Opinion of Mr Advocate General Alber delivered on 14 October 1999. - C. Baars v Inspecteur der Belastingen Particulieren/Ondernemingen Gorinchem. - Reference for a preliminary ruling: Gerechtshof 's-Gravenhage - Netherlands. - Freedom of establishment - Assets invested in shares in companies established in the taxing Member State - Exemption from wealth tax - Assets invested in shares in companies established in another Member State - No exemption. - Case C-251/98.



European Court reports 2000 Page I-02787



Opinion of the Advocate-General

A - Introduction

1 The Gerechtshof (Regional Court of Appeal), The Hague, asks the Court to interpret Articles 6, 52, 73b and 73d of the EC Treaty (now, after amendment, Articles 12, 43, 56 and 58 EC) in relation to a provision of Dutch wealth tax legislation granting an allowance against wealth tax in respect of a substantial shareholding in an undertaking established in the Netherlands.

2 Mr Baars, the appellant in the main proceedings, is a Dutch national resident in the Netherlands. His company, Ballyard Foods Limited (`Ballyard'), produces cheese in Ireland; it is established in Dublin. He is the sole shareholder, and seeks an `ondernemingsvrijstelling' - an exemption in respect of an undertaking - in respect of his tax assessment in the Netherlands.

3 On 1 January 1994, Mr Baars declared for wealth tax assets of NLG 2 650 600, his shareholding in Ballyard being then worth NLG 749 800. He applied for the undertaking exemption in the amount of NLG 442 400 (calculated according to the method described at paragraph 4 below) in respect of his shareholding in Ballyard, to be deducted from his assets taxable in the Netherlands. He relied on Article 7(2) and (3) of the 1964 Dutch Wealth Tax Law. (1)

4 Article 7(2) of that law provides that, where a taxable person carries on one or more businesses, capital invested therein is to be disregarded when determining that person's taxable assets in the following amounts:

- where the assets do not exceed NLG 135 000: 100% of the capital so invested;

- where the assets exceed NLG 135 000: NLG 135 000, plus 50% of the amount in excess of NLG 135 000, up to a maximum of NLG 1 541 000.

5 Article 7(3) of the law provides that if the capital invested in the business or businesses does not exceed NLG 2 947 000, or if none of the businesses is carried on by the taxable person, paragraph 2 shall apply by analogy; for this purpose, where, pursuant to section c of the provision in question, assets relate to shares which constitute a substantial shareholding within the meaning of the 1964 Income Tax Law (2) in a company established in the Netherlands, such assets are deemed to be invested in an undertaking (provided that the company in question is not an investment institution within the meaning of Article 28 of the Law on Company Tax). (3) (4)

6 The Dutch tax authority disallowed the exemption, and assessed Mr Baars's taxable assets at NLG 2 650 000. He appealed against that decision.

7 The Dutch Government states that the aim of the provision in question is to protect the capital of small companies, most of whose shares are generally held by a single natural person. Where that is the case there is a danger of double taxation, in the form of company tax and the wealth tax payable by the holder of the shares. The company's capital and the assets of the shareholder being one and the same - indeed, indistinguishable - the undertaking exemption makes it possible to avoid taxing the same assets twice. Viewed thus, there is no need for the exemption in the case of companies established abroad, since the only tax liability they might incur in the Netherlands is to wealth tax on their shareholders' assets; they are not subject to company tax. Any risk of double taxation by the Dutch fiscal authorities is thus precluded in limine.

8 The Gerechtshof has referred the following questions for a preliminary ruling:

1. Must Articles 6 and/or 52 of the EC Treaty be interpreted as meaning that a restriction in a provision of a Member State's wealth tax legislation which exempts assets invested in shares in an undertaking - provided that the shares form a substantial holding - from wealth tax to which the shareholder is liable but which restricts that exemption to shares in companies established in that Member State is incompatible with those articles?

2. If Question 1 is to be answered in the negative, must Articles 73b and 73d of the EC Treaty be interpreted as meaning that a restriction such as that referred to in Question 1 is incompatible with those articles?

9 The Dutch Government and the Commission took part in these proceedings. I shall deal with their submissions when I consider the law.

B - Opinion

I. Preliminary issue: the respective scope of freedom of establishment and the free movement of capital.

10 Of the two questions from the referring Court, one appears to be contingent on the answer to the other. The first concerns the compatibility of the national scheme with Community rules on the freedom of establishment, while the second turns on the answer given to the first: if the national rules are indeed compatible with freedom of establishment, are they also consonant with the rules governing the free movement of capital?

11 The parties differ on the question of which Community rules apply.

The Dutch Government states that Article 52 of the EC Treaty, on the right of establishment, does not apply to the present case. Share-ownership is a matter governed solely by the provisions concerning the movement of capital, as is apparent from Article 52(2) of the EC Treaty, which contains an explicit reservation in favour of the provisions on the movement of capital.

The Commission considers, on the other hand, that a substantial shareholding in the capital of a company established in another Member State is governed primarily by the provisions on the right of establishment in Article 52(2) of the EC Treaty. The reservation in favour of the provisions on capital movements, to be found also in the chapter on the freedom to provide services, in Article 61(2) (now, after amendment, Article 51 EC), related solely to the transitional period preceding full establishment of free capital movements, and is consequently now redundant.

Assessment

12 The right of establishment includes, as the second paragraph of Article 52 of the EC Treaty states, the right to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 58. It follows that such activities cannot, simply by virtue of their nature, be excluded from the scope of the right of establishment and be subject solely to the provisions on capital movements.

13 There is a close relationship between the provisions on the right of establishment and those on the movement of capital, as is clearly apparent from the reciprocal reservations contained in Article 73d(2) (5) and Article 52(2). (6) However, the reservations do not signify that conduct can be protected only under one of these fundamental freedoms. Were any reference to capital movements ipso facto to preclude application of the chapter on the freedom of establishment, that fundamental freedom would lose any practical meaning, since establishment in another Member State generally involves a transfer of capital.

14 The provisions concerning the fundamental freedoms regulate the right to pursue an activity, viewed from a particular economic angle. However, the same activity may well merit protection under various heads, and hence fall within the scope of several fundamental freedoms.

15 In its case-law to date, the Court has proceeded from the premise that the rules on the movement of capital, and those concerning the freedom to provide services or the right of establishment, should apply in parallel. The underlying principle is that the rules on capital movements only preclude the parallel application of other fundamental freedoms in situations where the rules in question specifically regulate the flow of capital. However, where there is an indirect effect on capital movements because the pursuit of an economic activity in another Member State has been made more difficult, the fundamental freedom relating to the activity in question will also apply. (7)

16 In Bachmann, (8) the Court decided that the rules on capital movements do not cover restrictions which flow indirectly from the restriction of other fundamental freedoms.

17 In Svensson and Gustavsson, (9) the Court held that a provision which makes lending by banks more difficult may constitute an infringement of both Article 59 of the EC Treaty (now, after amendment, Article 49 EC) and Article 67 of the EC Treaty (repealed by the Treaty of Amsterdam).

18 In Parodi, (10) the Court proceeded from the principle that the rules relating to the freedom to provide services and those relating to capital movements operate in parallel. It held that, in the case of restrictions on capital transactions associated with the provision of services, the freedom to provide services would only cease to apply `where there is a restriction on the free movement of capital relating to such transactions which is compatible with Community law.' (11)

19 In his Opinion in Safir, (12) Advocate General Tesauro suggested that whether a situation was governed by the rules on the free movement of capital, or by those on the freedom to provide services, should turn on whether the national measure concerned directly rendered the transfer of capital impossible or more difficult; where it did, he suggested, the free movement of capital constituted a lex specialis in relationship to the freedom to provide services.

20 Advocate General Mischo adopted a similar approach in his Opinion in Ambry. (13) He declined to apply the provisions on capital movements to rules barring non-resident credit institutions from lodging certain securities, since the rules in question did not hinder money movements between Member States - the Court, too, held that it was the freedom to provide services which had been infringed, and left open the question of whether such rules might also infringe Article 73b of the Treaty. (14)

21 In Case C-302/97, Konle, (15) concerning a provision of Austrian law which made it more difficult for foreigners to acquire land, the Court held that the right of establishment and the provisions on capital movements were both applicable. However, since the Court found that there had been a breach of Article 56 EC (formerly Article 73b of the EC Treaty), it did not go on to consider whether the provisions were compatible with the right of establishment. Advocate General La Pergola had adopted the opposite approach, descrying an infringement of the right of establishment, and accordingly seeing no need to address the issue of capital movements. (16) Both Judgment and Opinion, though, rest on the premise that both fundamental freedoms apply in parallel.

22 The case-law cited above is incompatible with the view, seemingly held in the present case by the Dutch Government, that capital-movement rules and other fundamental freedoms are generally mutually exclusive. In Svensson and Gustavson, Parodi, Ambry and Konle, the Court held that they could indeed apply in parallel. Moreover, Konle specifically concerned the relationship between the free movement of capital and the right of establishment, a relationship central to the present case.

23 Cogent reasoning underpins that case-law. Originally, the only fundamental freedoms fully fleshed out in the Rome Treaties were the free movement of goods, the free movement of persons and the freedom to provide services. Initially, free movement of capital was to be achieved through secondary legislation; not until the Treaty of Maastricht was it incorporated into the EC Treaty as a fully-fledged fundamental freedom. If one were to follow the Dutch Government and construe the rules on capital movements broadly, seeing them as extending into areas initially protected by other fundamental freedoms, and indeed displacing the latter, then the advent of the free movement of capital would have had the effect of restricting the other fundamental freedoms, since the reservations in regard to the movement of capital would have to be read into the other fundamental freedoms. It is clear, though, that there was no such intention to restrict existing, directly applicable fundamental freedoms through the institution of the fundamental freedom of capital movements. On the contrary, the intention was to add a further fundamental freedom to those already in existence, and extend the range of protected cross-frontier economic activities.

24 However, Articles 73d(2) and 52(2) of the EC Treaty do seem to support a limitation of parallel applicability in certain cases. Thus Article 52(2) must mean that a restriction of capital movements is not per se an infringement of the right of establishment. A national measure which directly regulated only the transfer of capital, and not establishment in another Member State, would not fall within the scope of the right of establishment even if the added difficulty of transferring capital formed an indirect obstacle to establishment in another Member State. The reference contained in Article 52(2) indicates clearly that the mere fact of its importance to a subsidiary establishment does not ipso facto bring a capital movement into the ambit of the right of establishment.

25 Conversely, Article 73d(2) demonstrates that any measure directly restricting the right of establishment must be judged by the criteria pertaining to that fundamental freedom; there is no scope for the alternative application of the rules relating to capital movements. This rule applies only to the right of establishment; Article 73d(2) contains no such restriction governing the concurrent application of the free movement of capital and other fundamental freedoms. That is why capital-movement rules were applied in the Svensson and Gustavsson and Ambry cases, both of which concerned measures directly affecting the freedom to provide services.

26 These observations on the respective ambit of the free movement of capital and the right of establishment may be summarised as follows:

1. Where the free movement of capital is directly restricted such that only an indirect obstacle to establishment is created, only the rules on capital movements apply.

2. Where the right of establishment is directly restricted such that the ensuing obstacle to establishment leads indirectly to a reduction of capital flows between Member States, only the rules on the right of establishment apply.

27 The above principles fail to categorise cases in which a national measure both directly hampers capital flows and directly affects the right of establishment. Konle was such a case; it concerned the purchase of land for residential purposes in another Member State.

28 The purchase of land for residential purposes is a necessary extension of the right of establishment, being an instance of the exercise of that fundamental freedom. The Austrian Government prohibited the exercise of that freedom - a direct restriction of the right of establishment.

29 Of course, the purchase of land always represents an investment of capital, and is accordingly, whatever its purpose, protected by the rules on capital movements. The Austrian prohibition therefore concerned the exercise of a right guaranteed by the rules on capital movements, and constituted direct interference with that fundamental freedom.

30 The Court concluded that both the rules on the free movement of capital and those on the right of establishment were applicable. There is therefore a third rule governing the relationship between the two freedoms:

3. Where there is direct intervention affecting both the free movement of capital and the right of establishment, both fundamental freedoms apply, and the national measure must satisfy the requirements of both.

II. Application of these principles to the present case

1. The first question

31 By its first question the court seeks a ruling on whether the limitation of the exemption in question to undertakings established in the Netherlands is compatible with Articles 6 and 52 of the EC Treaty (now, after amendment, Articles 12 and 43 EC).

(a) The scope of the right of establishment

32 The rules at issue in these proceedings concern solely a substantial shareholding (the Dutch term is `aanmerkelijk belang') in a foreign undertaking. The purpose of requiring the shareholding to be a `substantial' one is apparent from the national legislative context. Essentially, the allowance is available to the owner of an undertaking. A shareholder is not assimilated to an owner by the mere fact of holding shares: he must possess a substantial shareholding, sufficient to secure for him a measure of influence in business decisions. The rules are thus not directed generally to the investment of capital with a view to obtaining a return, but specifically to business activity per se. The right to found an undertaking in the form of a company limited by shares in another Member State is directly affected by the denial of the tax concession. It follows then, according to the criteria I have proposed above, that the rules relating to the right of establishment must in any case apply to these proceedings.

33 In my view, the border between the simple investment of capital in shares in an undertaking established in another Member State, and actual establishment in that Member State, should probably be set at the point where a shareholder ceases to confine himself to the mere provision of capital in support of a particular business activity carried on by another person, and begins to become involved himself in conducting the business. Such involvement requires the shareholder to go beyond simply exercising his voting rights, and to participate in a way which will enable him to exercise real influence over the company's business decisions. In determining whether such is the case, regard should be had to the rules of company law in the State in which the undertaking is established. (17)

34 The distinction in question presents no problems in the present case. It is clear that the situation is one of establishment, since all the shares are owned by one person. The sole owner of all a company's shares can make decisions about that company's activities on his own: there is no-one else entitled to a say whose views he must heed. Only the legal form of the undertaking distinguishes him from a sole trader; like the latter, he is in a position to direct the activities of the business in question.

(b) Restriction of the right of establishment

35 The right of establishment embraces the professional activities of a self-employed person in another Member State; it includes in particular the right to set up and run an undertaking there. As is apparent from Article 52(2) of the EC Treaty, it is immaterial whether the undertaking takes the form of a sole trader or a company.

36 As the Court has held, the protection which that fundamental freedom affords extends not only to restrictions imposed by the prospective host State, but also to those imposed by the state of origin. (18)

37 Of course, wealth taxes have not been harmonised within the Community, and Member States hence retain their legislative monopoly in that field. However, they must exercise their powers in a manner which does not infringe Community law. Specifically, they may not impose taxes which make it more difficult to exercise the fundamental freedoms guaranteed by the Treaty. (19)

38 Refusing an exemption when assessing to wealth tax a shareholder who owns a substantial share in an undertaking established in a Member State other than the Netherlands constitutes conduct likely to render less attractive, and hence to impair, the development of business activities in other Member States. It actually treats the entrepreneur (or, as the case may be, the shareholder) less favourably, depending on which Member State the undertaking is established in.

(c) Justification

39 As the rules I have described are discriminatory, they may be justified solely on the basis of Articles 55 and 56 of the EC Treaty (now Article 45 EC and, after amendment, Article 46 EC), or on the ground of mandatory requirements. The Dutch Government has stated that the reason for allowing a reduction in wealth tax by means of the exemption was to preclude multiple taxation of the same assets by the Dutch tax authority - once in respect of company tax, and then again in respect of wealth tax; however, that cannot justify the unequal treatment. Companies established abroad are denied the allowance whether or not there is any company tax in the State where they are resident. The Dutch rules are consequently discriminatory: they eliminate double taxation only on the capital of domestic companies. If wealth tax on substantial shareholdings in a company is to be reduced on account of the company tax paid by that company, such an abatement cannot turn on whether company tax is levied in the Netherlands or in another State.

40 It would be possible to prevent double taxation without such discrimination by restricting the undertaking exemption to situations where tax is payable in the Member State in which the company is established. Since the aim may be achieved in a non-discriminatory manner, the provisions at issue in these proceedings cannot be justified.

41 Similarly, the fact that tax payable by the company does not accrue to the Dutch tax authority cannot justify the Dutch wealth tax rules in their present configuration, since the reduction in tax revenue that may ensue does not fall within the scope of the reasons listed in Article 56 of the EC Treaty, nor may it be deemed to constitute a mandatory consideration relating to the public interest. (20)

(d) The general prohibition of discrimination

42 In regard to the issue raised in the first question concerning the general prohibition of discrimination based on nationality contained in Article 6 of the EC Treaty (now, after amendment, Article 12 EC), as the Commission quite properly points out, it is expressly provided that that article must yield to Treaty provisions which are more specific. As the Court has consistently held, the general prohibition of discrimination applies only in situations where discrimination is not expressly prohibited by specific Treaty provisions. (21) There is accordingly no scope for the general prohibition of discrimination to apply in the present case.

43 It follows that the first question should be answered in the following terms:

Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes a rule in a Member State's wealth tax legislation limiting the grant of a tax-free allowance in respect of a substantial shareholding in a company to shareholdings in companies resident in that Member State.

2. The second question

44 My answer to the first question will enable the referring court to decide the issue before it. The second question, posed in the event of the first being answered in the negative, would then not need to be considered. I shall, however deal with it, in case the Court declines to follow me, and considers only the provisions on capital movements to be relevant.

(a) The scope of the capital-movement provisions

45 The Dutch Government considers that it is only the provisions on capital movements which apply to the present case. It believes, however, that the undertaking exemption does not constitute a hindrance to capital flows: there is no obstacle to investment by persons resident in the Netherlands in shares in foreign companies, nor is such investment subject as such to a special tax.

46 As the Commission considers that the rules at issue infringe Treaty provisions on the freedom of establishment, it only addresses the second question in the alternative.

At the hearing the Commission discussed the interpretative criteria which it believed should be applied. First, the Treaty of Maastricht was intended to achieve progress in the field of the free movement of capital: to follow the Dutch Government would be a retrograde step. Secondly, the individual chapters in the Treaty must be interpreted consistently - thus free movement of capital and the right of establishment must be consistent with each other. Accordingly, a provision incompatible with the right of establishment will generally be incompatible with the free movement of capital. Strictly speaking, the present case does not concern the compatibility of a national tax provision with the free movement of capital in the narrow sense of the term, and the point at issue is thus the same as the question of the compatibility of the provision in question with the right of establishment.

According to the Commission, the Dutch Government's attempts to justify the tax concession relate only to the position in the Netherlands, and makes no allowance whatever for the fact that companies are also obliged to pay tax abroad. Article 73(d)(1)(a) does indeed permit Member States to enact two types of fiscal provisions, but only if due account is taken of differing situations. Any failure to take account of particular circumstances would constitute arbitrary discrimination.

Assessment

47 The tax exemption at issue may have an indirect effect on capital flows between Member States as it is available only to undertakings pursuing activities in the Netherlands, thereby rendering investment in an undertaking that is not established in the Netherlands less attractive than investment in a company that is. However, the movement of capital is not directly affected, since there are no obstacles to it as such. It is not the transfer of capital to another State which is made less attractive, but the use thereof.

48 I have already shown that a national measure may fall within the ambit of a number of fundamental freedoms. In the present case, therefore, the fact that freedom of establishment is in point does not preclude the simultaneous application of the rules on capital movements.

49 The acquisition of shares in a company established in another Member State falls under Article 73(a) of the EC Treaty and the provisions which follow it. Before the Treaty on European Union came into force Directive 88/361 was the relevant provision. (22) The Treaty on European Union has incorporated into the EC Treaty the freedom of capital movements already achieved by secondary legislation, hence one may continue to look to that earlier secondary legislation as a pointer to the scope of the fundamental freedom.

50 In this connection, contrary to the position in regard to the right of establishment, the size of the shareholding acquired is immaterial. The provisions in question afford protection even when all a company's shares are held or acquired, since otherwise the protection enjoyed by an investor would be inversely proportionate to the size of his shareholding. However, if the holding in a company reaches a size which enables the investor to exercise a decisive influence over the undertaking's decision-making, the right of establishment will supplement free movement of capital. Such an investment would then additionally fulfil the criteria set out in Article 52(2), and would be protected by the EC Treaty under two separate heads.

(b) The infringement of the rules on capital movements

51 The Dutch Government considers that, even if the national provisions at issue restrict capital movements, they are justified under Article 73d(1)(a) of the EC Treaty and the Declaration on Article 73d of the EC Treaty attached to the Final Act of the Treaty on European Union. (23) Nor do the provisions discriminate between persons who are resident in the Netherlands and those who reside in other Member States.

52 The Commission, however, maintains that there is discrimination against investors who invest in limited companies established in other Member States: they have to pay more tax than investors in companies resident in the Netherlands to whom the contentious exemption is available. This, the Commission claims, makes investment abroad less of an attractive proposition than investment in the Netherlands, and infringes Article 1 of Directive 88/361 (24) (in the present case, presumably Article 73b of the EC Treaty is meant).

53 As the Dutch Government quite rightly points out, the rules governing the exemption do not distinguish according to the nationality or residence of the beneficiary, but according to where the capital is invested. Not all persons subject to Dutch wealth tax who hold a substantial shareholding in a company are subject to the same treatment. The exemption is only allowed if the undertaking invested in is established in the Netherlands. A person investing in a company established in another Member State is taxed more heavily than one who invests in a Dutch company.

54 Article 67(1) of the EC Treaty (repealed by the Treaty of Amsterdam) contained an express prohibition of discrimination on the basis of the place of investment. The repeal of Articles 67 to 73 of the EC Treaty by the Treaty of Amsterdam was not intended to limit the scope of the free movement of capital; it occurred because the articles in question had become superfluous once the free movement of capital was brought about by the EC Treaty itself. As in the past, however, they may serve as pointers to the scope of that fundamental freedom. It follows that one must presume that, in the field of capital movements, discrimination on the basis of the place of investment continues to be prohibited.

55 The Dutch Government seeks to justify confining the allowance to companies resident in the Netherlands by pointing out that the aim is to prevent the same assets being taxed twice - once in respect of the wealth tax payable by the shareholder, and once in respect of the tax payable by the company. Since no Dutch company tax is payable by a company established in another Member State, there is, it claims, no reason to grant the allowance against wealth tax.

56 That line of argument is unconvincing. As the Court has consistently held, a discriminatory limitation, as here, must be founded on an explicit exception in the Treaty.

57 Even if, contrary to the approach I have taken here, one were to regard the rules as being non-discriminatory, they could not be saved by mandatory public-interest reasons. Owners of foreign companies or shares in foreign companies are denied the exemption, regardless of any taxation borne by the company in the State in which it is established. Only if the company is established in the Netherlands will there be no multiple taxation of the same assets: otherwise, it will continue to occur. It is that preferential treatment of undertakings established in the Netherlands which constitutes the obstacle to investment in another Member State.

58 The Dutch Government's reference to Article 73d(1)(a) of the EC Treaty is likewise misplaced. Admittedly, that provision enables the fiscal treatment of investment to vary depending on the place of investment; Article 73d(3) none the less states that such measures shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments. It follows that the only distinctions which are permissible are those which are required to maintain the coherence of the national taxation system. (25)

59 However, as I have stated above, differential treatment of domestic and foreign investments is not necessary in order to ensure that the same assets are not taxed twice. No other material reasons for the differential treatment were adduced by the Dutch Government. It follows that the refusal to allow the exemption must be deemed to constitute arbitrary discrimination which cannot be saved by Article 73d(1)(a).

60 In this connection, the legal significance and scope of the Declaration on Article 73d of the EC Treaty, (26) annexed to the Final Act of the Treaty on European Union, are immaterial. The Declaration reads as follows:

`The Conference affirms that the right of Member States to apply the relevant provisions of their tax law as referred to in Article 73d(1)(a) of this Treaty will apply only with respect to the relevant provisions which exist at the end of 1993. However, this Declaration shall apply only to capital movements between Member States and to payments effected between Member States.'

Of course, the provisions in question did already exist at the end of 1993, as the Dutch Government has pointed out. However, since they clearly constitute `arbitrary discrimination' within the meaning of Article 73d of the EC Treaty, that Declaration cannot serve to justify them.

61 Accordingly, in the event of the Court answering the first question in the negative, the second question should be answered thus:

Articles 73b and 73d of the EC Treaty (now, after amendment, Articles 56 EC and 58 EC) must be interpreted as precluding a provision of a Member State's tax law such as that referred to in the first question.

C - Conclusion

62 On the basis of the foregoing, I propose that the Court should respond in the following terms to the request for a preliminary ruling:

(1) Article 52 of the EC Treaty (now, after amendment, Article 43 EC) precludes a rule in a Member State's wealth tax legislation limiting the grant of a tax-free allowance in respect of a substantial shareholding in a company to shareholdings in companies resident in that Member State.

In the alternative:

(2) Articles 73b and 73d of the EC Treaty (now, after amendment, Articles 56 EC and 58 EC) must be interpreted as precluding a provision of a Member State's tax law such as that referred to in Point 1 above.

(1) - Wet op de Vermogensbelasting 1964, of 16 December 1964, Stb. 520.

(2) - Wet op de Inkomstenbelasting 1964, Stb. 1990, 103.

(3) - Wet op de Vennootschapsbelasting 1969, Stb. 469.

(4) - Pursuant to Article 39(3) of the Income Tax Law, cited in footnote 2 above, a substantial shareholding exists when, over the preceding five years, a taxable person has owned, directly or indirectly, solely or together with their spouse or relative (the degree of kinship being precisely laid down) at least one third, and, solely or together with their spouse, at least seven hundredths, of the nominal capital.

(5) - `The provisions of this chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with this treaty'

(6) - `Freedom of establishment shall include ..., subject to the provisions of the Chapter relating to capital'.

(7) - Cases C-204/90 Bachmann [1992] ECR I-249, paragraph 34, and C-484/93 Svensson and Gustavson [1995] ECR I-3955.

(8) - Bachmann, cited in footnote 7 above, paragraph 34

(9) - Svensson and Gustavson, cited in footnote 7 above.

(10) - Case C-222/95 [1997] ECR l-3899.

(11) - Parodi, cited at footnote 10, point 10.

(12) - Case C-118/96 Safir [1998] ECR l-1897, at 1899, paragraph 17.

(13) - Opinion in Case C-410/96 Ambry [1998] ECR l-7875, at 7877, paragraph 10.

(14) - Judgment in Ambry, cited above, footnote 13, paragraph 40.

(15) - Judgment in Case C-302/97 Konle [1999] ECR I-3099, paragraph 22.

(16) - Opinion of Advocate General La Pergola in Konle, cited in footnote 15, point 22.

(17) - See the terminology in Annex I to Council Directive 88/361/EEC of 24 June 1988 on the implementation of Article 67 of the Treaty (OJ 1988 L 178, p. 5), which distinguishes between direct investments (Point I) and portfolio or financial investment (Point III et seq.).

(18) - See Cases C-264/96 ICI [1998] ECR I-4695, paragraph 21, and 81/87 Daily Mail and General Trust plc [1988] ECR 5483, paragraph 16.

(19) - See Bachmann (cited in footnote 7).

(20) - See ICI (cited in footnote 18), paragraph 28.

(21) - See Case C-18/93 Corsica Ferries Italia [1994] ECR I-1783, paragraph 19. See also the Opinion of Advocate General La Pergola of 24 June 1999 in Case C-35/98 Verkooijen [1999] ECR I-4071, paragraph 37, and the judgments cited there; also Case C-203/98 Commission v Belgium [1999] ECR I-4899, paragraph 11.

(22) - Directive 88/361 (cited in footnote 17), Annex I Point III: Operations in securities normally dealt in on the capital market.

(23) - Declaration No 7 on Article 73d of the Treaty establishing the European Community, attached to the Final Act of the Treaty on European Union.

(24) - Directive 88/361 (cited in footnote 17).

(25) - See Bachmann, cited in footnote 7.

(26) - See the Declaration on Article 73d of the EC Treaty (cited in footnote 23).