OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 16 July 2009 ( )

Case C‑352/08

Modehuis A. Zwijnenburg BV

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

(Directive 90/434/EEC – Common tax system applicable to mergers, divisions, transfers of assets and exchanges of shares – Supererogatory transposition of directives – Tax avoidance – Prohibition of abuse – Proportionality)

I – Introduction

1. These preliminary-ruling proceedings raise an interesting problem in connection with the taxation of mergers.

2. Directive 90/434/EEC ( ) provides certain tax benefits for mergers, ( ) including in particular a provision that hidden reserves do not have to be disclosed at the time of a merger. A taxpayer may be refused these benefits, however, inter alia if tax avoidance is the principal objective of the merger.

3. It is, as yet, unclear what is meant in this context by ‘tax avoidance’. Does it mean just the avoidance of corporation tax or does it also include the avoidance of other tax, such as a tax on transactions for instance?

4. This question arises in connection with the plan of the Zwijnenburg family to bring about a change of generations in the running of their fashion shop. A property was to change ownership, in particular, for this purpose. So as not to have to pay a transaction tax, ( ) however, the ‘business merger’ method was proposed for the transfer of that property. The Netherlands authorities declined to afford the benefits of merger taxation to that transaction because its predominant objective was to avoid or defer liability to the transaction tax.

II – Legal framework

A – Community law

5. Directive 90/434, in its version applicable in 2004, forms the Community-law framework of this case. ( )

6. The following definition, amongst others, is to be found in Article 2 under the general provisions in Title I of Directive 90/434:

‘For the purposes of this Directive:

…

(c) “transfer of assets” shall mean an operation whereby a company transfers without being dissolved all or one or more branches of its activity to another company in exchange for the transfer of securities representing the capital of the company receiving the transfer;

…’

7. Article 4(1) in Title II of Directive 90/434 provides:

‘A merger or division shall not give rise to any taxation of capital gains calculated by reference to the difference between the real values of the assets and liabilities transferred and their values for tax purposes. …’

8. Under Article 9 of Directive 90/434, which is included in Title III, the provisions of Article 4 apply mutatis mutandis to transfers of assets.

9. The final provisions in Title V of Directive 90/434 contain Article 11, excerpts of which read as follows:

‘(1) A Member State may refuse to apply or withdraw the benefit of all or any part of the provisions of Titles II, III and IV where it appears that the merger, division, transfer of assets or exchange of shares:

(a) has as its principal objective or as one of its principal objectives tax evasion or tax avoidance; the fact that one of the operations referred to in Article 1 is not carried out for valid commercial reasons such as the restructuring or rationalisation of the activities of the companies participating in the operation may constitute a presumption that the operation has tax evasion or tax avoidance as its principal objective or as one of its principal objectives;

…’

B – National Law

10. The Netherlands Law on the taxation of legal transactions (Wet op Belastingen van Rechtsverkeer – ‘Wet BVR’) provides for 6% transaction tax on the acquisition of real property situated in the Netherlands. For the purposes of that Law, real property can also include, subject to certain conditions more particularly defined in Article 4(a) of the Wet BVR, shares in companies the assets of which principally consist of real property situated in the Netherlands (so-called ‘property companies’).

11. Under Article 15(1)(h) of the Wet BVR, however, the acquisition of real property by way of merger is exempt from transaction tax. It is also apparent from Article 5a(1) of the Wet BVR implementing decree ( ) that this tax exemption also applies where a company acquires the whole of an undertaking or an independent operating sector of another company in exchange for the grant of shares.

12. Finally, reference should be made to Article 14 of the Netherlands Law on corporation tax (Wet op de vennootschapsbelasting 1969 – ‘Wet Vpb’). ( ) It is apparent from the first paragraph of that provision that the profit made on or at the time of the transfer of an undertaking or independent operating sector (business merger) is not to be taken into account for tax purposes. Under paragraph 4 of that provision, however, that profit will be taken into account for tax purposes if a merger is predominantly aimed at avoiding or deferring taxation. Unless proven to the contrary, a merger will be predominantly aimed at avoiding or deferring taxation if it not based on commercial reasons, such as the restructuring or rationalisation of the transferor’s and transferee’s operations.

III – Facts and main proceedings

13. The firm of Modehuis A. Zwijnenburg BV (‘Mode-BV’), the shares in which are held by Mr L.E. Zwijnenburg and his wife through a holding company, runs a fashion shop in Meerkerk (Netherlands). The premises used for this purpose are situated partly in the building at Tolstraat 17 and partly in the neighbouring building at Tolstraat 19; they form a single shop.

14. Whilst Mode-BV was already the owner of the building at Tolstraat 19, it leased the building at Tolstraat 17 originally from A. Zwijnenburg Beheer BV (‘Beheer‑BV’), the shareholders of which are Mr L. E. Zwijnenburg’s parents. Apart from managing the properties owned by it, Beheer-BV was a non-active company.

15. In order to complete the transfer of the business ‘from father to son’, for which steps had already been taken at the end of 1990, the Zwijnenburg family, in 2004, proposed bringing the building at Tolstraat 17 and Tolstraat 19 into a single company.

16. For that purpose Mode-BV was to transfer the fashion business that it ran and the property at Tolstraat 19 to Beheer-BV and receive shares in Beheer-BV in exchange. Mode-BV was initially to receive only a purchase option over the remaining shares in Beheer-BV, which were to remain in the hands of Mr Zwijnenburg’s parents. At a later stage, however, Mode-BV was also to acquire the remaining shares in Beheer-BV.

17. In a letter of 13 January 2004 Mode-BV requested the tax authority ( ) to confirm that the proposed merger and the later acquisition of shares in Beheer-BV could be carried out without tax being levied and, in particular, without having to pay transaction tax. It referred in this context to Article 14(1) of the Wet Vpb and Article 15(1)(h) of the Wet BVR in conjunction with Article 5a(1) of the Wet BVR implementing decree.

18. That request was rejected in a decision of 19 January 2004. When an objection was raised by Mode-BV the rejection decision was upheld. The tax authority stated as its grounds that the proposed merger was predominantly aimed at avoiding or deferring taxation.

19. Mode-BV unsuccessfully appealed at first instance to the Gerechtshof te ’s‑Gravenhage (Regional Court of Appeal, The Hague) against the refusal of its application. ( ) The case is now pending before the Hoge Raad der Nederlanden, the referring court, with which Mode-BV has lodged an appeal in cassation against the judgment at first instance.

20. The findings of fact arrived at by the Gerechtshof te ’s‑Gravenhage at first instance have been upheld in cassation proceedings; the Hoge Raad dismissed the criticisms levelled against them.

21. It is therefore established that the proposed bringing together of the buildings at Tolstraat 17 and Tolstraat 19 within a single company was based on valid commercial reasons. However, the merger route chosen for the bringing together of the two buildings, whereby Mode-BV was to initially transfer its undertaking to Beheer-BV in return for shares and then later acquire the remaining shares in Beheer-BV, was not motivated by valid commercial reasons.

22. Nor was Mode-BV able to substantiate in the main proceedings that tax avoidance was not the principal objective or one of the principal objectives of the proposed merger. The only motive for taking the indirect merger route was to avoid the levying of the transaction tax that would be chargeable in the event of Beheer-BV transferring the property at Tolstraat 17 direct to Mode-BV and to defer the levying of transaction tax on the difference between the book value of those premises and their fair market value.

23. The Gerechtshof te ’s‑Gravenhage considers that the route chosen warrants the conclusion that the structure established lacks, in reality, any independent meaning. Mode-BV was attempting to gain access to the tax benefits applicable to merger transactions by artificial means. The Hoge Raad adds that the proposed merger would lead to Mr Zwijnenburg’s parents again having a commercial interest in the fashion shop, which was in contrast to the declared intention of the parties – namely, to transfer the undertaking from the father to the son.

24. It is apparent from the court files ( ) that the property at Tolstraat 17 has been transferred directly from Beheer-BV to Mode-BV in the meantime on payment of the 6% transaction tax. Mode-BV is nevertheless now claiming a refund of that tax.

IV – Reference for a preliminary ruling and procedure before the Court

25. In a decision of 11 July 2008, received by the Court Registry on 31 July 2008, the Hoge Raad der Nederlanden stayed its proceedings and submitted the following question to the Court of Justice:

‘Must Article 11(1)(a) of Directive 90/434/EEC be interpreted as meaning that the benefits of that Directive may be withheld from a taxpayer where a series of legal transactions is aimed at preventing the levying of a tax other than the taxes to which the benefits set out in that Directive relate?’

26. In addition to the applicant in the main proceedings, the French, Italian, Netherlands and Portuguese Governments and the Commission of the European Communities have lodged written observations in the proceedings before the Court.

V – Appraisal

A – Admissibility of the reference for a preliminary ruling

27. It is necessary, before answering the substance of the question referred, to make a few brief remarks on the admissibility of the reference for a preliminary ruling.

28. The purpose behind Directive 90/434 is to eliminate fiscal barriers to the cross-border restructuring of undertakings. ( ) Its scope of application is therefore limited to mergers involving companies in different Member States. Mergers in which only companies from a single Member State are involved are not covered. ( )

29. In the present case a merger was proposed in the form of a transfer of assets of Mode-BV to Beheer-BV within the meaning of Article 2(c) of Directive 90/434. As both firms are companies incorporated under Netherlands law, however, Directive 90/434 does not apply to them.

30. As the referring court and the parties to the proceedings both point out, however, the Netherlands Law in Article 14 of the Wet Vpb is also guided by Directive 90/434 in circumstances that are purely national. ( ) Both national and cross-border restructuring transactions are there treated equally for the purposes of merger taxation. In other words, the Netherlands legislature decided in favour of ‘supererogatory transposition’ of Directive 90/434 so as to avoid unequal treatment.

31. According to established case-law there is, in these circumstances, nothing to prevent the answering of a request for a preliminary ruling on the interpretation of Directive 90/434. It is manifestly in the interest of the Community legal order that, in order to forestall differences, every Community provision should be given a uniform interpretation irrespective of the circumstances in which it is to be applied. ( )

32. Furthermore, the fact that the original merger proposal is no longer going ahead does not alter the relevance to a decision in the main proceedings of the question referred for a preliminary ruling. Now that Mode-BV has acquired the property at Tolstraat 17 directly from Beheer-BV instead of participating in a merger it is claiming a refund of the transaction tax paid on the acquisition. In order for the Hoge Raad to decide that claim, it can still be useful to answer the question referred for a preliminary ruling.

33. The request for a preliminary ruling is therefore admissible.

B – Substantive appraisal of the question referred for a preliminary ruling

34. This preliminary reference concerns the interpretation of Article 11(1)(a) of Directive 90/434. The referring court essentially wishes to know whether the avoidance of transaction tax charged in the Netherlands on the acquisition of real property can be justification for denying the taxpayer the merger tax benefits under Directive 90/434.

1. Preliminary remark

35. Transaction tax would have had to be paid in this case if Mode-BV had purchased the property at Tolstraat 17 from Beheer-BV. ( ) Transaction tax would also have been incurred if Mode-BV had simply received the shares in Beheer-BV from Mr Zwijnenburg’s parents without first transferring its fashion business to Beheer-BV. ( )

36. The parties had hoped to circumvent these tax disadvantages by way of the proposed merger. ( ) Such a merger would not have led to a sale of one of the two properties so that – at least according to the letter of the law – no transaction tax would have been incurred. Nor would the proposed acquisition of the Beheer-BV shares by Mode-BV in this context have been liable to transaction tax as such because, with the prior transfer of the fashion business, Beheer-BV would have changed from being a pure property company to being a company with varied business activities.

37. According to the applicant in the main proceedings, the Netherlands legislation on transaction tax does not include any rule on abuses which would allow the tax authorities to deny a taxpayer the tax benefit for mergers under Article 15(1)(h) of the Wet BVR in conjunction with Article 5a(1) of the Wet BVR implementing decree in the event of avoidance of such transaction tax. This could explain why, in the present case, the Netherlands tax authorities are attempting to switch to the abuse rule in connection with corporation tax, namely Article 14(4) of the Wet Vpb, in order to counter any avoidance of transaction tax.

38. Ultimately, however, this is a question of national law that it is for the referring court to assess. For the purposes of the present preliminary-ruling procedure it is sufficient to point out that the tax authorities are not permitted to rely directly on Community law as against an individual in order to withhold from him the benefits of the merger taxation under Directive 90/434; there needs to be a national legal basis, with the following observations being of relevance to the interpretation and application thereof in compliance with Community law. ( )

2. Reply to the question referred

39. A step-by-step procedure is recommended in reply to the question referred for a preliminary ruling. To start with, a brief look should be had at the concept of avoidance (see below, subsection a), which is of significance not only to an examination of Article 11(1)(a) of Directive 90/434 but also – at least indirectly – in the context of the general prohibition of abuse of rights. It is therefore necessary to examine whether Article 11(1)(a) of Directive 90/434 can apply to the avoidance of a transaction tax such as that in the Netherlands (see below, subsection b). The discussion will then centre on whether the tax benefits of Directive 90/434 can be denied to a taxpayer by reference to the general prohibition of abuse of rights (see below, subsection c).

a) Concept of avoidance

40. A few comments are appropriate, first of all, on the concept of avoidance for the purposes of Article 11(1)(a) of Directive 90/434. It is of course for the Netherlands courts to appraise the facts in this case and consequently draw the conclusions necessary to a decision in the main proceedings. Nevertheless, the Court is not forbidden to give the national court all relevant clarification on the interpretation of Community law that might serve to guide it in its decision. ( ) In doing so it may also look at matters in the case that the referring court has not directly made the subject of its questions referred to the Court. ( )

41. It follows from the first sentence of Article 11(1)(a) of Directive 90/434 that the Member States may refuse to apply the tax benefits afforded to mergers inter alia if a merger has tax avoidance as its principal objective or as one of its principal objectives. According to the second sentence of that provision, the fact that a merger is not carried out for valid commercial reasons may constitute a presumption that the operation has tax avoidance as its principal objective or as one of its principal objectives.

42. The Netherlands courts hearing the proceedings are presuming that in this case the principal objective of the proposed merger was the avoidance of transaction tax. They base that presumption on the fact that, whilst there were valid commercial reasons for bringing the buildings at Tolstraat 17 and Tolstraat 19 within one single company, there were no such reasons for the merger method chosen.

43. The Netherlands courts are therefore drawing a distinction here between the commercial aim of bringing two buildings within one single company, which they consider legitimate, and the merger route chosen for that purpose, which they consider to be an abuse.

44. It seems to me that drawing such a distinction between aim and method excessively restricts economic freedom. A whole number of legally permissible set-ups might often be available to enable a legitimate economic proposal to be achieved, some of which might prove to have a more favourable tax regime than others. The fact that the parties ultimately choose the option that is most favourable for tax purposes cannot by itself be sufficient grounds on which to base charges of tax avoidance under Article 11(1)(a) of Directive 90/434.

45. Ultimately that provision just reflects the general Community law principle that abuse of rights is prohibited. ( ) Conduct merely taking advantage of the options presented by Community law – in this case by Directive 90/434 – cannot by itself justify suspicion of abuse or tax avoidance. ( )

46. In the light of the foregoing the referring court will again have to examine whether the proposed merger in this case might not have been based on valid commercial reasons, particularly when one considers that it might have served to restructure or rationalise the companies run by members of the Zwijnenburg family and was also a legal means of achieving the economic aim, which was to bring the two properties at Tolstraat 17 and Tolstraat 19 within a single company.

47. It must be concluded, in summary, as follows:

The mere fact that in order to achieve a legitimate economic aim a taxpayer chooses, out of several lawful options, the one that is most favourable to it for tax purposes is not by itself sufficient grounds for a charge of tax avoidance within the meaning of Article 11(1)(a) of Directive 90/434.

b) Can Article 11(1)(a) of Directive 90/434 apply to the avoidance of transaction tax?

48. Following these introductory remarks on the concept of avoidance it must now be examined whether Article 11(1)(a) of Directive 90/434 can apply to the avoidance of transaction tax such as that in the Netherlands.

49. If one just takes the wording of Article 11(1)(a) of Directive 90/434 on its own, the advantages of merger taxation can be denied whenever tax avoidance is the principal objective, or at least one of the principal objectives, of a merger. No express limitation of the scope of application of Article 11(1)(a) to certain types of tax, such as corporation tax for instance, can be concluded from the wording of the provision.

50. The Member States that participated in the proceedings conclude from this that any tax avoidance whatsoever gives the national authorities the right to refuse the benefits under Directive 90/434 – even the avoidance of a transaction tax such as that in the Netherlands.

51. However, as the Court has ruled in previous decisions, in interpreting a provision of Community law it is necessary to consider not only its wording but also the context in which it occurs and the objects of the rules of which it is part. ( )

52. The essential characteristic of Directive 90/434 is that – despite the use of the expression ‘common system of taxation’ ( ) – it does not lead to a comprehensive harmonisation of taxation and levies that can be charged on a merger. ( ) It provides only for individual benefits by which tax disadvantages on the cross-border restructuring of undertakings are to be overcome. ( )

53. With regard to these very tax benefits, Article 11(1)(a) of Directive 90/434 serves to safeguard the financial interests of the Member States. ( ) Recourse to Article 11(1)(a) is therefore justified only if in a particular individual case a tax is avoided to which the benefits in Directive 90/434 could relate. That narrow interpretation is in line with the exceptional nature of Article 11(1)(a): the Member States may, by way of exception and in specific cases only, on the basis of that provision, refuse to apply or withdraw the benefit of all or any part of the provisions of that directive. ( )

54. It will therefore be necessary to consider below whether one of the benefits under Directive 90/434 applies to a tax such as Netherlands transaction tax. If that should be the case, measures may be taken under Article 11(1)(a) of Directive 90/434 in the event of that duty being avoided.

55. The benefit to be taken into consideration in the present case would possibly be that under Article 4(1) in conjunction with Article 9 of Directive 90/434, according to which a merger is not to give rise to any taxation of capital gains calculated by reference to the difference between the real values of the assets and liabilities transferred (market value) and their values for tax purposes (book value).

56. Although that benefit is couched in wide terms and the wording not confined to a specific type of tax, ( ) it principally applies to corporation tax. The purpose of the benefit is to ensure that restructurings do not result in the taxation of undisclosed reserves of undertakings. On the occasion of a merger, therefore, the taxation of any increases in the value of assets is deferred until their actual disposal. ( )

57. Generally speaking, a transaction tax, which is in the nature of a tax on the acquisition of real property, is based on the value of the property concerned but is not normally imposed specifically on the difference between the book value and market value of the property, so that no hidden reserves are disclosed. It is simply based on a certain value, which might often be the market value, but it can also be assessed according to different criteria, such as the uniformly-assessed land registry value.

58. In this case the Court has no reason to suppose that Netherlands transaction tax specifically relates to the difference between the book value and the market value of real properties. In those circumstances it does not come within the scope of application of the tax benefit under Article 4(1) in conjunction with Article 9, which means that the rule on abuse in Article 11(1)(a) of Directive 90/434 does not apply to it either.

59. It must therefore be held that:

Article 11(1)(a) of Directive 90/434 applies only to the avoidance of taxes to which the benefits provided for in that directive relate. This is not the case with a transaction tax unless the difference between the real value of the assets transferred and their value for tax purposes would specifically be taxed.

c) Is it possible to have recourse to the general provision on the abuse of rights?

60. In order to be able to give the Hoge Raad a useful reply to its question it is also necessary to consider whether the tax benefits in Directive 90/434 can be denied to a taxpayer in reliance upon the general prohibition of abuse of rights, as argued by some of the Governments that participated in the proceedings.

61. It is true that Article 11(1)(a) of Directive 90/434 reflects the general Community law principle that abuse of rights is prohibited. ( )

62. This also means, however, that Article 11(1)(a) of Directive 90/434 exhaustively determines the circumstances in which the tax benefits provided for in the directive can be refused in the event of abuse. If it were to be permitted, in addition, to have recourse to a general principle whose content is much less clear and precise, there would be a danger that the harmonisation objective of Directive 90/434 would be undermined and the legal certainty upon the restructuring of companies which it seeks to achieve would be jeopardised. ( )

63. However, even if one were to consider the general prohibition of abuse of rights to be applicable, it could not, according to the motto ‘fraus omnia corrumpit’, ( ) serve as the basis for simply withholding all benefits under Directive 90/434 from the taxpayer in the event of avoidance of transaction tax, including those benefits that – particularly with regard to corporation tax – save it from having to disclose hidden reserves.

64. The applicant in the main proceedings rightly argues that such a solution would be disproportionate.

65. As already mentioned, ( ) the facility for the refusal of tax benefits in the context of merger taxation specifically serves to safeguard the financial interests of the Member States in connection with the tax benefits provided for in Directive 90/434.

66. If the principal objective or one of the principal objectives of a merger is the avoidance of a transaction tax, the financial interests of the Member State concerned that are to be protected are confined to the levying of that very transaction tax. As the Commission also rightly states, those interests are served by the taxpayer being liable to pay the transaction tax and not by it being obliged to pay a quite different tax, namely corporation tax. It would exceed what is required to safeguard the financial interests of a Member State if the national tax authorities were to sweepingly refuse the taxpayer the benefits under Directive 90/434 even in relation to all other kinds of tax and were to compel him to disclose hidden reserves in this connection.

67. In other words, the principle of proportionality requires that tax advantages in the context of merger taxation be denied to the taxpayer only insofar as necessary in order to prevent a threat of tax avoidance or to redress tax avoidance that has already occurred.

68. Further, this interpretation also accords with the principle that exceptions are to be interpreted narrowly. ( ) Exceptions to the basic principle that restructuring procedures are not to bring about taxation of the undisclosed reserves of undertakings ( ) must not have a scope that is wider than is needed to protect the financial interests of the Member States in the specific individual case.

69. To summarise, therefore:

Where the avoidance of a transaction tax is threatened or has already taken place, the tax benefits in Directive 90/434 that relate to other types of tax may not be refused or withdrawn.

VI – Conclusion

70. In the light of the foregoing I propose that the Court answer the question referred by the Hoge Raad der Nederlanden as follows:

– Article 11(1)(a) of Directive 90/434 applies only to the avoidance of taxes to which the benefits provided for in that directive relate. This is not the case with a transaction tax, unless the difference between the real value of the assets transferred and their value for tax purposes would specifically be taxed by it.

– Where the avoidance of a transaction tax is threatened or has already taken place, the tax benefits in Directive 90/434 that relate to other types of tax may not be refused or withdrawn.

– The mere fact that in order to achieve a legitimate economic aim a taxpayer chooses, out of several lawful options, the one that is most favourable to it for tax purposes is not by itself sufficient grounds for a charge of tax avoidance under Article 11(1)(a) of Directive 90/434.