as amended by Directive 73/79/EEC, to which the version currently in force refers. As has already been noted, that prohibition provides that capital duty not charged in the course of a transaction involving an exchange of shares shall become ‘due if the company (receiving the capital contribution) does not retain, for a period of five years from the date of the transaction qualifying for the reduced rate, all of its shares (in the transferring company), and at least 75% of its share capital’.

24. In order to gain a better understanding of this question, it seems to me that it would be helpful briefly to run through the various transactions that led to the dispute in the main proceedings.

25. As we have seen, in the first of these transactions, Magpar acquired, by means of an exchange of shares, all the shares in Hoffman. This being a transaction involving the acquisition of shares representing the entire share capital of a company, it was exempt from capital duty under Article 7(1) of the directive. That exemption was therefore subject, inter alia, to a condition prohibiting the disposal of the Hoffman shares during the five years following the transfer of those shares to Magpar.

26. Less than a month after the exempt transaction, all the assets in Hoffman were transferred to Magnus Holding in the course of a merger. Even though, as a result of that transaction, it no longer held the shares in Hoffman that had previously been transferred to it, Magpar retained the benefit of the exemption since that merger also qualified as an exempt transaction under Article 7(1)(b) of the directive.

27. Lastly, Magpar transferred to the cooperative the shares it had acquired in Magnus Holding in the course of the merger transaction.

28. It is that last disposal of shares which, according to the national court, may have breached the prohibition on disposals that has been referred to.

29. Indeed, the Hoge Raad questions whether that prohibition applies to shares (in this case, the shares in Magnus Holding) acquired by a company which has qualified for an exemption from capital duty, in return for shares which were the subject of the transfer (in this case, the shares in Hoffman). In other words, it asks whether the obligation to retain shares under Article 7(1)(bb) can be transferred to shares other than those which were the subject of the exempt transfer. In its view, however, such an interpretation would imply that in order to continue to qualify for the exemption, Magpar would have had to have retained the shares in Magnus Holding for a period of five years, a condition that it clearly failed to satisfy when it transferred those shares to the cooperative before that time-limit expired.

30. The Netherlands and the Commission give totally different answers to this question, on grounds to be explained, as necessary, in due course. In the opinion of the Commission, the application of the obligation to retain shares under Article 7(1) to shares acquired in consideration for shares previously transferred constitutes an additional condition for qualifying for the exemption from capital duty, which is not required by that provision. On the other hand, the Netherlands Government maintains that the interpretation of the prohibition against disposals put forward by the national court is consistent both with the letter and the spirit of the Directive since it promotes investment stability in particular.

31. I must say at the outset that I do not agree with the Netherlands authorities. In fact, I share the Commission’s view that the answer to this question may easily be deduced from the very wording of Article 7(1) of the directive.

32. As already noted, the provision at issue sets out precise and detailed harmonised rules governing exemptions from capital duty (paragraphs 4 to 6 above). In particular, it defines the categories of transaction that can be exempted and then goes on to lay down conditions to which exemptions are subject, namely relating to the consideration to be given for the shares acquired, the place of the registered office of the companies concerned, and the minimum period during which the party qualifying for the exemption must retain the capital transferred to it.

33. With regard to the latter point, of particular relevance to the present case is Article 7(1)(bb), which provides that where there is a transfer of shares acquired in the course of an exempt transaction and that transfer takes place within five years of that transaction, the benefit of the exemption is retained where the shares in question are transferred ‘in the course of a transaction qualifying for the reduced rate in accordance with paragraph 1 or subparagraph 1(b) or on the liquidation of the company which acquired the shares’.

34. All that needs to be done to retain the exemption, therefore, is to satisfy those conditions, that is to say, the beneficiary of the exemption should no longer hold the shares concerned following on from a subsequent exchange of shares (the first paragraph of Article 7(1)(bb)), a transfer of the assets and liabilities or parts of the business of a capital company (Article 7(1)(b)) or its own liquidation.

35. Apart from that condition, the Directive does not impose any other relevant restrictions and, in particular, does not lay down any further prohibition against disposals, of the kind put forward by the national court.

36. Contrary to what is maintained by the Netherlands authorities, the view I have taken seems to me also to be consistent with the purpose of the Directive, which seeks, in particular, to reduce ‘the economic effects of capital duty (since they) are detrimental to the regrouping or development of undertakings’ (second recital in the preamble to Directive 85/303). ( )

37. I think that a solution – unfavourable to the taxpayer – which makes the retention of the exemption subject to additional conditions would be difficult to reconcile with that purpose. That is the case even more so where, as in the present case, the contested additional condition would be transferred and thus burden transactions involving corporate restructuring or regrouping as distinct from the transactions that were originally exempt, and thus deter the beneficiary of the exemption from engaging in such transactions or, in any event, make such transactions more costly.

38. For the reasons set out above, I therefore take the view that where, within five years after the acquisition of shares that is exempt from capital duty, the acquiring company no longer holds those shares because the transferring company has been the subject of a merger, the conditions laid down by Article 7(1) of the directive do not apply to the shares of the party acquiring the transferring company which were held by the acquiring company as a result of the merger.

Question 2

39. In essence, by its second question the national court asks whether the fact that the transferring company (Hoffman) was dissolved as a result of a merger with another company (Magnus Holding) is relevant for the purposes of the application of the exemption under Article 7(1) of the directive.

40. In formulating this question, the national court made particular reference to Article 2:311(1) of the Netherlands Civil Code, under which a company which is taken over by another company as a result of a merger ‘ceases to exist’ at the moment when that transaction takes effect. In the light of that fact, some doubt arose in the main proceedings as to whether Article 7(1)(bb) applies to mergers of the kind at issue as far as the conditions for maintaining the benefit of the exemption are concerned. The difficulty arises from the fact that that provision requires that, in order to be able to continue to enjoy the benefit of the exemption, the shares which were originally the subject of the allocation must have been ‘transferred’ in the course of an exemptible transaction. On a formal analysis, shares in a company that subsequently ceases to exist as a result of a merger cannot be ‘transferred’. In fact, under Netherlands law, a merger by dissolution of an acquired company does not give rise to a transfer of the shares in that company, ( ) with the result that the condition in question cannot be satisfied.

41. For my part, I agree with the Netherlands Government and the Commission that the answer to this question must be no.

42. While the use of the verb ‘transfer’ in the second paragraph of Article 7(1)(bb) ( ) is not in any way unambiguous, it seems to me at the same time that the overall wording of the provision makes it possible to resolve any doubt as to interpretation with a considerable degree of ease.

43. As I noted earlier (paragraphs 33 and 34), that provision sets out expressly that the beneficiary of an exemption from capital duty may dispose of the shares assigned to it without, however, relinquishing that advantage, not only in the course of a subsequent transaction involving an exchange of shares but also various other transactions, such as the transfer of the entire assets of a capital company or of one or more of its businesses. Even though, in such cases, the transferring company does not on any formal analysis ‘transfer’ the shares that were the subject of the assignment, the outcome is the same since it relinquishes ownership of the shares in the course of a transaction which is itself exempt.

44. In summary, strictly speaking, a transfer of shares does not constitute the only means of ‘retaining’ the exemption envisaged by Article 7(1)(bb). I would observe, moreover, that, from the Directive’s perspective, such transactions involving the transfer of assets ‘should be regarded in (exactly) the same light, from an economic point of view’, as exchanges of shares (second recital in the preamble to Directive 73/79). ( )

45. It seems to me, therefore, that the fact that a merger transaction does not entail a transfer of shares is not of itself relevant for the purposes of maintaining the benefit of the exemption, provided that the merger in question is one of the types of transaction referred to in Article 7(1)(bb). It seems to me that this is unquestionably the case with mergers, such as the one at issue in this case, in the course of which a capital company acquires the entire assets and liabilities of another company.

46. I therefore consider that it may be concluded that the fact that a transferring company is dissolved as a result of a merger such as that at issue in the main proceedings is not a relevant factor for the purposes of maintaining the benefit of the exemption from payment of capital duty under Article 7(1) of the Directive.

IV – Conclusion

47. In the light of the foregoing considerations, I propose that the Court reply to the Hoge Raad der Nederlanden as follows:

(1) Where, within five years after the acquisition of shares that is exempt from capital duty, the acquiring company no longer holds those shares because the transferring company has been the subject of a merger, the conditions laid down by Article 7(1) of Council Directive 69/335/EEC, as amended by Council Directive 85/303/EEC, do not apply to the shares of the party acquiring the transferring company which were held by the acquiring company as a result of the merger.

(2) The fact that a transferring company is dissolved as a result of a merger such as that at issue in the main proceedings is not a relevant factor for the purposes of maintaining the benefit of the exemption from payment of capital duty under Article 7(1) of Directive 69/335/EEC, as amended by Directive 85/303/EEC.